A wise person once said, growth is great, until it's not.
Don't get me wrong, growth is thrilling. It's a high that hits when sales are soaring, customers are raving, and the future brims with potential. But unrestrained, unchecked growth can hurtle an organization into chaos. Picture a rocket blasting off without coordinates – exhausting fuel, careening dangerously off course. Not exactly a smooth ride.
So how do we harvest the fruits of growth while avoiding its pitfalls? That's where Verne Harnish's concept of the Critical Number comes in.
Harnish, author of Scaling Up, has mentored startups and global giants alike on the art of strategic scaling. At the epicenter of his framework sits the Critical Number – the solitary, make-or-break metric that matters most.
Think of it as a compass to channel expansion. As Harnish puts it, "a metric that, if improved, will have the biggest impact on moving your company forward." It's the key lever that ratchets your business to the next level.
This singular number gifts focus and alignment. It's a North Star that guides initiatives, rallying teams to optimize this driver of growth and success. Consider the clarity it offers. No more scattershot efforts diluting impact. No more mismatched metrics sending mixed signals. There is one number to move. As an added perk, it also boosts accountability. With a clear Critical Number, leaders own a precise target to hit. No hiding behind vanity metrics that dazzle but don't deliver.
In short, the Critical Number transforms discordant growth into a harmonious strategy. It's the conductor keeping activities aligned and on tempo.
Here are a few example to illustrate the concept
For Starbucks, the Critical Number is same-store sales growth – the percentage uptick in revenue from existing locations. This reflects operational excellence and brand strength. It also enables expansion through replicable formats perfected locally. In Q2 2022, Starbucks' same-store sales in North America hit a 12% annual increase. Talk about grande growth. This remarkable performance demonstrates the benefits of sharpening your Critical Number.
Uber's Critical Number is bookings per rider, capturing how frequently the average customer summons an Uber. More bookings signal sticky customers and repeat rides. Bookings per rider guide Uber's innovations, from tempting promotions to slick new services like hourly rentals. The result? A 22% jump in trips in Q2 2023. Uber is scaling ridership by honing this North Star metric.
For Southwest Airlines, revenue per available seat mile (RASM) is the Critical Number. This quantifies how much money Southwest wrings from every inch of cabin space. Strong revenue per seat mile allows Southwest to offer low fares despite volatile fuel costs and cutthroat competition. By squeezed 14.9% more revenue from each seat mile in Q4 2022, turbocharging profitability. Talk about doing more with less.
But how does an organization determine its unique Critical Number?
Harnish suggests a participatory approach. Convene cross-functional leaders to share what they see as most vital for performance. Analyze your business model to reveal key drivers of growth and profit. Map out processes to expose constraints. Use experiments and modeling to test possible metrics. Ultimately, narrow it down to the one number that matters most.
Choosing a Critical Number takes diligence, but pays dividends in focus and alignment. For both scrappy startups and giant corporations, zeroing in on this North Star metric is key to scaling up smoothly.
Growth offers thrills, but sustained success requires discipline. Defining the right Critical Number provides the foundation. It's your compass to guide growth and achieve the summit of your ambitions.
So I encourage you to ask: What's the one number to lead your growth?