Reading financial and operational reports

Just read Zane Safrit’s article “Which Report is the Most Important?” over at SmallBizTrends. Good article. Zane lays out that there are two kinds of reports he recommends that business owners read: Financial reports like the income statement, balance sheet, and cashflow statement, and operational reports like conversion rate, customer churn, leads, referrals, and customer service requests.

Safrit outlines the frequency these reports should be read and why small business owners should be looking at these reports.

Read “Which Report is the Most Important?

In the Business Diamond Framework™, each Function Diamond should review these reports and the Leadership Diamond should strategize to improve the numbers. Delivering on those strategies, though, is usually the role of all Function Diamonds working together.

Valuing a social network

PhotonQ-Young solar System
Image by PhOtOnQuAnTiQuE via Flickr

Social networks have value but are difficult to value. How do you place a value on Facebook? Or Twitter? These sites have little or no monetization and yet they are worth millions for having a highly engaged audience.

In doing some research to write about business valuations for Venture Hype, I stumbled across an older blog about social network valuation, written by Avi Muchnick, the creator of Worth1000.com. I’ve seen the occasional Worth1000 image here or there and they were humorous, but I confess that I never really gave it much thought. But after reading Muchnick’s blog, I have become a big fan of the entrepreneur.

In his blog (written in December 2006 but still relevant today), Muchnick describes the challenge of valuing a non-monetized social network and he presents an idea — which he calls Orbital Theory — that can help to discover a dollar value to the network. He describes social network users as similar to celestial bodies in orbit around a core. With that concept in mind, Muchnick outlines “5 tenets of Orbital Value”:

  1. Every user of a website has a unique mass, measurable by their gravity (how many other users they attract towards themselves).
  2. The larger a user’s mass, the stronger their personal gravity.
  3. Users with larger mass pull users with smaller mass into their orbit.
  4. Once in a site’s orbit, a user is now a measurable part of the website. His mass is a measurable part of a self-contained system.
  5. The more often a user returns to a site (the more loyal they are), the tighter and faster their orbit is.

(Quoted from Muchnick’s blog).

So a valuation of the network, Muchnick says, is derived from the number of orbiting bodies but also the mass and speed of the orbiting bodies.

That’s brilliant and I would suggest that Muchnick’s idea is even more relevant today with the massive Twitter adoption we’re seeing. It is also a useful tool for new social networks that want to gain popularity but aren’t sure where to start.

Banks aren’t hearing WIIFM

I’ve grown to hate in-branch banking. I’m all about online or ATM transactions and I’ve been with the same bank for over a decade and nearly everything but my mortgage is at this one bank. And it’s a good bank, I’m very very happy with them. I pay nothing in fees, I never have to go into a branch, they give me lots of bonus stuff. I’m a happy customer.

Well, I just got off the phone with another bank — the one who holds my mortgage. It was a sales call and they were trying to get me to switch to them. But it was possibly the worst pitch I have ever heard. They asked me what I liked about my current bank. I said “no fees, and not having to go into the branch”. So they told me: “If you switch to us and do fewer than 15 transactions in a month, you’ll ONLY pay $4/month in fees and you won’t have to come into the branch either… except to meet us and get set up with your account. Oh, and you’ll need to open another type of account with us; like an investment account.”

There was a moment of silence while I waited to hear more. “Surely there’s GOT to be more!” (a set of steak knives, even?). But I never heard it. That was their pitch. To sell me on switching to them, they’re offering to take only $4/month in fees and a couple hours of my time.

Then, they tried to move me along in the sales process by saying: “Is the King St. and Wilson St. location still the closest one for you?”

Now I’m shocked. That location was the closest to me 16 years ago when I lived in ANOTHER city 1,413 miles away (I just checked on Google). These people have my current mortgage and, apparently an address for me that is over a decade and a half old.

So, when I corrected him, he was able to find a closer branch and asked me if a morning appointment or afternoon appointment would work better.

Uh, no. Neither. I got off the phone before he wasted any more of my time.

LISTEN UP, BANKS:

Let me break this down for you in the simplest terms:

When people buy things, they buy because they get something out of it.

It is called a “benefit”. (“BEN-e-fit”)

People like benefits and it motivates them. (“MO-tiv-ates”)

When you try to convince someone of something, you need to offer them a benefit.

But there’s two important factors:

The benefits you offer need to be greater than the current benefits they receive.

And, the “cost” of getting those new benefits need to be less than the “cost” of inaction.

Unfortunately, the bank that called me just now got it backwards.

Google trending the economy

Recently I posted a blog about how Google Trends “predicted” the recession. While I was there, I decided to see the search trend on the term “economy“. I wondered how it would compare. Here is Google’s trend chart:

aaronhoos_googletrends_economy

This chart fascinates me for a couple of reasons:

  • The current economic climate is not prompting people to search for the word “economy” any more than any other economic climate. I’d have guessed that it would be higher.
  • Not surprisingly, there is a valley through the third quarters when everyone is away on vacation and not thinking about work or business or the economy.
  • There are slight peaks at the end of every quarter, which makes sense that people are thinking about economic factors that might influence their EOQ results or forecasts.
  • What surprised me the most was the large dip at the end of the year. It’s as if people are so focused on Christmas and New Year and the opportunities for the year to come that they stop searching for “economy” information? While there is often a small spike at the end of every quarter, there is a huge dip at the end of the year; and in every case, that end-of-the-year dip is greater than the summer dip.