In her junior year of high school, Lauren Fleshman was a top-20 two-mile runner and earned a trip to the Olympic Training Center in San Diego. As the second fastest runner in the group, she expected to be told that she had great potential. But upon learning the results of her testing at the Center, it turns out, she was graded as mediocre; she was the worst girl at the Center.
Today, Lauren Fleshman is a Nike-funded professional American track and field athlete. Along the way, she became the U.S. 5000 meters champion in 2006 and 2010. She equaled the highest ever finish by an American woman in the 5000 meters at the 2011 IAAF World Championships. Lauren finished 12th in her first marathon, the 2011 ING New York City Marathon.
Ever since her shocking experience at the Olympic Training Center, Lauren has been tested several times and the results have been the same: her 5-K potential is 35 seconds slower than the time she has actually achieved. Her actual time is 11 seconds faster than the scientific tests concluded she could run. Clearly, numbers alone can?t predict levels of athletic performance and success.
In one regard, running is similar to business. Much of running is quantifiable. As a result, much of running training is based on numbers ? distance, pace, repeats, recovery, etc. The business world is also full of numbers, statistics, and ratios. There are databases to help compare a business with its peers. Just like runners, business owners and advisors can be lulled into thinking everything can be measured and managed by the numbers. When numbers replace judgment, danger looms and poor decisions are made.
Clients are often surprised to learn I don?t offer advice and guidance based solely on the numbers. I?ve often stated that no truly important decision can be made based on numbers alone. Judgment must also be part of the process. As an example, a Required Sales Level (RSL) analysis can tell us that selling 1,000 units per month priced at $25 per unit will result in monthly income of $25,000 and net profit of $4,000. The calculations are unassailable. The numbers have spoken. What the numbers cannot tell us, however, is whether customers will pay $25 for each unit or whether they will buy 1,000 units each month. Such conclusions must be based on experience and judgment.
None of this means that numbers are useless and should be ignored. Numbers can get us in the ballpark. For example, industry ratios may tell us that firms in a given industry have an average gross profit margin (GPM) of 45%. Based on that statistic, we can probably assume that we are off base if we must have a GPM of 55%. Our expectation is too far off the mark. However, we must rely on judgment to decide if pricing at a 48% GPM is reasonable. In the final analysis, the market place will prove us right or wrong. However, a combination of numbers and good judgment can improve our odds of success.
As Lauren Fleshman?s story illustrates, quantifiable data is a valuable tool, but it is just a tool. In your own business, it?s critical to combine your financial numbers with your judgment and experience. Doing so will improve your odds of success.