How do I know if my business is a success?

I met a guy recently; let’s call him Jack, who started a small business about 18 months ago. He was talking about how his business was tracking and he asked me “how will I know if my business is a success?”

I’m often asked this question but it is nigh on impossible for a relative stranger to answer because success means achieving what one set out to do, and strangers, being strangers, tend not to know what that is.

The trouble is, of course that many small businesses owners don’t know what they set out to do either. Very few business owners map out robust measurable goals at the outset – even though there are lots of good reasons to – and as a consequence they can never be sure if they have achieved what they set out to do, or in other words, if their venture has been a success.

And the destination is important. It’s hard to answer the childhood favourite “Are we there yet?” when you have no idea where “where” is. I was reminded of this over the weekend when a group of us were talking with a restaurant owner friend. He had won yet another great restaurant award for his business and after we congratulated him on his success, he said “What success? I work 70 hours a week, never see my kids and make very little money. If I had my time again I would have stayed in banking and enjoyed the salary”.

We do tend to get swayed by media notions of success rather than referencing the more appropriate definition of just achieving what we set out to achieve – a measure which often boils down to simple stuff like financial security and the time to enjoy it.

Not all goals, or measures of success are financial, but you can’t get past the fact that a business that doesn’t make money is unsustainable (never mind how many awards it wins) so in my book such a business is not (yet) a success.

When I’m asked “is my business successful?” I like to reply with three questions: Do you pay your employees a market wage? Do you pay yourself a market wage for the work you do in the business? Do you pay yourself a dividend to compensate for the risk you are taking as a business owner?

If the business owner replies “yes” to the questions then the business is on the path to success and the litmus test is then whether they are achieving their other goals (some of which may be more noble than numerical). But if the business owner answers “no” to the questions then, in my opinion at least, the business is not yet successful.

Jack’s small business couldn’t afford to pay him and was quite a way from hitting its goals, so by that measure it wasn’t yet a success. But that of course, should not prevent him from describing the business as a success; we are all entitled to a modicum of spin.

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Julia Bickerstaff’s expertise is in helping businesses grow profitably. She runs two businesses: Butterfly Coaching, a small advisory firm with a unique approach to assisting SMEs with profitable growth; and The Business Bakery, which helps kitchen table tycoons build their best businesses. Julia is the author of “How to Bake a Business” and was previously a partner at Deloitte. She is a chartered accountant and has a degree in economics from The London School of Economics (London University).