Benchmarking — A Tool to Help Planning the Unknown!
Benchmarking is a tool that gathers information in order to be able to compare the analytics of companies in the same market or industry. Applicable elements can include operating margin, revenue, pricing, and even employee compensation and efficiency.
Information gathered before and after establishing a startup can provide vital information to help with the business, marketing, and operation plans.
One of the best benchmarking references for a startup is a role model. One example for a role model occurred in a small engineering design company, which I was running at the request of its founder, an engineer, who wanted growth to $25 million. Through myriad information, we found a public company at the $100 million revenue level. We scaled it down by 4 to assume it was more like a $25 million company in our market. It wasn’t perfect, but it was useful by helping us to plan our activities for manpower, how to approach the market, facilities, and much-needed cash. Although the company didn’t make it to $25 million, the founder ultimately sold it for $8 million.
In another case, an electronics manufacturing company had at least 10 competitors. One goal was to see what their gross margin was, and how it might be affected by R&D or marketing expenses. Tracking the competition this way was one element to factor into the strategic planning that helped h the success of the company. The company’s revenue was growing by 30% annually and ultimately went public.
I have been aware of startup companies using role models like Victoria’s Secret, Gold Bond and Red Bull. These startups, besides using data from them in planning, helped to strengthen their vision in believing it could be done again.
When getting started, if you want to challenge existing companies in your market by niches or leadership, you can go either way. If it is a niche you seek, challenge the leaders’ weaknesses; if leadership is your choice, then challenge the leaders’ strengths.
It’s easier for an ongoing company—versus a startup—to obtain market information but there are many ways available to both. Information on public companies is readily available. There are company press releases, investment banking companies’ reports and government regulations on public companies to provide information to the public.
As the chairman of a public company compensation committee, I hired a consulting firm to gather information on companies approximating our size in the marketplace. On another occasion, when I was with a company having good relationships with a supplier vendor, we were easily able to get competitor information on other companies who used this same vendor.
On more than one occasion in my career, we used advertising for jobs to gather information from interviewing competitors sales personnel in areas in which competitors had personnel.
A good place to get useful information is from networking. I made it part of my senior staff’s goals to network in marketing and finance organizations. Useful information can even be gathered from a customer after losing a bid.
In the real world, people are benchmarking all the time and may not even know it. On the other hand, I have friends who use consumer reports before buying anything personal—from a garbage disposal to an automobile.
Use whatever information you can get wisely. Simply put, for startups you don’t know what you don’t know, so seek all of the help and information you can from advisors who’ve been there.
As a startup grows, the challenges it faces may change; however, if the elements being benchmarked (to create milestones) are cleverly selected, the data can be useful along the way. To build a company, significant changes are constantly occurring in manpower requirements. It is important to factor in changes in the culture and industry. As an example, at one time, when manufacturing was prevalent, it was possible to use $150,000 per employer when related to revenue. Today a company using the Internet to sell its services, when related to revenue, that figure could now be over five times that number per employee.
There are numerous other avenues for a company to acquire market and competitive information. See the list following below:
- Their customers
- Their vendors/suppliers
- Job applicant interviews
- Focus groups
- Roundtable groups
- Trade shows
- Trade journals
- News releases
- The company’s accounting and law firms
- Investment bankers
- Consultants from the board of directors
- Dun & Bradstreet
- Google and Facebook