In last week’s blog, I shared with you the first three of the five quantitative questions to help you prioritize which problems to solve. As promised, I am wrapping up our blog series with the fourth and fifth questions in problem prioritization.
4th Question: How much impact does solving this problem have on revenue?
The fourth and fifth questions are correlated. Sometimes, it is difficult for people to understand the difference between revenue and EBITDA. Many employees don’t know what EBITDA is.
There are situations when improving processes can only affect revenue. And there are times when they can only affect EBITDA. Or they can affect both. They’re not all the same.
Revenue is income earned. It’s your input to the organization financially. Whereas your outputs are profit and EBITDA, which stands for earnings before interest, taxes, depreciation, and amortization. It’s used as a metric to evaluate a company’s operating performance and can be seen as a loose proxy for cash flow from the entire company’s operations.
If you think of this as your pre-sales and post-sales operations, a lot of the activity you’re going to do to improve processes is going to drive revenue in your pre-sales operation.
5th Question: Does this impact EBITDA?
Once you close a deal, the improvements and processes you make aren’t really going to affect the revenue that much. But they might affect your costs and your EBITDA.
Then, sometimes, solving a problem can affect both revenue and EBITDA. For example, a company I’m working with has a sales cycle lead time of about nine months. If they have poor operations at the end of their sales process, it’s going to affect their EBITDA. This is because there are so many resources being put across the span of nine months to close the deal, and then they’re lost. It’s also going to negatively impact revenue.
What’s Next: Selecting problems to solve
As mentioned in the previous blog, each answer to the five quantitative questions is going to be rated from one to five. Five, being the best, and one, meaning the least valuable. The highest possible total prioritization value is 25 (or 20 if you don’t have NPS or CSAT).
You are looking for problems that have the highest total prioritization value and, at the same time, have all yes answers from the three qualitative questions. We take the ones that rank the highest and include those in our go-live.
Your maximum number of problems to solve should be 25. Having more than 25 problems to solve is too much in 30 days. I love it more when I see go-lives less than 25 because it’s really manageable. That is how you prioritize problems. It allows you to separate the ones that don’t drive the most value.
This is not a perfect science. It’s not meant to be perfect. We are putting a number on perceived value. But when you do this with your teams and you get on the same page about what drives the most value from that point onward, there’s no going backward. You agree, you quantify, you select, and you move forward.
Break problems out and be incremental
You cannot solve all of your problems in your organization at once. If you did, it would take you a year. And by the time you actually came up with answers, too many things would have changed.
This removes the idea of perfectionism. You have to be okay with moving forward imperfectly—to incrementally improve instead of improving everything together. It’s more effective and more sustainable.
In love and respect,