Position versus performance

Imagine standing still by an empty highway as one car appears in the distance. You can tell, roughly, how far away it is, but for a brief bit, it doesn’t seem to be moving very fast. As it gets closer, it seems to move faster; however, if you tried to point at the car’s current location, by the time you picked a spot, the car will have moved on.

Without some equipment, as a bystander, it’s virtually impossible to determine accurately both speed and location at any given point in time.

This is an illustration of Heisenberg’s uncertainty principle, though at a much different scale. The uncertainty principle says that we cannot know, without some significant degree of inaccuracy, both the position and momentum of a particle. We can get a more accurate reading of the particle’s position, but that reduces the accuracy of a reading of its momentum, and vice versa.

Just like pointing at where the car is means briefly losing track of how fast the car is moving.

So what does this have to do with running a creative agency?

Some aspects of a business are measured as of a particular point in time: cash in the bank, number of employees, projects in the queue.

These indicators show the financial position of the company: Where is the company financially in this moment?

Other aspects are measured over a period of time: gross profit margin, number of new customers, average revenue per project.

These indicators show the financial performance of the company: Where is the company heading and how fast is it moving?

Ideally you could know both at the same time. But looking at your cash balance in the bank (position) doesn’t tell you anything about cash flow or profitability (performance). Or looking at your profit and loss statement (performance) doesn’t show if you have the cash (position) to pay that bill you just received.

You can’t know how your company is performing by loking at your bank account. And you can’t know if you can pay bills by looking at your P&L.

Running a business takes understanding both position and performance.

So let me know...

How do you feel about your company’s position right now?

How do you feel about your company’s performance right now?

Right now, are you focusing more on your company’s position (balance sheet) or momentum (P&L)?

Hit REPLY and tell me about it!