Did you know you can tell the likelihood that a business will succeed just by looking at a certain set of criteria? Though some lucky business owners might get rich quick on a lucky break, they’re the exception to the rule. Long-term stability — both in business and life — is dictated by certain critical factors. These are known as the critical factors of success.
The History of Critical Factors of a Business
The idea of critical factors of success has been around for decades. Its first incarnation stemmed from military psychologist John Flanagan, who called it the “Critical Incident Technique”. It wasn’t adopted into the business world until D. Ronald Daniel, McKinsey consultant and Harvard Business School graduate, published the essay “Management Information Crisis” in a 1961 issue of the Harvard Business Review.
In the essay, Daniel noted that managers were overloaded and frequently lacked focus in the key areas that made a business successful. He found that most often there were between three and six different critical factors of a business that determined what made it more successful than its competitors. This idea later evolved at the hand of John F. Rockart, who worked it into his lectures at MIT’s Sloan School of Management.
Though critical factors of a business vary from industry to industry, there are seven factors of success that all entrepreneurs should follow.
Craft a Strong Identity
It’s strange to say identity is the hallmark of a good business, but to succeed to the highest level of potential, a business needs a strong identity. This should be so well thought out that it’s easily reflected in training manuals and relayed to staff and investors. If you have a strong company identity, it will be easier for your employees to work toward your brand’s ultimate goals. You can’t practice what you preach if you don’t know exactly what you’re preaching.
The thing about a strong company identity is that it also helps customers identify with your specific brand vs. anyone else’s. The more customers identify — and the closer they feel to your brand — the more likely you are to foster brand loyalty. In other words, your consumers will keep coming back.
To establish a strong company identity, think: What makes your idea different from somebody else’s? How do you succeed where similar companies fail? Why should someone choose you? What are your core principles?
Revenue and Growth
Revenue isn’t just one of the things that lead to success. For many — especially investors and CEOs — it's the only way to measure success. A business that doesn’t make revenue isn’t sustainable, and a business that isn’t growing signals some serious problems beneath the surface.
Let’s look at the publishing industry, for example. In 2019 alone, a whopping 3,100 professionals were laid off from their media jobs, but their former employers — including companies like Buzzfeed, CNN and Vice — are still standing and, for the most part, making revenue. They haven’t fallen into the red, but a number of them failed to meet their revenue goals.
It sounds baffling to think a company might let go a league of employees because they made the same profitable amount as last year, but being mindful of revenue growth is one of the things that lead to success. Failure to grow is the first indicator that you’ve either grown too big for your britches or your company’s revenue is about to backslide. Plus, a lack of growth doesn't help a small business or start-up find investors.
Your path to steady revenue should be outlined in your business plan, and you should consider aiming for 10% growth year over year.
Customer Service Is Critical
A business can't survive without customers. For this reason, customer service is one of the critical factors of a business. A customer service representative’s job is to minimize the number of customer complaints and to keep the people who support your revenue stream continuing to give you more. So, just how important is customer service?
According to Walker_, a customer experience consulting firm,_ by the year 2020, customers will care more about the customer experience than they will about the price of a product or the actual product. Each year, $1.6 trillion is lost by companies because of poor customer service. On the flip side, management consulting company Bain & Company report that businesses with great customer service consistently make between 4% and 8% more revenue than the rest of the market.
To develop the best customer service possible, keep the lines of communication open and consider using multiple platforms like live chats, social media and the phone. Hiring individuals with great problem-solving skills and a can-do attitude is a must.
Quality and Innovation
No one is going to buy poor quality goods or endure poor quality services that they can get better from somewhere else. This is why it’s important to focus on innovation and quality, which should always be competitive for the price point. If things are slightly more expensive than the competition but way higher quality, customers are generally willing to pay that premium.
Let’s look at the wedding industry. There’s a reason people are more apt to buy their wedding dresses at Kleinfeld, one of New York City’s premier bridal boutiques and subject of the hit show "Say Yes To the Dress_,"_ than Wish.com, a discount foreign wholesaler known for cheaply made, low-quality goods.
At Kleinfeld, you’re pretty much guaranteed to get a dress that’s tailored to perfection — even if it’s on sale. At Wish.com, you run the risk of getting an ill-fitting knockoff that looks nothing like the picture. A bride would have to wade through tons of dresses and still might not find something that looks reasonably well made. In the end, they’d have saved both money and time by buying something on sale elsewhere.
On the other hand, if you’re in the business of back-to-school supplies, you can likely forgo a little quality for innovation. In this case, Wish.com wins out because it has supplies that are cheaper than the competition, adequately serve their purpose and are far more stylized than what you can get at your local Staples, even if Staples is better quality overall.
Focus on Open Communication
One of the major seven factors of success is communication. For a business to succeed, all parts have to be moving in the right direction. This is impossible without adequate communication. You often see this failing in larger companies where employees must speak to middle management, who relays information to upper management, who eventually — if they’re lucky — reach the CEOs and people who can make things happen.
A company with open lines of communication, or at least a concise and clear communication process, can adeptly make changes and adjustments based on the market. This means success is constantly building and never stalling. The faster the cogs move, the greater the potential a business has for success.
Flexibility as a Success Factor
One of the largest things that lead to success is flexibility. A company’s ability to roll with the punches of a volatile industry and change with consumer needs and desires is a company that never bottoms out.
For example, let’s look at what would happen if an online marketing firm that was established in the 1990s failed to change their approach. In the 1990s, online marketing firms typically ran campaigns with sidebar advertisements, popup ads and email lists. By the time 2019 rolled around, most people had installed ad blockers that made it impossible to see traditional campaigns.
If a marketing firm failed to change their strategy — perhaps to branded content, paid Facebook and Instagram ads or influencer marketing — it’s likely they’d never reach consumers beyond that same stagnant mailing list. Their clients would have long jumped ship for a firm that has new, more effective approaches.
Research and Development
One of the last seven critical factors of success is research and development. This goes along with flexibility. To find out how your company needs to change, you need to look for changes in the industry. Research and development can give you a greater understanding of a growing market and help you find brand-new ways to meet customer needs. It also opens up the opportunity to reach existing customers with new products.