There are a lot of factors to consider when running a business or launching a new enterprise. Those that are most critical to your business are known as key success factors, or KSFs. While many different factors can enhance your success, key success factors are differentiated by the fact that if your company does poorly in any one of them, your business will fail. For this reason, these factors are sometimes called critical success factors.
Key success factors can vary depending on the type of business you are in and what projects you are about to undertake. Broadly speaking, there are four different categories of KSFs:
- Industry KSFs are related specifically to your industry or market.
- Strategy KSFs are related to your competitive strategy.
- Environmental KSFs are related to technology or economic changes affecting your business.
- Temporal KSFs are related to organizational changes and requirements.
Regardless of how you may classify a KSF, each key success factor should be associated with your business goals and should be measurable.
Industry Example: Key Success Factors in Manufacturing Industry
An example of how a specific industry has its own KSFs would be those in the manufacturing industry. Key success factor examples would include:
- Low-cost production efficiency.
- Quality product manufacturing.
- High utilization of fixed assets.
- Adequate skilled labor.
- Low-cost plant locations.
- High labor productivity.
- Low-cost design and engineering.
- Flexibility in manufacturing a range of models.
Strategy Example: Key Success Factors in Pricing
Many companies price their products or services in a passive manner, such as using a standard markup over supplier costs or pricing them according to what competitors are charging. If your competitive strategy includes higher profit margins, then pricing becomes crucial.
- Set prices to market demands while considering costs rather than basing prices on costs.
- Base prices on relative perceived value for each customer in each situation.
- Increase inherent value in products or services to justify higher prices.
- Constantly track costs, prices and margins.
If your business is going to succeed, your business plan must identify its key success factors. This means you will need a keen understanding of the industry you're going into and your competitive strategy to enter the market as well as the environmental and temporal factors affecting your business during its startup phase.
The more you know about your competitors, the easier it will be to identify key success factors. If you were starting an online drop-shipping business, for example, you should know from where your competitors are sourcing their products, how they are marketing their products and where they are advertising. With this information, you can develop your industry KSFs. This will also help you to determine your strategy KSFs in how you will compete with them, such as with lower prices, faster delivery or a better marketing campaign to appeal to your customers.
Seven areas to consider for setting KSFs for your business are:
- People: Who do you need to hire?
- Resources: What specific skills, technology or assets do you need?
- Innovation: What are your unique ideas, and how will you develop them?
- Marketing: How will you attract customers and keep them?
- Operations: How will you ensure quality standards are met?
- Finance: What cash flow do you require? What investments are needed?
When writing a business plan, your key success factors must include detailed plans on how you will accomplish them and how you will measure them. Measurement is often done with key performance indicators, or KPIs.
While there are many indicators of performance just as there are many factors behind success, the crucial difference is that KPIs, like KSFs, are the most critical. For example, if you want to increase revenue generated from your company's website, an increase in visitors may be a good performance indicator, but it won't necessarily increase sales revenue if those new visitors don't buy anything.
Key performance indicators for increasing online sales could be, first and foremost, an increase in sales, an increase in user registrations or a decrease in abandoned shopping carts.