Information is everywhere; how can business owners find what they need to guide their company's future?
For decades, business schools have preached the importance of benchmarking. After all, how can a business owner accurately gauge performance without the context of the marketplace, economy, and government policy? Growing your business by 20% is good, unless the overall economy or your industry grew by 30%. Knowing how you stack up against other firms in your industry, even if they aren’t direct competitors, is not only important as a means of perspective and a yardstick of where you are, it’s can also provide insight into where your business could and should be moving in the future.
For example, you might be planning to expand your business by adding office space or building out an additional assembly line. You can read in your local newspaper that, overall, the economy is doing well, and the outlook is favorable. You can obviously look at you own internal financials and see that you have the cash flow, credit, and the budget to undertake a capital project. But maybe you’d also like to factor in how many other businesses are expanding since this can impact the price of labor and materials if the construction market is in either a boom or a bust cycle. Or maybe you are concerned that material supply issues may impact your ability to get the specialized equipment you plan to furnish your new shop floor with.
They say information is power, but that’s not quite accurate. The RIGHT information is power, the rest is just noise and a distraction. But finding the right data with which to measure yourself can be its own challenge. We live in an age where information is not only widely available, but it’s practically bombarding us through our televisions, computers, mailboxes, and phones. And no one has time to sift through all the studies, reports, infographics, and surveys — you’re not an academic, you’ve got a business to run.
So how do you locate external data that is reliable, relevant, and actionable for you and your business? In general, there are three approaches for gathering information — organically through relationships and participation in business and industry associations, purchasing what you need from a subscription data provider, or publicly available government data. Let’s take a moment to look at the pros and cons of each and help you decide which one, or which combination of all, might be right for you and your business.
Relationship and Industry Sources
I’ll refer to these as Legacy Data Sources going forward since this is the way business has been gathering data for benchmarking since at least the 1950s. This data may be available from a server somewhere but most often it is found in published articles, white papers, and filings. For business purposes, these include public filings, like SEC 10-Q reports; industry publications; surveys; and material from trade associations and business councils.
The immediate upside of legacy data sources is that they are usually free to access or are included with your subscription or membership to that trade organization. As such, they are often already targeted to your specific industry and presented in a jargon and format that you can easily process and use.
However, since these sources come from organizations with an agenda to promote themselves and their industries, the data can be biased, skewed, or subject to sandbagging or bragging. Compiling year-to-year sets of this data can also be messy, and if it’s a printed publication, you might need to key it in manually. And due to publishing deadlines, the reports and studies that appear in periodicals can often be late or incomplete.
Subscription Data Sources
There are gobs of subscription-based databases available on the web, serving just about any industry, profession, service component, or niche you can imagine.
These services are usually targeted to precise sectors of the business world and are specifically tailored, vetted, and formatted for benchmarking purposes. That level of customization usually means these data sets are easy to digest and act upon.
But since they are specialized and subscription-based, they can be expensive. For instance, Morningstar security-trading data subscriptions start at $30,000 per year. That can put a serious dent in your budget. A lot of these services also come with restrictive contracts — you might not be able to use the data the way you want to.
Government Data Sources
The U.S. Government currently hosts more than 320,000 public-use datasets. Most of these are already in machine-ready data formats like CSV or JSON. They have rigidly defined definitions that are stable over long periods of time. And they are typically reported at a depth that is uniquely ideal for the purposes of benchmarking.
A perfect example is that business we mentioned early, the one that is ready to expand office space. If that owner wants to know how expansionary the climate is, they can go to Data.gov and get a detailed data set. If they actually want to know about the state of global shipping, then the number of containers stranded in LA might be insightful.
This isn’t rocket science: External forces constantly impact your business — Michael Porter made a career out of studying and analyzing them. Planning and executing based on internal data alone is a bit like living in a social media bubble. It can feel good and comfortable, and you may have great confidence in your decision – but the market, your industry and your competitors will have a reaction to your decision. Wouldn’t you like to see beyond your boardroom’s walls? After all, the answers are out there.