I have a few female friends who were raised by fathers in the military. It’s been interesting to notice how well trained they are to be aware of their surroundings — assessing potential threats, planning escape routes, managing time and space between themselves and potential threats.

As I understand, the military term for this is “situational awareness.”

As the name suggests, you want to be aware of the situation you’re in at all times.

For my friends, this is a personal safety issue.

Funny enough, I teach my daughters the same thing. I don’t tell them to “be safe” so much as “be aware.”

This is true whether you’re driving a car and somebody ahead of you is weaving across multiple lanes, you’re walking down the street when you hear two people start yelling at each other and it’s escalating, or you’re going for a hike while noticing the clouds on the horizon getting darker.

When I work with my CEO clients, one of the first things I do is develop my own situational awareness of their business.

I also have them improve their situational awareness of their own business.

This is done in two ways: Quantitatively and Qualitatively. 

It’s important to be constantly monitoring key performance metrics so you can tell what’s going on in your business quantitatively.

  • Are customer service scores on target?
  • Did we generate the number of leads we were expecting?
  • Did we hit our margin target?
  • Is our retention rate at the level we thought it would be?
  • Are our upsells working like we thought?
  • Did we hit our cash balance target for the quarter? (You do have a cash balance target for the quarter, right?)

You also want to be developing a qualitative understanding of your business.

Talk to customers. Are they happy? (Yes, the metrics say they are happy but are they really actually happy?) If so, why?

If upsells aren’t working, go listen in on your salesforce attempting to make upsells. What are they actually saying? Are they even trying?

The best CEOs have a pulse on their business, quantitatively and qualitatively. They are constantly looking to make sure those two mental models match.

Anytime there is a deviation between the quantitative and qualitative understanding of the business, that’s a “yellow flag,” indicating more investigation is warranted.

If customer service scores say customers are thrilled, but the last five customers you spoke with hate you and your company, something is wrong.

If sales and retention are on target, but you have no cash left in the bank, something is wrong.

If customers say you have the best product, but none of your prospects agree, something is wrong.

The best CEOs know when something is wrong. They won’t know what is wrong. But they will know if something is wrong and will know to investigate.

Let me describe it this way.

When a competent CEO smells smoke, she knows there’s a fire in here somewhere… she just has to find it.

This ability to “smell smoke” is equivalent to noticing incongruence between the quantitative and qualitative assessments of your business.

It usually means that your mental understanding of your marketplace, competitors, or company is incorrect.

The best CEOs aren’t wrong less often than their counterparts. However, when they are wrong, they tend to notice it much quicker and figure out their mistakes with an enormous sense of urgency.

In short, they notice the need for adjustments and make them quicker than those who are less capable.

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