In his thought-provoking article, "Insight, the Overused and Misunderstood Buzzword," Paddy Rangappa discusses the diminishing value of buzzwords, with a particular focus on the term "insight." Rangappa highlights that while data overload was once an obstacle to decision-making, today's surplus of data has led to a new problem. Businesses are replacing data and information with the buzzword "insights," without truly grasping its essence. Rangappa emphasizes that insights go beyond mere facts or findings and require a deeper understanding of the underlying truths discovered through data analysis.
We will delve into the concept of insights and explore how interVal aims to address the challenges faced by business owners and their advisors.
The Need for Insights:
interVal's mission centres on improving financial outcomes for business owners by offering tools to monitor their business health efficiently, allowing them to focus on running their businesses. Simultaneously, interVal recognizes that analyzing business health data can provide valuable guidance to advisors, enabling them to enhance and safeguard their SMB clients' financial success.
Unveiling Meaningful Patterns:
Drawing from anonymized data collected from 1,000 SMBs across various industries, several patterns emerge. However, it is crucial to differentiate between raw data and actual insights. The following examples showcase data that has been processed to reveal potential signals of significance:
- Debt Serviceability:
Through debt to equity ratios and serviceability calculations, interVal discovered that nearly 81% of business owners could service a bank loan of $10,000 or more. These 810 businesses collectively could safely service loans exceeding $750,000,000, with an average loan amount of over $925,000. While this data suggests an opportunity for providing debt instruments to businesses, further exploration is needed to confirm the significance of these findings.
- Excess Cash and Non-operating Assets:
Among the 1,000 randomly selected businesses, interVal found that 46% possessed over $200,000 in non-operating assets, primarily excess cash. The average non-operating asset size among this group was $988,000. These findings support the notion that SMBs often concentrate on day-to-day operations and may not leverage opportunities that exist beyond their immediate focus.
- Monitoring Business Health:
Businesses that actively monitor their underlying health experience faster growth rates and build stronger enterprises compared to those that neglect this aspect. interVal's analysis reveals average year-over-year enterprise valuation growth rates of 29% for businesses monitored annually, surpassing typical SMB growth rates of 8-12%. This underscores the importance of measuring and managing key metrics to drive positive outcomes.
To glean deeper insights or underlying truths from the collected data, let's explore three known facts:
- SMBs are accumulating excess cash without utilizing it effectively for tax mitigation or wealth generation.
- Many SMBs qualify for additional loans but are either unaware, uninterested, or not considering the option.
- SMBs that monitor their business health consistently achieve superior growth and build stronger businesses.
Hypothesizing from these facts, we may deduce that SMB owners are too consumed with day-to-day operations or lack the expertise to address these opportunities. However, if this hypothesis holds true, why aren't knowledgeable entities such as banks, credit unions, and accountants proactively providing the necessary advice and products? The answer lies in two key challenges: limited time and lack of visibility.
The true insight lies not in the existence of data or the misapplication of the term "insights" but in recognizing the significance of this data. It unveils a pressing issue—the finite nature of time and limited capacity. This problem affects everyone involved. SMBs are unable to achieve optimal financial outcomes, while their advisors remain constrained by time and resources, because of attrition within the industry.
Looking Beyond Buzzwords:
As the evolution progressed from the need for "data" to the demand for "insights," it is essential to consider what lies ahead. True insights are not mere replacements for the word "data" but rather conclusions drawn from interpreting and synthesizing relevant data points. It is our responsibility to leverage these insights, combining them with other pertinent information, to drive the industry forward.