Most small businesses don’t fail from lack of effort. They fail from unmanaged systems.
As a strategic finance partner, my work usually falls into three areas: raising capital, guiding internal investment, and improving financial efficiency. At the scale I work in, five to fifty-person teams still building structure, financial efficiency is about more than analyzing numbers. It’s about creating them.
Most clients don’t have real metrics. Their balance sheet is unreliable. Accountability is more intention than habit.
So my first step is discovery: learning the business from the inside out, listening to the team, and mapping how information and decisions actually move. I start by breaking the organization into three parts: processes, people, and products, then tracing how each influences the others.
Take customer service. On paper, it’s a cost center measured in tickets and hours. In reality, it’s a retention engine. Maybe Customer Y keeps buying because of a thoughtful exchange last fall: a human moment that built trust. But that connection never shows up in a spreadsheet.
The owner, relieved to have delegated support emails, assumes the system is working because it saves time. That’s only half true. If no one is tracking the quality of those interactions or how they affect repeat sales, the system starts to drift. Goals blur, intention is forgotten, and capital goes misallocated.
When feedback loops aren’t defined, effort turns into motion without progress.
Tracking and Metrics
“What gets tracked gets managed”
- V.F. Ridgway, 1956
That line shows up in every management textbook, but most small businesses still miss its point.
When a company starts growing, it builds systems to solve short-term problems rather than enable long-term success. Someone gets buried in emails, so they hire support. Inventory runs low, so they add a spreadsheet. The fires get smaller, but they never really go out.
Soon the team is busy, but not aligned. The founder checks the bank balance each week to “see how things are going.” Which works… until it doesn’t. Once revenue crosses a few million, cash cycles and customer expectations start pulling in different directions, and the lack of clear metrics turns every decision into guesswork.
Metrics are how organizations talk to themselves. Without them, every department speaks a different language.
The goal isn’t to measure everything: it’s to measure what defines success. Ask, What do we want from this team? and What numbers would justify the investment we’ve made in it?
For customer service, that might start with something simple: total tickets per week. Then maybe renewal rates, average response time, or how many customers who receive personal feedback buy again within 90 days.
It doesn’t matter which two or three metrics you choose. What matters is that you track them consistently, review them regularly, and discuss them with intent. A five-minute weekly conversation about one number often does more for performance than a thousand unseen rows in a spreadsheet. Metrics create clarity, but clarity alone doesn’t change behavior. For that, the system needs feedback, systemic loops that turn information into action.
Feedback Cycles and Incentives
Now that we clearly understand the metrics of success and have a path to understanding them, it’s important for us to use that to inform the system and ideally create a positive feedback loop to guide behavior towards the target.
An effective feedback cycle might be as simple as our quote from earlier “What gets tracked gets managed”, or it may require incentives to drive behavior, particularly for components in the system where outsized performance has outsized positive outcomes such as revenue generation.
There are three types of Feedback cycles: Passive, Incentivized, and Managed
Passive Cycles:
These are the simplest. The data is visible, and the team adjusts naturally.
Take inventory management: if “inventory days” drops from 30 to 14, the purchasing team knows to restock. No meeting needed. The system speaks for itself.
This works best when the signal is clear, the owner is obvious, and the correction is immediate.
Incentivized Cycles:
Charlie Munger once said, “Show me the incentive and I’ll show you the outcome.” He was right.
When a metric is tied to rewards or consequences, behavior moves fast. The classic example is sales commission. But incentives also drive subtle areas, like manufacturing throughput.
If a plant manager is rewarded on “quality units produced per labor hour,” they’ll start finding new efficiencies no spreadsheet could have predicted. Incentives turn metrics from observations into priorities.
Managed Cycles:
These are deliberate interventions. Feedback here doesn’t trigger self-correction; it triggers leadership.
Imagine tracking “expenses as a percent of gross profit.” When that ratio spikes, someone needs to act. The owner sees the alert, calls a meeting, and directs each department to cut costs by 10%.
That’s a managed cycle, external guidance responding to internal signals.
The Balance
Each type has its place. Too many passive cycles and you get information overload.
Too many managed cycles and the team feels micromanaged. Overuse incentives and you risk short-term optimization at the expense of long-term health.
The goal is balance: enough structure for accountability, enough autonomy for initiative.
A well-designed system creates performance rather than just measuring it.
Systemic Leverage
When feedback cycles work, something interesting happens: the system starts to manage itself.
At that point, you’re no longer chasing efficiency through cost cuts or firefighting. You’re creating financial efficiency through structure. Every loop that tightens—every metric that gets tracked, reviewed, and acted on—compounds learning and alignment across the organization.
This is what I call systemic leverage. It’s when each layer of the business reinforces the next instead of competing with it. The sales team understands how margin ties into working capital. Operations sees how throughput drives cash flow. Leadership stops reacting to noise and starts responding to signal.
Financial efficiency isn’t just about lowering expenses or increasing output. It’s about reducing friction between departments, decisions, and time. When the right systems are in place, cash moves faster, information moves cleaner, and decision-making gets lighter. That’s how small teams start to punch above their weight.
In the early stages of a company, this is usually invisible. Everyone is sprinting, and the system’s inefficiency hides inside momentum. But as growth slows or complexity builds, the absence of leverage becomes obvious. The company has effort, but no force.
Systemic leverage is what converts effort into force. It’s what turns data into direction and structure into compounding value.
The Compounding Effect
The beauty of a well-run system is that it saves time, improves cashflow, and compounds value.
Financial efficiency isn’t a spreadsheet exercise. It’s a cultural one. When feedback loops work and people know what success looks like, the business starts allocating capital, and attention, in the right direction without constant intervention.
That’s the real goal. Not just higher margins, but smarter motion.
Not just less waste, but more clarity.
Not just control, but compounding control.
Most founders think leverage comes from capital. It doesn’t. It comes from structure.
When your systems are designed to learn, improve, and self-correct, every decision gets cheaper. Every cycle gets faster. Every dollar of effort goes further.
Capital becomes cheaper because investors become desperate to play.
That’s the quiet power of systemic leverage, it turns management into momentum.
So ask yourself: What part of your business compounds, and what part still depends on you to push it forward?
A Note to Readers
If you’ve been following along week after week, thank you. Writing these essays takes time and focus, but knowing a few of you keep coming back makes it worth it.
If something here resonated, send it to a friend, founder, or operator who’s trying to make their business run cleaner and smarter. I’m building this community one idea at a time, and you’re a real part of that. Also please comment if there’s anything that I can do to improve the expirience!