I recently had the privilege of spending some time on the phone with Bob Block, successful serial entrepreneur. He has a long and successful career in the computer software, communication and entertainment industries including pioneering roles in commercial and pay television and the cellular telephone industry.

I was delighted to speak with Bob because he frequently uses the phrase "Do the right thing and do things right" (a phrase that Ray and I frequently use in reference to the best of the best companies) and I wanted to know what he meant by it.

The answer I got surprised and fascinated me. I thought he was going to talk about passion and loving what you do -- he didn't. Instead, he described a financial formula that entrepreneurs can use as a measuring stick to discover whether they are doing the right thing and doing things right.

Do the Right Thing: Marketing Effectiveness
Let's start with do the right thing. First, Bob qualified his definition by saying that he used the phrase "in terms of building and creating sustainable growth in business. This is a business concept. Do the right thing can be interpreted as a moral but that's not what I'm talking about, although you should do the right thing in business from the moral point of view as well."

He then went on to add, "Do the right thing relates to a financial ratio and that is, how much in sales do you generate for every dollar of assets?" The ratio can also be expressed as:

 Sales 
Assets

This ratio asks whether you’re doing things that customers want. In other words, with what you are selling, can you be competitive, make a profit, and sell sufficient quantity to have sustainable growth? This ratio has to do with the outside of the company – the marketplace and the customer – and Bob calls it marketing effectiveness.

Do Things Right: Internal Efficiency
Bob also has a ratio for the other half of the formula -- do things right. This ratio asks a different kind of question, which is, "How much profit do you generate out of each dollar of sales?" This ratio is also expressed as:

Net Profit
Sales

With this ratio in mind, do things right becomes a question of efficiency. It asks, "How efficient are you operations and can you sell at a price that has sufficient margin for you to make a profit?" In financial terms this ratio commonly refers to internal efficiency or cost control.

The Final Formula: Return on Investment
Bob then took these two ratios and put them together into a single formula that provides a stunningly clear yardstick for corporate performance:

This formula gives you Net on Assets, also called Return on Investment (ROI). Bob added, "It’s a very important number because it’s a combination that shows you how well you’re doing on the outside and how well you’re doing on the inside." So if you’ve ever wondered how well you’re doing as an entrepreneur or small business owner, apply this formula and see how well your organization does on the inside and the outside.

Stay tuned for next month’s ezine when we explore how Bob uses this formula to find out where a company has been, what it’s been doing, and what it should be doing!

Read other articles about Bob Block:

Lessons from the Entrepreneurial Journey
Where a Company Has Been and Where It Should Be