On the ground, air traffic controllers maintain a constant watch on their radar screens, monitoring each aircraft’s altitude, heading, and speed, ready to intervene the moment something looks out of place. This vigilant approach helps prevent collisions and keeps the skies organized.

Meanwhile, when a pilot is flying in Instrument Meteorological Conditions (IMC), they have little to no external visual references. Instead, they rely on cockpit instruments to track critical data such as airspeed, altitude, and attitude. Pilots develop a systematic scanning pattern, moving methodically from one instrument to the next so they can detect irregularities and correct them before they become dangerous.

Running a business demands a similar approach: constant monitoring of essential metrics and making small, immediate adjustments before problems escalate. However, there is an important nuance for business leaders: many of the metrics they monitor, such as Revenue, Margins, Cash Flow, and Profit, are lagging indicators. They tell you what has already happened. To truly manage your business proactively, you need to focus on the leading indicators—the day-to-day processes and activities that ultimately create these results. Here’s how.

1. Identify Your Lagging Indicators (“Instruments”)

In an airplane cockpit, you’ll see instruments like an altimeter or airspeed indicator. In a business, your primary lagging indicators are:

1. Revenue

2. Margins

3. Cash Flow

4. Profit

These numbers let you gauge your business’s overall health after the fact. For instance, if your profit dropped last quarter, that decline happened because of processes and decisions made weeks or months earlier. By the time you notice the drop, the effect has already occurred.

Yet, you still need to keep a close eye on these four indicators, much like a pilot monitors airspeed and altitude. They’re crucial for identifying that something has gone wrong. But to know what caused them to go wrong (and to fix it quickly), look at the leading indicators behind each.

2. Develop a Scanning Pattern

Just as pilots methodically scan airspeed, altitude, and other vital gauges, leaders should regularly review the core lagging indicators and the leading indicators linked to them. A structured “instrument scan” might look like this:

• Check Revenue (Lagging) – Has it increased or decreased since the last review?

  • Leading Indicators might include the number of outbound sales calls, inbound leads, conversion rates, etc.

• Evaluate Margins (Lagging) – Are your costs stable, or creeping up?

  • Leading Indicators could involve supplier negotiation success rates, defect/waste percentages in production, or efficiency metrics that predict margin changes.

• Assess Cash Flow (Lagging) – Is cash coming in quickly enough to cover expenditures?

  • Leading Indicators include the time it takes customers to pay, the terms you have with suppliers, and how effectively you manage inventory levels.

• Review Profit (Lagging) – Are you earning what you expected, or are you off course?

  • Leading Indicators might be your product mix, upsell rates, or how often you’re meeting your cost targets.

By pairing each lagging indicator with its relevant leading indicators, you’ll know which day-to-day actions to watch and adjust when things drift off target.

3. Connect Each Lagging Indicator to Underlying Processes (True Leading Indicators)

Just like a pilot knows which control to move if airspeed or altitude is out of range, business leaders should know exactly which processes to fine-tune when a financial metric isn’t where it should be. These processes, the measurable, repeatable actions, are your real leading indicators.

Take margins as an example:

• Lagging Indicator: Your current margin percentage (e.g., 35%).

• High-Level Strategy (Broad Initiative): Reduce variable costs, optimize production, or adjust pricing to improve margins.

• True Leading Indicators (Underlying Processes):

  • Reducing Variable Costs:

    • Frequency and success rate of supplier contract negotiations

    • Implementation of cost-saving measures (e.g., alternative materials)

    • Efficiency audits and their outcomes

  • Optimizing Production:

    • Adoption of lean manufacturing principles

    • Monitoring “time per assembly,” “defect rates,” or “units per hour”

    • Ongoing workforce training in best practices

  • Adjusting Pricing:

    • A/B testing new price points

    • Monitoring competitor pricing

    • Tracking changes in conversion rates or customer feedback after price adjustments

While it’s common to say “Improve your margins by cutting costs or raising prices,” those broad strategies alone are not the leading indicators. The actual leading indicators are the ongoing, trackable processes, like your negotiation sessions or production audits, that predict whether your margins will move up or down in the future.

4. Recognize the Stakes

Unlike the consequences of ignoring your instruments when flying, in the business world, ignoring your critical indicators may not be life-threatening in a literal sense, but it can spell disaster: bankruptcies, employee layoffs, and an overall collapse of your organization.

The takeaway? Lagging indicators without leading indicators are dangerous. Lagging indicators alone tell you only that something has gone wrong (or right) in the past. You need to repeatedly measure the leading processes that generate those final numbers and improve them to steer your business away from trouble.

5. Take Timely and Corrective Action

When a pilot sees airspeed dipping below a safe threshold, they don’t wait for a stall alarm to blare before reacting. They make small, immediate adjustments to throttle, pitch, or trim. Likewise, when your lagging indicators veer off course:

• If margins are shrinking (Lagging): Identify which leading processes are underperforming—maybe supplier negotiations haven’t been happening on schedule, or production waste is creeping up.

• If cash flow is tight (Lagging): Examine your leading processes around payment terms, billing cycles, and inventory management. Where can you tighten up?

• If revenue growth is sluggish (Lagging): Look at your leading processes in sales and marketing—are you making enough outbound calls? Are your inbound channels optimized? Are your ads converting?

The key is early recognition and response. The longer you wait to address issues in your leading indicators, the more drastic and painful your eventual corrective measures will be.

Flying a plane in IMC is all about scanning the instruments continuously and making timely corrections. Similarly, running a business requires monitoring both the lagging indicators (Revenue, Margins, Cash Flow, Profit) and the leading indicators (the underlying processes and daily activities that drive those financial outcomes).

Yes, you must watch your “big four” metrics to gauge overall performance. But remember: they only tell you what has already happened. To proactively steer your business, you need to focus on the measurable processes, supplier negotiations, conversion rates, production efficiencies, and more, that predict your next set of results. By mastering this flight plan of scanning the right data and adjusting promptly, you can keep your business on course and out of dangerous waters, just as a pilot safely guides an aircraft through the skies.