What you measure determines the direction of your… [ insert something you care about ]
Talk about teams, business, and professional development in the COV-19 period.
Recently, as a work team within the business area of the Orión Technology Park, we decided to establish areas of knowledge where we could specialize or increase knowledge.
One of those areas was business development methodologies, (of course, it should always be a topic based on what we do) and with it, the most relevant metrics to take into account during the business creation and development day (startups or businesses of, as we call it, traditional base)
Before continuing, it is necessary to define the term startup and the characteristics that differentiate it from a traditional base business.
According to BBVA “A startup can be defined as an emerging company, normally with a core technological component and high growth potential”.
Eric Ries, author of the book lean startup said “A startup is a human institution designed to deliver a new product or service under conditions of extreme uncertainty”
For us as a Technology Park, a Startup is composed of two main characteristics: it has a (1) technological element that in turn allows it to have a (2) scalable business model in a short period.
This means that to grow, we like to think of exponential growth.
What does it mean to be exponential?
Think about coronavirus (covid-19). An exponential function refers to the fact that an increase in “y” does not correspond directly to an increase in “x”. The sum of a new element can mean an increase of n quantity in “y”.
In contrast, in a linear function, for each new element (x) there is a proportional increase in the curve of (y). If the variation of “x” is constant, we will see a linear ascending (or descending) line.
Of course, ambition costs, and with it work increases, the system becomes complex and we struggle with internal and external issues every day. In short, it will be the focus of another text. Or, if you like, you can learn more about complex systems and ecosystems of entrepreneurship and innovation in this great text.
Returning to the topic of metrics, our team studied from topics such as traction channels; the most important metrics for a startup; even how metrics depend on the type of business and most pressing strategy.
The reality is that the topic of metrics is not simple and it is not at all a topic that, as many proclaim, can be generalized.
If we were considering measuring the integral development of a company, surely we would find the great consultancies setting the standard in management instructions; big companies talking about culture and scalability; but … would we find a standard?
The answer is no. Because it is not possible to generalize one metric for everyone. Or well, it is possible, but definitely, what results for one, very few will find it the same way.
The markets, the target clients, the products, channels, the culture, or the core of the company vary frequently and a single change in one of the variables, yes my friend, alters the whole scene.
If you think that the order and priority of your metrics do not affect the result, think about this meme:
Even established companies continue learning how to use and monitoring metrics, as choosing the right metrics is an art.
The term “Vanity Metrics” arises from all this context. Vanity metrics refers to metrics that look good but that, in a meticulous analysis scenario, are not enough; they are not the best, or do not serve to make sound decisions; Still less to objectively evaluate the development/growth of a company of any level (or anything you care).
According to Tableau (here)“It is important to mention: Any metric can be a vanity metric”.
Let’s review some examples; the development of a specific company is rigorously directed exclusively to sales (sometimes forgetting profit); the investment issue is driven by sales and traction or previous rounds (sometimes forgetting the value of the correct team) or, in the saddest case, we see entrepreneurs excited by the “likes” “that he got (forgetting concrete conversions).
Already immersed in the topic of metrics I found a simple but powerful text by Dan Ariely, which forced me to ask myself the metrics that I have been paying attention to lately.
If we read a bit of the text, although it focuses in terms of culture and performance measurement, we could take affirmations for other areas. Phrases like:
“If we measure just what’s easy, we’ll maximize just what’s easy.”
Or:
“Human beings adjust behavior based on the metrics they’re held against”
Surely, the issue of the importance of a correct formulation and selection of KPI’s and OKR’s will jump for those who coordinate teams and/or manage companies, but what if we continue inquiring about the business topic for a moment?
So what about the metrics that a company measures?
Paul Graham, founder of Y Combiner in his interesting blog (I suggest you check it out here), regarding metrics, he comments that “ Merely measuring something has an uncanny tendency to improve it”.
Surely this oversimplifies the duty of a company because, depending on the stage in which it is, the metrics to be considered are different.
There are life or death metrics (burn rate, churn rate, and expenses), growth metrics (revenue, profit, run rate, users, etc.) and performance metrics (KPI’s, OKR’s & EBITDA).
However, even these metrics are for subjective use and depend on the company to rationalize and determine the right mix. It is not the same to have few users that generate high income, as many users that generate little income. The mix is variable according to the stage the company is in, according to the business model, the market, the strategy, etc.
I’m sorry I can’t offer a secret recipe, but I can give you some examples:
In one of the courses offered by the co-founder of Platzi, Freddy Vega (this one) gives the example of Snapchat who focuses on a metric called “retention rate”; Bluesmart focuses on the direct sales numbers it generates; Netflix cares about monthly recurring revenue; and Platzi who focuses on retention.
I am sure that all of them did not decide overnight the most important metric to follow and improve. It is a process, like everything in a lean startup, of continuous experimentation that yields data for decision-making.
As Ryan Holiday puts it: Starting a business, making money through financial maneuvering, or forming an idea are complex and messy processes. (Ego is the enemy, page 133)
Of course, there will be people and companies that guarantee the path to success, who found a simple way to grow, or identify the path that every company must follow is naive (don’t buy from them or do it carefully).
Success is not found, it is built.
So what to measure during complex and messy processes? What metric eliminates the uncertainty of a startup? What to do in the COV-10 era? I probably don’t have the exact answer, it’s up to you; from previous and present examples; and a strategy ready to fail fast to learn more and better. What I can say is that what you choose will determine the course, the pace, and surely the level of the results.
I would like to end with a story that I heard once:
A young man exposed to a terrible accident was forced to have his left arm amputated. The young man, after a painful recovery, decided to practice judo to start developing again. He met an old man of Japanese origin who gladly accepted to be his teacher who, over a year, taught him how to perfect a single movement. The student, frustrated that he had only learned one movement, asked his teacher to teach him another movement. The old master told him no, and not satisfied with it, he entered him in a tournament.
The tournament unfolded spectacularly and the student with one arm managed to reach the final, where he had to face a bigger, more experienced, and rougher rival than himself. The fight began and after a long combat, the young man with one arm caught the fierce rival off guard and subdued him.
Everyone was surprised, including the young man, as a young man with one arm, with a single movement won the tournament?
The teacher, seeing his face of disbelief told him: the movement you have learned is one of the most complicated and it takes months to perfect it, and even more to perfect its defense. Their only defense is to take your opponent by the left arm.
You / your startup are that young man. You must find the right metric (that which will question, direct, and shape your core) and use it most properly so you specialize in it (movement).
In this period of Volatility, Uncertainty, Complexity, and Ambiguity (VUCA’s) focusing on important metrics surely goes beyond the business theme. What metric do you value the most with your family? What metrics guide your life? What metric predominates in the control of your time, relationships, work, projects? What metric do you measure to your work teams? Where are those metrics heading you?
I invite you to dig a little deeper.
Summary:
A metric can define the direction, growth, and success of your _____________ (insert something you care here).
Then improve it by 10% every week. (Paul Graham)
