Key Business Metrics
The past five MBA Mondays posts have been about accounting concepts, financial statements, and related issues. I don't know about all of you, but I'm a bit tired of that stuff. So I'm moving on to something a bit different.
Every business should have a set of metrics that it tracks on a regular basis. These metrics could include some of the accounting stuff we've been talking about like cash, revenues, profits, etc but it should not be limited to those kinds of metrics.
Early on when the company is developing its first product or service, those metrics might be related to product development like development resources, features completed, known bugs, etc. Once the product or service is launched, the metrics might shift to include customers, daily active users, churn, conversions from free trial to paid customer, etc.
As the business grows and develops, the amount of data you can collect and publish to your team grows. If you aren't careful, you can overwhelm your team with data.
It becomes very important to distill the business down to a handful of key business metrics. There are usually four to six metrics that will be sufficient to determine the overall health and growth trajectory of the business and it is best to focus the team on them.
Our portfolio company Meetup has learned to focus on successful Meetup groups. Those are Meetup groups that are active, meeting regularly, have growing memberships, and are paying fees to Meetup. Meetup could focus on other data sets like monthly unique visitors, new Meetup groups, total registered users, revenues, profits, cash. They collect that data and share it with the team. But the number one thing they look at it successful Meetup groups and that has worked well for them. It is their key business metric.
Sometimes the most important data on your business is the hardest to collect. Twitter knows that the total number of times all tweets have been viewed each day, month, or year is a critical measure of the overall reach of the network. But because so many of those tweets are viewed on third party services, web pages, apps, etc, it is very hard to collect that data. The Company is only now starting to measure them.
Most key business metrics will be drivers of revenues and growth but not all of them. Etsy is focusing a lot of effort on its customer service metrics, which are a cost center not a revenue driver. But the Company knows that customer service is critical to the health of the marketplace, so customer service metrics are key business metrics for them.
The management team should spend time talking about and selecting the key business metrics to focus on. They should collect the data on a regular basis, the more real-time the better in my opinion, and they should publish the key business metrics to the entire team.
I do not believe it makes any sense to segment who gets to see what business metrics in a company. Sales metrics should be shared with development. Customer service metrics should be shared with finance. And so on and so forth.
Some companies buy big screens and mount them on the walls around the office and publish the key business metrics on them so everyone can see them. I like that approach. But I also like sending out a regular email to the entire company with the key business metrics and how they are trending. And of course, I think these metrics should be shared with the Board and key investors.
When you publish financial projections (a topic for the coming weeks), you should include your projections or assumptions for key business metrics in the periods for which you are projection financial performance. Many of these metrics will be drivers of your projections but they are also helpful to establish the overall progress of the business over time.
It is a good idea to evaluate what your company's key business metrics should be from time to time. I like to suggest at least once a year, probably around the annual budgeting exercise (another topic for the coming week). It is expected that you will change some of these metrics every year as the business grows and develops. Don't just keep adding new ones, you should also subtract old ones that don't seem as useful anymore. Keep the total number of key business metrics you are tracking to a small enough number that most people on the team could recite them from memory. Less is more when it comes to key business metrics.
Tracking key business metrics is important for a bunch of reasons, but probably the most important reason is cultural. It helps to keep everyone on the same page, aligns people across the different parts of the business, and leads to a culture of success when you see the key business metrics moving in the right direction. It's critical to celebrate when a key business metrics reaches a new and important milestone. These kinds of things seem silly to some but are incredibly important to building a strong company culture that can work together and grow rapidly.
One good thing about measuring precisely key business metrics is that they allow to define objectives to people and reward accordingly. However, management should choose them wisely and not loose sight of finance, or they can find that everybody is achieving their objectives and the company is going bankrupt.
choose them wisely – yes, exactly
Fernando – aside from your awesome user pic 🙂 I like that you brought up the reward aspect. I’ve been thinking about this lately and how it relates to building teams and culture within a business. Alternatives to rewards are hinted to in this TED talk by Dan Pink – readers here really should watch it – if you haven’t already 🙂 http://blog.ted.com/2009/08…
How do you decide on which metrics should be looked at. For instance, etsy knows how many customers are happy but how do they link that with revenue and profit?
the key metrics do not need to link directly to revenue and profitin fact, it is best if some of them don’t
For metrics related to revenues generation side, I guess it’s important and not to hard to create metrics that directly correlate with revenues and profits. Many of these metrics do have causal relationship with revenues/profits.For the cost/support side, I think it’s harder to find one that can be proven to have a direct causal relationship with revenues/profits. It’s hard because the effect is usually long-term. Good common sense and intuition can lead to the right metrics here, but the difficult part is weighting in the cost. With equal efficiency, higher quality means higher cost. Where is the right balance is the difficult question.
Sounds like the idea is to identify metrics which imply brand loyalty or in web 2.0 speak: “engagement” – if users are engaging with the startup then over time revenue and profit shoudl be increasing – obviously assuming that the fundamentals of the business model is sound.
some of them should be focused on this but not all of them need be
I can’t think of anything more important to the evaluation of an opportunity than these business metrics… not only in terms of the actual data, but in the way these have been created, and management’s thought process in selecting drivers and setting goals. There is a wealth of information in these metrics that probably makes financial statements seem like something of a footnote.
The key metrics for the company as a whole should be tied to long term value creation of the company. Some times that is tied directly to the current revenue projections and sometimes not. And as Fred already pointed out they need to evolve with the stage of the company with some metrics becoming permanent and some being switched for more timely metrics.
Just don’t forget runway with long term value. I need to set a deadline for a next live push
Hey Mark. You bring up an excellent point about deadlines- could be a post in of itself. If you don’t stick to deadlines you’re toast and delusional as an entrepreneur. It relates to goals/objectives/metrics, in that a goal without a deadline is just a dream.Some metrics should have a time element attached to them. (i.e per month, per week, per active user, etc.)
Thanks William, I don’t mind a little delusional day dreaming ;), but not when it gets between me and creating a business.My soapboxHttp://www.victusspiritus.com/
Make it a realistic timeline though…
Yes. So often I see unreasonable timelines put out and employees don’t take them or the project seriously and the whole project suffers (late and over-budget).
You also need to make sure to pick the right metrics. I have seen many, many business choose metrics that sound impressive but are fundamentally meaningless to the business (number of iPhone app downloads for a free app is pretty meaningless if no one ever uses the app. Twitter followers is another pretty meaningless metric).Be careful what metrics you track because you will ultimately optimize for those metrics.
“be careful what you track”never a truer word saidnice comment Erik
I’m continually struck by our need to educate customers about these metrics.I run a boutique advertising agency, and we have a standard set of questions we run through, post sale, before a campaign’s launch. It’s our way of making sure that we’re all on the same page, 100% regarding Cost Per new Customer, Cost per Sale, ROI (which every single client defines differently, by-the-way) and more. And I’d guess that maybe 30% of our customers have these numbers locked down.
What gets measured gets managed.~ Peter Drucker
So true. If the metrics focus on the wrong places, your employees will focus on the wrong places as they try to align their work to the metrics. The metrics and what people are working on need to be in agreement.
This is a really important post.I’ve been part of businesses with identical business models but management chose to make them visible to all in one, and invisible in the other. The Visible To All metrics overwhelmingly outperformed the Hidden environment. Same core business.It’s important to distinguish between Leading and Lagging metrics. That’s driving via looking thru the windshield versus the rear-view mirror.Most accounting-based metrics are lagging, not leading. Need operational metrics to serve as Leading Indicators.I suspect Etsy’s customer service metrics are leading indicators for that business. The happier customers are, the more repeat purchases and higher average purchase.
Tereza, You are so right about leading vs. lagging. I was going to make a similar comment. Lagging give a snapshot, where leading tell you if you’re going in the right direction and speed.
such a great comment Terezai love the distinction between leading and lagging indicators
I would also argue that lagging indicators are typically the standard ones that everyone’s using.Identifying the leading indicators unique to your business can be a source of massive competitive advantage.I would possibly classify them as ‘trade secret’.
You just gave me terminology I was looking for, thank you.
Leading metrics provide the opportunity to create the competitive advantage needed. No doubt, you hit the nail on the head. I suspect for many organizations, both large and small, the task of deciding which metrics is a difficult task in and of itself. There is a process that many companies struggle with: 1. Selecting data; 2. Transforming the data into Information; 3. Delivering the information in context so people can make decisons.There is a LOT of data. What is required are simple tools to allow the process to happen and enable all levels of the organization to tranparently see what they need to see as it happens.
This scientific and human approach should identify when things slip rapidly to the entire startup. As a protofounder there’s only a couple metrics I really am concerned with. 1) survival: food, bills, lights on. Check, Tyler and I are still alive – celebration time :)2) exploration/code: how much did we get done this week? git repo review and code changes shows how good or bad a week it was, or how much time was spent investigating alternative tools (we’ve tried lots of project tracking tools, email and occasional skype works better at the scale of 2)3) traction: once our next site is live how well is it adopted? Review all the analytics.Thanks, I was fearing MBA Mondays but it turned out very useful.
Well said & a fundamental part not just to track/manage the business but also to help VC’s/investors/stakeholders see where the company is going. The old adage ‘if you can’t measure it, you can’t manage it’ is so true.
Great post.’less is more’ is a hard lesson not often learned by management.At the end of the day traction and market adoption are the metrics that translate into value and the ones I always find a simple way to measure, market and share.
Here’s how we do it:Our 3-man team each has a small set of metrics that we report at our weekly reviews. Generally speaking they are new customers/conversions, analytics/site performance, usage/costs.Key metrics are posted to our private wiki for tracking.Finally, I think anecdotal evidence is worth discussion as a layer on top of any metrics. It often helps explain the numbers.
how many out of curiosity?
How many metrics?Customer focused:Total new team signupsTotal converted to paid accountsThen we compare by men/women and what vertical market they’re in (which sport in our case).Analytics/Site performance:Page load timeTotal time on siteReferring sitesBounce rateKeyword changesOur major costs are storage and bandwidth and we’ve been doing some throttling to control costs as our usage has tripled in the last couple months, so those are important numbers right now.Usage/costs:Bandwidth StorageEncodingObjects servedLooking at our metrics, we’ve been able to cut our costs by ~50% while still providing the same level of service.We’ve also increased the time on the site and dropped our bounce rate, while still increasing our customer and conversion numbers.
wow, that is fantasticthanks for sharing thatthat’s a lot of metrics to track and sharei suspect you’ll cut back on the usage cost metrics once you’ve got thosecosts where you want them
It seems like a lot, but we cover them quickly enough, allowing time to focus on the short term needs ie. usage costs right now.And besides… we’re athletes. (The right) stats matter.Here’s an old article on Shane Battier “The No Stats All-star” from the NYT. He never puts up big numbers, because the stats that are traditionally tracked aren’t why he’s a great player.http://www.nytimes.com/2009…
but does his team increase or decrease its lead when he’s on the floor?
ahhh Fred… making me do the homework for you??From the article…”The Grizzlies went from 23-59 in Battier’s rookie year to 50-32 in histhird year, when they made the N.B.A. playoffs, as they did in each of hisfinal three seasons with the team. Before the 2006-7 season, Battier wastraded to the Houston Rockets, who had just finished 34-48. In his firstseason with the Rockets, they finished 52-30, and then, last year, went55-27 — including one stretch of 22 wins in a row. Only the 1971-2 LosAngeles Lakers have won more games consecutively in the N.B.A. And becauseof injuries, the Rockets played 11 of those 22 games without their twoacknowledged stars, TracyMcGrady<http: topics.nytimes.com=”” top=”” reference=”” timestopics=”” people=”” m=”” tracy_mcgrady=”” index.html?inline=”nyt-per”>andYao Ming, on the court at the same time; the Rockets player who spent themost time actually playing for the Rockets during the streak was ShaneBattier.”
it was a rhetorical question but you answered it brilliantly
haha… thanks. Do read the article if you get a chance.Very interesting in terms of measuring the right metrics…
Good job man…
Anecdotal evidence can be an excellent source to unearth some killer leading indicators.
Identifying those important metrics can often be uncovered more efficiently with some help from our old friends Kaplan & Norton via some deep thought on a strategy map.http://en.wikipedia.org/wik…
ahh. the strategy map. could be a topic for a post!
Kaplan and comrades… I was thinking of them as I read the post, and thinking that Fred seemed to be studiously avoiding mentioning balanced scorecard, etc.Fred, I think that a follow-up post drawing on their “don’t measure too many things, but measure the right things for your business” approach might work well.
i am not a fan of the balanced scorecard, at least as i’ve seen it practicedin our portfolio
The way the balanced scorecard is set up makes it work better with larger companies then smaller setups or startups – one could be mindful of its genesis in General Electric:http://www.balancedscorecar…
Great post, and great comments, agree with the leading vs lagging, deadlines, etc. I’m a firm believer in using metrics when done right, but not to forget that metrics are a tool to measure progress and not the ultimate objective.I’ve also found it a great way to get buy-in from all levels in the company, when metrics apply to their work, people like to see how they are “moving the dial”Someone made the point about about too many metrics and I think that was valid as well, because as soon as people start managing to the metrics, which are really just tools, they loose sight of the true objectives, than the focus can be just about the numbers and many people concentrate on gaming the system to get favorable numbers and not the goals of the company.
Fred – great post, thank you.Would love to know more about how & which Customer Service metrics Etsy tracks – any chance for a follow-up post that goes a level deeper? These metrics are a huge part of my day-to-day work and I’d love to learn more.
i have to tread carefully when talking about our portfolio so i can’t talkmore about their business than i’ve already done
Of course, makes sense.
Your various portfolio companies are killing it on so many different levels, it would be great if you guys were able to bring them in as guest writers over on the USV blog.Etsy, for example, does a great job engaging and communicating with its community, and that’s #1, but I’d love for them to share some of their learnings as a company with other startups as well.This would be my first initiative as GM of the USV Network.
i wonder if they would want to do that
If they do, the USV blog is a good venue, as the posts will likely be more interesting to your readers than actual members and readers of the respective companies’ blogs.
My personal view is that which metrics are selected and driven against are tantamount to a trade secret.Let me modify that. The metrics you choose NOT to drive — that you leave on the table — are tantamount to a trade secret. Because they are gaps in your executional effort.But that still doesn’t mean you should try to do everything. You can’t.
Well put, Tereza. I realize I was being a bit too hungry
Hey nuthin’ wrong with that! Can never be too hungry.I just wanted to smooth you around the edges.:-)
Thanks, Tereza 🙂
Would be interested in hearing how people deal with administering departmental metrics? Do you do it within the same structure as your company-wide metrics or in a separate frame-work? Do you share all departmental metrics with the whole company or just other people in that department? What software do you use to track your metrics?
i don’t have a lot of advice on this topici suspect most of the departmental level data stays in the department exceptthat which is deemed to be a key metric for the entire company
Metrics are important in marketing and marketing investment as well, knowing the value of a costumer is key to make sure you have positive return on marketing activity but it’s difficult to know just how valuable a customer is going to be when you start marketing.Fred/AVC peeps, thoughts on measuring lifetime values of customers?
You can model this based on assumptions of what you know about them from your direct experience, what substitute or comparable products get from them, and based on how they interact with other purchases, how loyal they are over time and how frequently they replenish. Also a “terminal” point in time.It’s all assumptions, and then you revisit them periodically to pressure-test them against your real-life experience.
For tomorrow- how often to revisit assumptions?
If they’re not working, immediately.If there’s anecdotal evidence in the marketplace that you’re missing something big, then explore it to see if it merits measurement.Certainly do a sanity check at annual planning/budgeting time.All that said, though, among your people you do need to portray some sense that you’re not jerking them around.
Check out this blog post about calculating lifetime value: http://bit.ly/9Jjm0eIt relates more to something like an online store. Let me know if that’s not exactly what you were looking for 🙂
that is a critical number to measure and know
Something else to consider is what metrics to share with your community/customers. Etsy (among others) has a great policy of sharing key metrics every month in their blog- I believe it has been the same set since they began sharing- the community knows what to expect and can track their own success vs. the community at large. Puts an even finer point on what’s important and breeds consistency across the organization. (Full Disclosure- I worked with Etsy for almost 3 years).
Remember too what metrics are for and create them so they’re biased against complacency. Too many customer service measurement devices are based on scales of satisfaction that are prone to overstate the positive. Better to have pessimistic feedback than to get a nasty surprise later on.
Transparency sounds nice, but what about companies that are handling hard times and that are afraid of seeing their talents running from the sinking ship, when they need these talents most to change their situation?
i think hiding information makes the team even more skittish
Why do managers think that by keeping information from their people that somehow they don’t know what’s going on? If anything, with a lack of information people generally fear the worst. I’d rather tell people exactly where the company stands then say “all is fine” and let them try to determine it for themselves.
Hi Scott and Fred.Now suppose that things are going tough, and you have to communicate that there is a crisis coming up. We have to lay off some. Best minds will demand more $ for the increasing risk (instead of working harder as the CEO would love to believe) or will start to look for jobs. Competitors will know the numbers because they’re public for every employee and you can’t track where is the information leak.So, what should the company do at this moment? Tell the truth and show the numbers and ask people to be faithful and work harder, or show only the “interesting numbers”, changing the “transparency level” to something more controlled?
Brilliant people, holding intelligence equal, can have different risk profiles.If they are risk averse and not committed to the startup ethos — i.e. demand a risk premium when you don’t have the resources — then this is a handy way to find out they are not committed to your startup.Intelligence is critical. But it’s not the sole factor in what makes a great member of your startup team.
Leo, (this may be a double post, I apologize)You tell the truth, explain the vision – where you are and how you are going to get where you need to go. This requires tough decisions, thick skin, lots of sweat and hopefully a little fun along the way. Tereza is absolutely right – anybody who is going to hear your story and ask for more money isn’t committed to your startup. People can handle bad news and would much rather hear it than a controlled message (which by the way will sound controlled).Bottom line – do you have an answer to the question “how do we get from here to success”? If you do, good people will stay. If you don’t, they won’t. Better yet, ask your employees to weigh in on this question before you make your “tough decisions”, which will buy you loyalty and commitment.
Commitment and vision, OK.What about security, keeping this info away from the competition?
how would the competition get this info? If you’re private, it would only be if somebody leaks it to them, right? And if the info is simply layoffs, go back to commitment and vision. Customers want to partner with somebody that can deliver value for a good price. If you can do that with less people, you’ll make sales. If not, it won’t matter what your competition knows.
Tracking metrics and “investor” (donor, rather) transparency are becoming more and more important in the non-profit world as well. So few organizations do this well. I’ve been fortunate to be involved in One Acre Fund, a non-profit who is pioneering this are by posting a dashboard on their website for the world to see:http://www.oneacrefund.org/…They were just featured in the Stanford Social Innovation with a few others from the Draper Richards foundation in a good article called “Dashboards That Guide Good”:http://www.oneacrefund.org/… (Note PDF download)
I love this blog. Thanks Fred. You continuously talk about highly relevant things that I realize are very important for increasing efficiency and overall success. It helps direct my focus more and makes me even more confident about my plans.
These product metrics are also important when the company grows bigger and several of its projects don’t bring money directly. How do you measure the value added to the company for such a project if you have no financial data? How do you know if you need to add more resources or close down a project? How do you know if a feature launch is good or bad? Product metrics are very important in all these decisions. Without them, you would be flying blind.A start-up is like a new project in a big company.
There is a point when the company should try to convert product metric success into financial success. Monetization may not be easy, and it make take years to properly monetize some of the earlier success. (see YouTube)
If you select the right metrics, the operational should flow into the financial itself.For example, trying to grow revenue by tracking revenue doesn’t work much, especially early in the business. “Revenue” isn’t tangible enough to act against. But the right actions within a sales funnel against a pre-defined set of target customers — e.g. Qualified leads,
Equally or more important: manage to the metrics. It is easy to put numbers on a scorecard and review them in weekly meetings. It is much harder to create a culture of accountability with managers and employees.Choose metrics that gauge progress towards vision and strategies; set goals around the metrics that managers own; help employees understand how they are expected to support the goals; and then design employee comp plans around performance to relevant metrics.Stock options are important, but too vague. Variable cash comp gets people focused… look at how sales reps behave.
For managing, have to limit the number. The right number is 3-7. Closer to 3 is best.People can’t perform with excellence to more than max 4.Higher than that and their efficiency drops off quickly.The average person can’t remember more than 3 things at a time.Manage to that capacity.You can track as many as you like but manage to the few.If a metric isn’t working, replace it with another (e.g. Don’t add but swap).
I completely agree. In fact, I wonder if even 3 is too many for an individual. Sales reps have one metric, and I can tell from personal experience that daily priorities are very clear when you are paid solely on bringing in revenue. Sales reps can frustrate their non-sales peers, but what if everyone was so ruthlessly focused on performance?
I started my career in sales and I love that you used it as an example.There is nothing so harrowing and yet energizing (addictive?) as putting numbers up on the board every day.Everything extraneous drops away in a flash.
BTW I agree back.One metric may be too narrow. I think we humans do like to balance multiple goals somewhat; just not too much.For the sales example, it could be two — one lagging (e.g. dollars booked) and one leading (e.g. # meetings with new customer prospects).I think the ‘lagging’ checks that you are executing well; the “leading” pushes you to grow. And you need both dynamics working.With just the latter you may never close. With just the former, you’ll over-saturate your existing customers and stagnate.
Yes, so important for what people are working on to align with the metrics.
My web analytics idol Avinash Kaushik always makes the argument that key performance indicators should be actionable, i.e., what you measure shouldn’t be just numbers, but those numbers should point you to some kind of action you should take: putting more money here, fixing this feature there, supporting our customers with that, etc.The easiest test of whether or not you’re metrics are actionable? Ask “so what” about your metrics at least three time: http://bit.ly/bIfrlE
great pointtotally agree
Ok- so my question is, how do you choose the right metrics for you. Clearly actionable is a good thing, leading is a good thing, but beyond that, how do you know what to look for. This sounds like an art, not a science.
Bingo!It’s an art and be prepared to iterate.
Oh the business sketch pad…seems like a necessary.
I think the best place to start is by asking “Where’s the money?”For instance, if the money is in getting leads (the firm I work at is real estate focused), perhaps you start at cost-per-lead. But as Tereza mentioned, keep refining and iterating from there. So, then you refine cost-per-lead to include something that measures the quality of that lead. And so on.I love that something Meetup pays attention to is successful groups, which is defined by:1) active2) meeting regularly3) growing memberships4) paying feesSo well thought out and useful!
What about when the startup or product is early on and monetization is not clear yet? Should product metrics align directly to monetization?
Like I wrote above, I firmly believe in metrics following the money…but in cases where the money isn’t so clear, I assume the metrics should, for the time being, align with answering1) are customers using the product2) are they satisfied using the product3) where can we save money in delivering the productTo be clear, I don’t have experience creating dashboards for startups, but when creating key performance indicators, my experience is all about measuring the desired outcome (what do you want someone to do with your product), and how many desired outcomes are you achieving?
Thanks. I like the point about determining what you want someone to do withthe product and building metrics from there.
All great points. My two cents: Try to avoid averaging any metric where there’s significant heterogeneity. Lifetime customer value of $100 on average isn’t very useful if half of customers are at $190 and half are at $10. So try hard to segment appropriately.I also think the customer acquisition funnel is one of the most important things to keep tabs on (e.g., Dave McClure’s painfully illustrated AARRR metrics: http://500hats.typepad.com/…. You have to understand where the growth bottleneck at any given time is. As you fix one bottleneck, another part of the process will become the critical constraint, and so on.
McClure is great on this stuff
We track a lot of metrics, but there are always a small handful that are key for a given time period, and that would be on the “dashboard view” if we had one.All of these stats are available to the entire team at any time via various interfaces, but once a week we summarize the data into an email to everyone, in a quickly digestible format, with both absolutes and trends, so that everyone gets an idea for both the scale and the direction of things.Dave McClure’s Startup Metrics for Pirates ( http://www.slideshare.net/S… ) presentation is a great place to start, if any one here isn’t familar with it.(A)cquisition(A)ctivation(R)etention(R)eferral(R)evenue
Big fan of Kaplan & Friends. Non-financial metrics are always the hardest to determine. I have put to use for years much of “The Balanced Scorecard” method and found this to be of great value, particularly when considering the non-financial metrics. The 4 Balanced Scorecard “perspectives”: 1) Financial (“How do we look to shareholders?”); 2) Customer (“How do our customers see us?”); 3) Internal Processes (“What must we excel at?”) and 4) Innovation & Learning (“How do we continue to improve and create value?”)…these perspectives, questions and Kaplan’s concepts can be of great help in arriving at the metrics that matter even in small biz. Oh and once you have those metrics…tie key management compensation to them!
the likes of mckinsey did a good job of selling this stuff in the prior bubble. I was a business analyst at the time charged with tracking the metrics – and in some cases coming up with new ones. The portfolio CEO would then have a set of metrics by business unit (sales, development, CCA, etc) and would drill on the unit head against each metric in the weekly meeting. It was religiously held to one hour only. 45 minutes was spent on metrics, 15 on action items. I watched another company in the portfolio due ‘general updates’ – these meetings went on for 2-3 hours – like watching paint dry. Force people to measure and have a discussion around measurement. Thats the most efficient use of time and the most effective way of data sharing and transfer IMO.
Mark, we’re cut from the same cloth.The best metrics review meetings I was ever involved in were a bi- weekly hour-long conf call. Boy was it motivating. Last thing you’d want is to make an ass of yourself in front of 50 people nationally.The guy ran it like a track meet. All levels involved. The junior people learned so much about the business.They immediately see how they contribute, to make the managers they reported to look good (it’s these managers who were grilled on the call).12 years later we still bitch about this call (Thursdays 9pm EST — uggh!) but the fact we do points out what we hate to admit — they were a huge culture builder.
that’s a hazard of becoming to metrics driven
Great discussion. There’s been some good points and links to other resources. MBA Mondays could do with a Wiki with a list of the resources/links that have been provided by some of the people commenting here.
There are business metrics that may be specific to a given business or to a specific industry. But what generally constrains a business, and lets management and employees know what they can and cannot do is operating margins. I am often surprised at how many businesses/management teams are unsure as to where the margins are in their business and what they can/should do to improve them.
You advocate transparency and sharing information within the organization. I’m curious how you feel about open-book management? http://bit.ly/9Wy5R7
Very important to talk about metrics. So often, I’ve seen companies that try and frame practically every P&L item as a “KPI”. It’s pointless. Deal with the few critical drivers and the rest will sort itself out.I did a post on this topic a few months ago and included a link to a great Harvard Ideacast with Joe Knight, author of Financial Intelligence. Maybe you all will find some value in it as well. I’m hoping it will support Fred’s thesis.http://www.indicee.com/blog…Thanks.
Hi Fred as head of finance and operations of a start up company, i must say that your MBA Monday series are very informative. If possible can you do a future post on recruiting? Particularly are the places where your portfolio companes recruit candidates (jobsposts, recruiters) and also skills and/or qualities you look for (prior start up experience, etc)
great suggestionwill do
The best organizations (and general managers) I’ve worked for were very open about these kinds of business data. From an engineering perspective I found the info useful and fun even! It gave me many excuses to talk with my marketing and sales coworkers and also provided lots of fodder for new ideas or know what is important to fix.Those conversations foster team building and beer drinking 😉
certainly agree with that. coming from the ultra-secretive world of a Big 4 consulting firm, it took me a while to realise that transparency was the best tool I had as a CEO for managing expectations and ensuring goal congruency. Sometimes you might pick the wrong metric (or a right metric may be used past its sell-by date) and if you are not sharing them, you might never be told (until it is too late). Also hugely agree with putting a trend line on a graph, putting a big fat target at the end and measuring differences and variances in a public way. Sometimes you even hit the target 🙂 and when you don’t, the mere act of putting it out there gave everyone a reason to care and discuss and help you get there.It also used to be true (as far back as 1999) that compiling metrics took a team of highly trained Excel OLAP monkeys about 72 hours. The process was horrible and labour intensive. That meant that numbers were seen as ‘costly’, which in turn meant that they were psychologically only for the consumption of a royal priesthood on the board. They were so hard to collect that they really were gold dust, to be conserved and hidden.Now we get real time stats, and, more importantly, through places like QuantCast and so on, our competitors can get stats on our business in real time too. Yet another reason to share them widely – you need not only buy in, but that ‘serendipity’ moment when someone in the post room sees something in the numbers that no one else saw!Finally, where will this end? Will we share business metrics with customers? Suppliers? I think we can, and should. Carefully to start with, then increasingly. In one of my business worlds (computer games), this would radically change the balance of power between publisher and developer and distributor for the better…
Cash talk is important, actually fundamental, but business metrics talk is more interesting. Looking forward to the future episodes.
We review how many sign, onboard, and stay past 90 days. We are a SaaS Mobile content management platform – we make sure every employee knows our operational funnel metrics. But you gave me an idea – for now we help each customer know how far along they are in the process of 100% mobile web complete ( how complete THEY are in their process) – however maybe we should also give clients a view of how their ‘metrics’ of completion rank against all other clients. We are looking for ways to motivate them to ‘get complete’.
Hi,Corporate Culture is something that managers have to establish and run all the way through a business, with clear values and beliefs, successful business principles and operations, and a suitable emphasis on human resources and customer satisfaction.To a large extent, those at the very top, with their example, words and actions, determine the goals, philosophy and principles of the organization.I feel grateful to inform you about JM perry’s training. Listen to Dr. Perry Live on his radio show or podcasts of past radio shows here!http://www.jmperry.com/
I’ve been doing exactly this Fred, on my site peepnote.com (take notes on Twitter people you follow). From the beginning I wrote a report that shows a day to day measurement of the number of active users, the number of notes they’ve created, the number of peeps that have been marked favorite, the number of tags used, as well as even logs the number of people following our twitter account. And its been a slow, but steady growth. When we add new features I add a new tracking column. Gives me so much more info than Google analytics as to what uses are doing, if anything.
A professor once told me:”Figures don’t lie, but liars can figure.”When you’re talking about relevant statistics before, I couldn’t help but think of something I read earlier: Study: PS3 Has Highest Percentage Of Connected Consoles http://www.gamasutra.com/vi…Sure, it has the highest percentage of connected consoles, but when you consider :”The 360 has 19,078,300 units in the US. Multiply that by .73 and you get 13,927,159.The PS3 has 11,760,800 units in the US. Multiply that by .78 and you get 9,173,424.The Wii has 27,998,300 units in the US. Multiply that by .54 and you get 15,119,082.All console install base data comes from the NPD Group.”Does the Sony statistic really matter? Or is it simply a selling point.
Many years ago I read a book about transparency while in college. The day I finished that book I said to myself that I will always share data with the people that have a vested interest (employees, executives, investors, mentors and even users to a degree). It’s amazing how that helps employees buy into the vision and understand the funnel and how their activities tie into the bigger picture.I’d love to connect with the executive team at Etsy to discuss customer service metrics. Any intro is appreciated. We are creating systems to measure the customer experience for every user and I think it would be beneficial to connect with others who prioritize customer service.Thanks again for a great post.
Leo,You tell the truth, explain the vision – where you are and how you are going to get where you need to go. This requires tough decisions, thick skin, lots of sweat and hopefully a little fun along the way. Tereza is absolutely right – anybody who is going to hear your story and ask for more money isn’t committed to your startup. People can handle bad news and would much rather hear it than a controlled message (which by the way will sound controlled).Bottom line – do you have an answer to the question “how do we get from here to success”? If you do, good people will stay. If you don’t, they won’t. Better yet, ask your employees to weigh in on this question before you make your “tough decisions”, which will buy you loyalty and commitment.
Great article and good guidelines for business seeking to grow in today’s marketplace! Thanks for sharing!
I admire that you closed out the post emphasizing the importance of using metrics to drive culture and alignment. Too often as companies grow larger metrics can become unique to individual silos and lead to suboptimal behaviors. At some point, value (whatever derivative of NPV you believe in), needs to become paramount to maintain alignment and provides a common language. Perhaps it is too remote for small companies but reporting on return on invested capital or economic profit at least at the top of the house can reiterate the business model and give people a piece of information that is often forgotten.
Hi Fred, I regularly follow your posts through subscription to your blogs. I am hugely benefitting from your MBA Mondays series. I am a corporate lawyer (do PE work) and most times have been lost when investment bankers start talking numbers and other stuff which you have been putting it out in lay man language wonderfully. Thanks.I have a problem with my subscription. Strangely, I have stopped receiving your MBA Monday posts only. The last I received was Cash Flows. Do I need to resubscribe?
Hi Fred,Great post and discussion on metrics. Here’s some food for thought for your upcoming budgeting post. Jeremy Hope of Beyond Budgeting Roundtable calls the traditional annual budgeting process “a highly political management game often unhinged from reality”. It ties back to metrics as well, base goals and controls on real world measures, not variances against a plan. Startups have the opportunity to create a more rational process from day 1. Here’s a link to BBRT’s 12 principles. http://www.bbrt.org/beyond-…
I found this Harvard Business Review article useful as a reality check when thinking about business performance metrics:http://hbr.org/2009/10/the-…
Metrics are a way to show the results of your business objectives. They are the results of your action plan. How social a business metric actually turns out to be is still part of our growing pains on the web. Excellent suggestions for moderating the results here. Thanks! How do you measure collaboration?