Read this article to learn what are vanity metrics, and when is time for you to run away from them! Is the phrase “What gets measured, gets managed” the first thing you think about while managing your business and grow your customer base? It means you are ready to become truly data-driven. And it probably means that you read Peter Drucker one time too many.
Metrics: Good for feeling Awesome, Bad for Action
While all business owners now know that they must measure their results in order to know how effective their marketing efforts are, too many of them use wrong metrics. The first thing a first-time entrepreneur that wants to measure his company success does is to download a template or find a SaaS tool that is going to show him how his business stands.
I am guilty of this too. We probably all are. It’s the easiest thing to do and it gives you more certainty and a feeling you know where you are going. However, your path is probably wrong as you are now really close to falling into the trap of your vanity.
One million downloads, one million registered users, one million tweets per day. These growth metrics can often be signs of traction and we all love to see them. But are they really actionable? What can you really do with them? Even if you think about your MRR (Monthly Recurring Revenue) – are you really going to make business decisions based just on that?
Sure. You want more money. That is the end goal. But revenue is not the metric you should be looking for.
Let’s say you have 10,000 “hits” to your website. Now, what? Do you really know what actions you took in the past that drove those visitors to you? And do you really know which actions to take next?
The Theory of The 3 Whys
You would be amazed how powerful and decisive simple question Why? can be. In Aristotelian philosophy, the word ’cause’ is used to mean ‘explanation’ or ‘answer to a Why question’. It’s an important realization that we all need to go a few layers deeper before doing important things. Whether is building a product, adding a new feature, hiring new people, having a tough conversation with a loved one, etc.
Let’s try asking ourselves three Whys in a row about our revenue.
- What is the cause of our revenue? Let’s say it’s the number of sales.
- What are these sales caused by? Let’s say they are caused by the active usage of our product.
- What causes active product usage? Let’s say it’s the high success rate of your main feature.
So let’s primarily measure the success rate of this feature and stop worrying about revenue. Our revenue should be known. We should not be surprised when we find out how much money do we have, but let’s not act upon revenue find out what is causing it.
Measure What Matters
It is essential for a startup to properly instrument the data they track so that they can get a handle on the true health of their business. So, the only metrics that entrepreneurs should invest energy in collecting are those that help them make decisions.
The number of your visitors, subscribers, and followers is often meaningless. Track only metrics that truly aligned with your goals.
When you measure things, you want to measure things you can test, improve, and simplify in order to build the company’s business. Driving more page views without noticing the high bounce rate doesn’t do that. Neither does having 10,000 followers – none of whom like, comment or share your content.
You Don’t Fool Me
So, you may have a lot of followers, high page views, or a great follower ratio, and still be ineffective when it comes to social media marketing. And unfortunately, you won’t be able to discover the underlying issues that need to be addressed if you’re focusing your attention on the wrong information.
It’s tempting to think that because having metrics is good, having more metrics is better. That’s why vendors routinely list the thousands of ‘especially relevant’ reports they are capable of generating as a feature.
The truth is, the key to actionable metrics is having as few as possible.
Detailed reports are useful when we’ve diagnosed a problem and are looking for clues as to what’s gone wrong. But where does that diagnosis come from in the first place? Actionable metrics help us realize we have a problem and point us in the right direction to start solving it.
The vanity metrics ain’t completely useless, just don’t let them fool you!
Metrics that do matter!
Therefore, these are some of the metrics that can typically matter to you as you progress through each stage of company maturity:
- Early Days – traffic, followers, subscribers, reviews, social media shares;
- Growth and Retention – number of sales, revenue, conversion rate, time on site, customer satisfaction;
- Fully Grown – profit, retention length, churn rate, revenue per customer, costs of good sold, impact…
Metrics used by European startups
So, what is a Key Performance Indicator (KPI) that most of the startups in Europe use to measure achieving their’s key business objectives? What is relevant metrics for them? A big research was carried out by European Startup Monitor in 2016 to find out what are important KPIs for startups.
They discovered three important indicators:
- revenue growth,
- and position relative to competitors.
In order to ensure sustainable growth startups need more formal (financial and non-financial) control mechanisms, such as KPIs.
Almost 88% of all startups agree that revenue growth is important to them, but only one-third satisfied with their revenue growth. The happiest were French startups, followed by Swiss and Cyprian companies. Least satisfied with their revenue growth were startups from Poland and Spain, only 8% of them.
A slightly lower share, with approximately 78% of startups in Europe, fully agreed that profitability is important to them, but only 27% satisfied with this KPI. With regard to their profitability, the most contented startups were from France and Italy whereas the least satisfied were from Spain and Greece.
In general, the picture becomes more positive when looking at respondents’ satisfaction with their positions relative to competitors. This seems to be similarly important, with 74% of startups. And more than half were often satisfied with their position relative to competitors. The most contented companies in this category are located in the United Kingdom, Finland, and Switzerland. And the least pleased startups came from Spain and Poland.
Maximize learning to avoid vanity metrics
The best way to avoid vanity metrics is to maximize your learning. It is important to know that there is no knowledge out of these metrics. You can’t use them in order to improve your business. If you maximize learning you will not only avoid vanity metrics but also minimize your time to market.
Entrepreneurs often start building early versions of their products and services. They don’t realize that the build phase is optimized for learning. The goal early on is to create the most learning as quickly and efficiently as possible.
The basic idea is to maximize validated learning for the least amount of effort. Like Eric Ries said: “The only way to win is to learn faster than anyone else.” And we doubtless agree with that.
We wrote about all the benefits of fast learning in our blog post called “MVP Manifesto”. There you can find out that every new iteration can bring new knowledge. So, stay tuned to our blog, because we will soon publish one article that focuses only on this subject.
Startups that focus on the real metrics can make their products better, attract more customers, and make them happier. Keep an eye on the target. Set your goals early. Execute based on meaningful and actionable data.
So I’d like to issue this challenge to all of you reading this post today: share your stories of actionable metrics and how you track them. If there are good tools that you have used, let us know.