Startups and metrics – hard work to set up, but worth it

Mark Suster has a good post up today about How startups can use metrics to drive success.  He starts the post with the old adage “You manage what you measure”, which is as true as it ever was, although I prefer the blunter “If you don’t measure it, it won’t happen”.

There are a ton of good points in the post, of which I’m going to pick out two.

Firstly, as Mark says, having a good set of metrics provides purpose, clarity, focus and co-ordination across a business.  Without clarity and focus you get some or all of confusion, a hero culture, inefficiencies, a sense of jumping from crisis to crisis, and poor morale, all of which are both debilitating and surprisingly common in small companies (even companies that are on the face of it successful, just not as successful as they might have been).

Secondly, on how to use metrics:

the more public you can make your goals for these key metrics the better. Make them widely available inside the company and share your most important goals with your board. Transparency of goals drives performance because it creates both a commitment and a sense of urgency.

Commitment & urgency are key drivers of success in startup businesses.

You already know it from your personal lives. The surest way to run a marathon is to tell everybody you’re going to do it (transparency). Even better is to tell them which race you’re going to run in the near future (urgency). The best yet is to raise money from them for a good cause – then you’re SURE to run it (commitment). Nobody likes to raise money then look like a loser.

Some of the best managed startups I know get employees to stand up on a daily or weekly basis and make public commitments to the company on what they are going to do, as well as reporting on progress against their previous commitments.  Co-ordination is required so individual targets aggregate to departmental targets which in turn aggregate to company targets.

All of this is quite a lot of work.  The first challenge is figuring out what the targets should be.  This sounds easy, but in my experience is often difficult in practice as it throws up all sorts of strategic questions which may not have been bottomed out, e.g. what should be counted as an active user?, or what type of customers are we targeting? and therefore which customers are we not targeting?  Answering these questions with sufficient clarity to measure them and set targets goes a long way to bringing the purpose, clarity and focus described above.  After that the only requirement is to stay disciplined in measuring and reporting on them (including when they move in the wrong direction).

The other important thing to remember when choosing targets is to choose ones which can drive decisions.  Usually that means different metrics to the highest level metrics which determine business value.  Revenue, profit, traffic etc are all important to a company but they are not that useful in driving day to day behaviour, which requires the next level of detail down – for example average sale value, number of deals per day/week/month, number of new customers, churn rate etc.  Most companies don’t move in the right way from the high level metrics that everyone monitors to the specific operational metrics that are right for their business.  Mark provides a lot of practical advice on how to do this well in his post.

I think to many startups the effort required to be really thorough with identifying metrics, setting targets and then being disciplined with measurement and performance doesn’t seem worth it, particularly if there is a lack of clarity in the strategy.  I’ve just been running through a list of the most successful startups I’ve known recently and almost without exception they have excelled in this area.  Good metrics are no guarantee of success of course, but success is harder to come by without them.

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  • Anonymous

    Nic, As well as metrics I think its important to have forward looking estimates too, especially of:

    – Sales (with % probability based on hard rules, not salesman’s impression)
    – Cashflow
    – Output productivity (Nstaff days, expected out put against projects vs due dates/estimated time)

    ‘ve been doing turnarounds/running companies for 20 odd years and I think

  • Hi Alan – agreed. Forecasting sales is particularly important and could be the subject of a whole other post.

  • Anonymous

    Especially “hard” rules abourt sales probability eg No proposal in = no more than say 20%. Over time you can build up history.