Originally I would have patted myself on the back and celebrated a bit, but not this time. I’ve learned that I was focusing too much on “vanity metrics”.
I first found out about vanity metrics from The Lean Startup by Eric Ries. Some examples of these superficial metrics include indicators like registered users, number of downloads, and raw pageviews. They are easily concocted and manipulated, and often don’t correspond to the figures that really matter. Some examples of these actionable metrics include engaged users, customer acquisition, revenues and profits.
Too often new entrepreneurs fall in love with their vanity metrics – myself included. In addition to raw page views, I was constantly comparing my site to random external companies, looking endlessly at metrics like my Alexa ranking. The false sense of success is an #entrepreneurfail. The key lesson is to not focus on the surface metrics that sound good, but instead to focus on concrete indications of business growth.
For those of you who aren’t familiar with Snow White, this comic was inspired by the Queen who was so vain, she needed reassurance that she was the most beautiful, even though it wasn’t true! Don’t get caught in the same trap!
What are some examples of vanity metrics you have fallen in love with? To read more about actionable metrics, check this article.
This comic and post are originally from #entrepreneurfail: Startup Success.
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Check out our other comics on trhs here.
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Alok Rodinhood Kejriwal
I wrote this in Nov 2011
In the past few days, I have become obsessed with the RPM (revolutions per minute) dial fitted on car dashboards. It’s also called the Tachometer.
I’ve asked many people if they know its use or if they even notice the RPM dial in the first place.
While some friends have given me some unconvincing answers about how the RPM dial helps them decide when to change gears in cars, what is supremely baffling is the role that an RPM dial plays in automatic cars!
With a bit of digging, I found out that the Tachometer was invented in 1817 to measure the ‘speed of machines’. Since 1840 it’s been used to measure the speed of engines.
So what’s it doing in cars in 2011?
Nothing. Nada. Zilch.
I guess it’s just a beautiful dashboard embellishment.
The Tachometer is a classic example of useless information being beautifully presented to millions of people, who have no use for it.
This discussion is about the information you should choose to bring up to your business dashboard, why is it important and what is the best way to use it.
Just to prove my point, now think of the Speedometers in cars.
There is no doubting that the Speedometer IS very useful!
To put it in context, think of how Speedometers are really used and what businesses and start-ups could learn from it:
The most ‘important’ measure.
When a sign on a highway says ‘do not exceed 80 kms per hour’, it doesn’t need a lot of mental translation or the help of a spiritual guru to explain its meaning.
It means – do not drive more than 80 kms per hour, or you will be in trouble.
In successful businesses and more so in start ups – is there a simple ‘speedometer’ through which you can communicate?
Examples of such ‘speedometer expressions’ – ‘our new website has to have 10k daily users to the site’; ‘the business has to have 500 paid transactions’; ‘our shop has to have 3000 walk-ins a day’; etc, etc.
If a simple, elegant, easy to read and easy to display number that’s most important to your business can be quickly established and then communicated to everyone, it helps a lots of things to fall in place.
The business and the team get ‘synced’ with one number and one metric, which in turn keeps your team active in observing, thinking and measuring the metric that is most relevant to your business.
It’s even better if that number can be publicly displayed. I know Companies where large screens display the few critical numbers across all its work areas to keep the teams focused.
It’s their company speedometer.
A common measure.
Imagine you are the diligent cop on the highway looking out for speeding drivers. A simple speed gun will help you to check the speed of approaching cars and figure out who passes and who gets stopped.
The point is that ‘speed’ is one common currency between cars (for the police at least) and not the RPMs of cars or the volume of the air tunnel in front of them.
Similarly, in business, quickly adapt to the best common denominator of your industry so that it becomes easy to express your business in the commercial language of your industry.
Example:
Your company is looking for a medium to display video advertisements to your target audience.
In India, Internet display advertising sells on a CPM (cost per metric) basis.
Let’s assume that if you want to buy 1000 impressions on games2win.com (my games website), then you would need to pay Rs 250/- per 1000 impressions, since our rate is Rs 250 CPM.
Similarly, if you want to buy 1000 impressions on other sites, they would also quote you rates in CPM, which can help you to decide which site/s to choose.
Now, what happens if you think ‘Hey, how about putting the same advertisement on television also’?
There may be some niche T.V. channels that may suit your requirement and also offer you a perfect target audience.
But, unfortunately, the TV guys in India sell ads ‘per spots’! And ad rates vary depending on 10, 20, 30 sec spots, time of day, per program, etc, etc.
While on the Internet, we simply sell Unique Users and frequency to offer a perfect solution, the TV guys sell GRPs and TRPs and god knows what…
Television media buying is very complicated in India and would require a media ‘agency’ to first understand your need and then plan and buy the spots accordingly.
Now, in USA, television advertising, like the Internet advertising is also sold on CPM!
So it’s easy to understand in terms of rates, deliverables and thus becomes very easy to compare and then to buy.
Why does the Indian TV industry like RPM when the world likes Speed?
Because they are still living in 1840 and they prefer to remain opaque by using confusing metrics to quote ludicrous advertising rates.
From so many metrics, decide which one makes sense for you.
I remember the two most embarrassing board meetings of Games2win. These were in Sept and Dec 2007.
We had licensed a car racing game from Sega of Japan and were introducing it in India.
Given that I had done lots of research on the MMOG (massive multi player online game) business in the world and had ONLY come across ‘concurrent users’ as the measure of success (users playing together at any instance). That was the ONLY metric, I ASSUMED, was important.
I was not thinking of what was relevant to Games2win in the Indian context – I was just aping Companies in China and Korea and how they expressed themselves.
So, in the first board meeting, I aggressively presented that we had reached ’14’ concurrent players in the game. In the second board meeting I was even more proud in declaring that we were now at ‘30’ concurrent users.
I still remember Sumant Mandal – my board member and investor of Clearstone Venture Partners smiling at me and asking me ‘Alok, what kind of numbers does Shanda do in China’? I gulped and said ‘Between 1-1.25 million concurrent’.
Sumant then questioned the relevance of concurrent users in the Indian context – where broadband, gaming cafes, etc, etc, did not exist and hence was not a justified comparison.
I did not have an answer.
In retrospect, I should have thought of expressing a percentage of users in India that we had converted to ‘paying from playing’ and proven our ability to monetize gamers early on in India.
If there isn’t a common metric – then be bold enough to INVENT ONE (but at your own risk)
If you look at some of the new age successful Companies today, they speak of a metric that is invented by them and thus is unique to their business.
– Foursquare boasts of ‘1 billion Check Ins’ rather than daily active users, etc, etc.
Foursquare could have chosen to report number of places on their maps, their paying brands, their users’ behavior, etc – but they chose ‘check ins’ because that’s what defines them. And I am sure they use ‘check ins’ internally also to describe growth and milestones!
Now, it’s another question if the number of ‘check ins’ in itself has a ‘commercial’ value.
– Facebook forever has spoken about registered users and gone out of their way to prove how ‘if they were a country, they would be the third largest in the world’. They never speak revenues!
– Zynga ONLY speaks about monetization and how successful they are in making money from casual gamers. They don’t care to speak about how many millions of users they have.
Zynga will soon be listed on Nasdaq with a 15+ billion $ valuation – simply because the STOCK MARKET just LOVES to hear about monetization.
– Linkedin chooses not to talk about their daily active users or returning members.
Instead, it speaks about the millions of professionals on its network and the large number of connections that those professionals have because that is the sole attraction for the recruiters (from whom Linkedin’s revenues flow) who love to dip into the large talent pools of potential employees.
So, it’s important to decide what metrics you adopt so as to measure your success internally and externally.
Sometimes, even if you are in the same industry, expressions of metrics change, depending on the strength of their core product. For example, while Porsche talks about speed of their cars as to how fast their car goes from 0-100, etc, Maruti talks about fuel efficiency of their cars.
The important point is to keep the measure simple, relevant, and exciting!
Summary:
– Choose 1 or 2 simple metrics that really matter to your business and keep broadcasting them internally. Make it your ‘company’s currency’.
– Figure out the metric that is used in your Industry and use that for external communication, so that you quickly become part of the business trade. If internal and external metrics can be the same, even better!
– If you are unique and one of a kind, then define your own metric – but do so carefully, because sooner or later you will have to prove its applicability to the outside world!
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Special Thanks to Chhavi for her incredible editing and patience
Also to Sumant Mandal who has really shaped me as an Entrepreneur
Rishi
Alok – On the tachometer analogy, here’s my POV:
First on the tachometer: I definitely see their value more in cars with manual transmission, but I drove automatic cars for the most part in my life (so I will stick to my experience) and here’s where I see the value. I agree they might be useless for regular driving conditions, but there are cases where I found it is REALLY useful. For example: I can’t imagine driving a car in snow or hilly areas without a tachometer. I spent a lot of time in Detroit, Rhode Island etc. where it snows really bad during winters. In such conditions, I do watch my tachometer every time before putting the car in drive so that I ensure my idle speed is normal. Even though Bay Area is not really hilly everywhere, having been there, you personally know what driving through some parts of city around downtown and further north is like. I used to watch tachometer more carefully under such (uphill) conditions; I don’t care that much about speed here because I can’t go beyond a certain limit. Often, a tachometer signals problems with your engine load and transmission. That (transmission) thing is super expensive and will cost a fortune if not watched occasionally and fixed in time in case of potential issues.
Now my business analogy: Let’s say you run a SaaS business and have 10 recurring revenue customers. 10 recurring customers at ARR $10M (let’s say) sounds good. Now what if there is this one customer that brings in 80% of revenue? Wouldn’t you watch it more carefully as that could make or break the business? IMO, this customer is like the transmission in a car and one needs to pay attention to this one more carefully. Now let’s say you hear rumors that that customer is planning to leave you and take his/her business elsewhere. Wouldn’t you act on that signal even though he/she hasn’t done it yet? (similar to taking your car to repair shop when you sense potential issues with transmission based on a signal given by tachometer)
P.S. I do agree that there could be better ways of signaling problems with engine/transmission with latest technology (vs. tachometer). May be a simple flash light on dashboard, but again that’s all aesthetics/design/visuals IMO.