All Business Metrics are not Created Equal: Key Performance Indicators
Measuring a business's success can be a difficult task for many entrepreneurs running today's startups. Who or what's to say a business is successful? Does generating revenue mean success? Questions like these can create a lot of sleepless nights for entrepreneurs. However, there are ways to answer these types of introspective questions. Use your business' metrics as a measure of success. Traction, as investors like to say. But before we go any further we need to clarify a few things…
You have probably looked at some business metrics for your company. Google Analytics provides dozens of metrics on any one screen. But keep in mind, a metric is just a number. A metric doesn't necessarily tell you anything. Your intern drank 6 cups of coffee before lunch. That is a metric. It also tells you absolutely nothing about your company’s operations. This is also known as a vanity metric. It tells you nothing, other than your intern's desk probably looks like this:
A Key Performance Indicator (KPI for those in the know) is a metric that grows naturally from your company's objectives and is intended to help measure the success of your company. If your company’s objective is to have the shakiest interns in town, then your intern drinking 6 cups of coffee before lunch can become a KPI! The act of setting an organizational goal, not necessarily quantitative, and using business metrics to measure your progress towards that goal is how you develop your KPI’s. In this case, a 6 coffee head start on lunch, compared to the average 4 cups, would seem to indicate you are well on track to having the shakiest interns in town. Now we are getting somewhere.
So now we ask the questions, who cares?
Why track Key Performance Indicators?
The first and probably most important reason for tracking KPIs is internal understanding of your operations. Many companies need a way to organize teams to all point towards a common goal. Lots of teams, including Malartu, use Objectives and Key Results (OKRs) for this task. If you aren’t familiar with OKR’s, catch up here. In order to make sure we are seeing measurable results from our actions, we use KPIs to make sure we are driving towards our OKRs. Holy acronym Batman. But it works. We can drive towards intrinsic Objectives like “get a bunch of awesome people reading our blog” with Key Results like “grow blog membership by 100 readers”. Now the fun part. We use KPIs to measure success as we drive towards that goal. If we know we can reach 1,000 people, then we know our conversion rate needs to be 10% to grow our membership by 100 readers. So in this case our KPI is our conversion rate. If we can prove we can hit that 10% conversion rate as proved by tracking our KPI, then we also know to get 1,000 readers we need to grow traffic to reach 10,000 people. Neat. This is a simple example, but you can see how using this same exercise with your more detailed financial data also makes sense.
The second and probably most talked about reason to track KPIs is to pitch to investors/report to shareholders. Those people who trusted you to grow the company to epic proportions of caffeine addiction are now wanting to know how your progress is going. Reporting the number of interns to have 6 cups a day is not going to do it. But reporting your average cups/intern is 4 before lunch, but you have been nailing 6 cups/intern for the last month IS a good indicator that you are doing something right.
KPIs, when implemented correctly, help you build a better company. And at the end of the day, isn’t that why we are all here? To build kickass companies? So start seriously looking at what you are tracking and why. And find those KPIs. I am willing to bet if you give your current reporting a close honest look, you’ll have a few vanity metrics in there. Maybe they look good, maybe they are just easy to find. But they are doing nothing to help you grow. Find those KPIs, and start tracking them. Or, you know, find a kickass platform to help you do it…