Businesses track horrible metrics for some reason. It’s of course not psychologically easy or intuitive to focus on the right metrics because they usually aren’t as exciting. You can drum up way more attention and make yourself feel better by focusing on numbers that, most of the time, don’t mean anything but are feel exciting.
So what type of numbers am I even talking about here?
Metrics that are not really important
Here are some examples of metrics that are just not important for most businesses (businesses that are not trying to achieve rapid user growth to be acquired by FANG):
- Number of users, signups, or website visitors
- Number of employees
- Number of offices/facilities/locations
- Emails sent, calls made, or doors knocked on
- Rate of development
- Dollars or rounds of investment
These are some of the most common metrics that businesses like to throw out there. I’m sure you see it online all of the time. “We have 10k new users sign up every month.” “We’ve grown from 5 employees to 500 employees in 2 years.” “We’ve opened 6 new offices in the last 6 months.” Some of them are indirectly linked to more important things, but putting them on a pedestal all alone doesn’t make sense.
Why do owners track bad metrics?
I don’t want to generalize or make assumptions about every business owner across the world. Every owner has a unique experience, circumstance, and set of problems. Even though we all go through unique paths, there are still some commonalities.
From my experience, I see two scenarios the most often.
Zero-sum game problem
Humans have come from a long history of competition. From our early days on the planet, we’ve had to compete to survive. Originally, we were competing for space, food, water, and basic resources. Today we don’t have as much to compete for. The agricultural revolution led to innovative mass production of food, the industrial revolution led to ease of access of all other basic resources and needs, and now the age of information has led to wide spread access to data globally.
The issue is that humans have not evolved as quickly as the surrounding that we’ve created for ourselves, so competition is still programmed into us.
So a business owner may truly believe in the metric because it’s hard to overcome our own biology. We get caught up in growth games, competing against the company down the street to see who has more heads in the office. Or maybe it’s about the size of the office, how nice the office is, how many sales people are making calls, who has more ads running, etc. These games are all natural to us but unfortunately, they are very dangerous for the business.
Because our brains believe that we will not survive unless we out compete our neighbors, we end up playing a zero-sum game. No matter what business you work in, there’s probably enough market for you and your neighbor to each have their own.
Fake it until you make it
Secondly, you have owners who don’t believe that these false metrics are that important, but become overly focused on tracking and sharing them because it creates a prettier facade to go over a broken interior.
Again it comes back to competition and survival. Humans are the only known species on the planet that can create myths or use imagination to alter our own perception. When early humans got hungry but had no food, they could either fight and steal from the nearest group with food, or they could tell them that there was a being living on the cloud who would provide endless fruit later if they just paid their current fruit in tribute.
Business owners today are playing the same game. We are of course doing it in a different way, and collectively we’ve been more educated and generally use more logic based arguments today so we wrap it in a nice bow of “500 employees must be better than 50 employees”. This comes back to fear of survival and trying to out compete our neighbors.
What’s the problem with the metrics?
To figure out what’s wrong with the metrics, we have to think about what metrics are tracked and reviewed in the first place. As owners, we generally like data and information for two reasons:
- To review the health of the business currently
- To improve certain aspects of the business
In my opinion, all of those metrics above do not correlate directly to business health. A failing business can hire a ton of employees, raise boat load of cash, make millions or billions in revenue, have a massive and aggressive sales team, have millions of users, and even develop new products very quickly. These do not mean the business is healthy and viable long term.
Now again, maybe you don’t give a shit about building a long term business. If you don’t care at about your business being around in 3–10+ years, I am not talking about you. I am not talking about the dorm room Zuckerberg-esque startups built to raise money, build user bases, over hire, burn cash, and repeat in an endless cycle until acquired or profitable.
What should be tracked?
In my eyes, what makes a business viable long term and healthy is not that complicated. You don’t need a fancy ERP or business intelligence tool to keep your eyes on a few basic things:
- Profit: how good are we at making money (after expenses)?
- Happiness: how happy do we make our employees and customers?
At the core, it’s really that simple. If these metrics pass, then you don’t have to worry about anything else. If you are a healthy margin of profitable, all of your employees are happy at work, and all of your customers are happy with your products/services, then you only have to worry about keeping it that way.
Now, at something lags, then you may have to start digging into some 2nd tier or 3rd tier metrics temporarily. For example, your profit margins dropped badly over the last couple of months. You now have to figure out what might have gone wrong, if it’s something that could be dangerous long-term. Every business is different, but this might look like digging into a list of customers who dropped subscriptions on your product, or talking to your sales team about potential causes.
But these lower tier things aren’t something that needs to be drooled over every day of the year.
Focus on you
Maybe I’m repeating myself here a bit, but I think it’s important. All of the metrics I listed above are examples of things tracked by business owners about their own businesses. I didn’t include the number of owners who track everything that their competitors do.
This, again, comes back to survival of the fittest. The zero-sum game where we think we have to win and they have to lose. That’s not the case. There are 6 billion people on the planet. The market that you are selling to, especially if you have any type of digital product, is plenty big. There’s enough to go around.
We might just have to transition to a world where we admire co-habitation and healthy middle class incomes instead of do or die competitive to become one of the handful of multi billionaires in the world.
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