Valuing things that cannot be measured
Entrepreneur's New Year’s Guide
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Ask anyone; “Who do you think is the most successful person you know?” They will immediately name the richest person that they know. It is as if, their bank balance is a reflection of their success!
The purpose of success is to make you happy, and by that measure I would suppose that one would name the happiest person that they know. But the crucial question at this point is how would you measure happiness?
Let us leave success alone; instead ask; “Who is the nicest person you know?” People will struggle to recollect. Or at least take some time to provide you with an answer.
The fundamental issue here is not being able to value things that one cannot measure. Success being associated with wealth is easy to measure, but niceness is not associated with a number and hence, a struggle to measure.
I do not know where the human obsession with numbers began, but fundamentally we are wired to respond to numbers. We have an innate capability of quickly comparing things that have a number attributed to them. As a consequence of this we are great at valuing only those things that we can measure. But we are generally incapable of valuing things that cannot be measured.
Have you noticed how people use weight as proxy to measure health!
Not everything in life can be measured.
I began with ‘success' as an example but it is troubling how this behaviour affects startups! There are many things such as core values of a company; the perseverance of an entrepreneur; the attachment of a customer to the product; which all play pivotal role in the outcome of a business. All of these things are really hard to put a number on.
Often time’s people try to use proxies that can be measured in numbers, to be able to value things that cannot be measured. This is as dangerous as it is stupid.
The dynamics that affect the attachment of a customer to the product might not necessarily be correlated to the number of users using the app, or any other number of parameters that people might be able to measure.
Correlation does not mean cause and effect. There is a marked difference between the two and this is at the heart of proxies being a great way to gauge something. Obsession with numbers, rather than the fundamentals, results in making wrong associations.
Since it’s hard to associate number with things like culture, design, customer satisfaction, most ends up ignoring them. It is always important to focus on fundamentals.
What are the things in business that create value? Does the customer sees value in the same and is willing to pay for it? If the customer sees value, he/she will pay and this will translate into profits.
Your differentiation and value creation might just be in the way you do things (culture, principles, focus), these are the things that you need to value. If the investors do not see the value in it, find investors who do? Don’t sacrifice the things that are helping you create value.
Apple was once considered a niche computer maker. They stuck to what made them unique; which investors find difficult to understand even today; look where it took them.
Not everything that makes up success can be defined in terms of numbers. Define what success as a business means to you and pursue it.