5 Reasons Your Company Needs to be Metrics-Driven After a certain point, a founder must move past "gut instincts" to understand the company's present and to plan its future.
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Having spent the past several years growing Brainscape and working with dozens of companies through the TechStars and Edge EdTech accelerators, I've noticed a persistent entrepreneurial resistance to becoming truly metrics-driven. Founders are often tempted to postpone the building of detailed business dashboards in favor of spending valuable time and engineering resources on building the actual product.
While this (often unconscious) bias of "gut instincts" over MBA-style analysis can help you during your early stages of customer development, it can come back to bite you in the arse the longer you wait. Very few companies have successfully achieved exponential growth, raised capital, or negotiated strong exits without first having a solid analytics model that has been iterated upon for many months or years.
Below are five reasons why you should start focusing on measuring your company's key metrics and growth levers ASAP. If you seek further guidance as to how to do so efficiently, feel free to read my Complete Guide to Building a Metrics-Driven Company.
1. Stay focused.
At most companies, our teams think of ideas for new product features or marketing campaigns much faster than we can implement them. Having a solid metrics model allows you to prioritize these backlogs using real data and forecasts.
For example, performing a funnel analysis will help you understand whether it would be worth spending time to optimize a particular conversion bottleneck. Similarly, gaining a strong understanding of each marketing campaign's LTV/CAC ratio will help you determine where to spend your valuable marketing dollars.
Often you can even run simple experiments to further validate hypotheses before making large investments. Espousing these types of metrics-driven strategies will improve your use of limited resources while increasing your team's respect for your leadership.
2. Motivate your team.
Reliable, current metrics are a critical prerequisite to being able to create meaningful OKRs for your team. Not only will solid analytics help you set key lines in the sand for the whole company to meet, but they will also allow you to better delegate results to individual "owners" of particular KPIs.
At Brainscape, we have a master KPI dashboard that summarizes our high-level goals like New Signups, Active Users, and Revenue. That master spreadsheet is fed by "feeder" spreadsheets that derive our sub-KPIs like Conversion Rates, Engagement, Retention, and Virality. Such a hierarchical structure allows us to delegate individual metrics to the responsible team members, thus allowing us to "keep score" in a way that is more motivating for each owner.
3. Create more realistic forecasts.
Once you have a good model that identifies the drivers of past customer behavior and predicts future behavior, it becomes much easier to perform "what-if" analyses of particular new initiatives. You can easily predict what might happen if you double your marketing spend this quarter, or if you spend time optimizing your homepage conversion by 5 percent. Being able to drive such predictable growth will keep your board happy and will further increase your credibility as a leader.
4. Close new investors.
Raising your first angel round is often possible based on nothing but a strong team, prototype, and market potential. But follow-on VC rounds require a lot more "meat." Even if you are great at attracting PR and generating investor hype with your compelling story, most savvy VCs will want to dig into your metrics before making any final investment decisions.
Waiting until the due diligence phase is usually too late to start building such a self-explanatory model. I've seen many VC deals fall apart during this phase due to founders' lack of readiness to quickly prove their growth "levers" and market size. You need to get in front of this by developing a metrics-driven business ahead of time. Spoon-feed your potential investors with a "can't-lose" growth model.
5. Become acquirable.
Before making you an offer, most corp dev folks will need to have a very deep sense of all the levers that can be pulled to make your company grow. They likely already have their own complex growth models for their own company, and they'll want to combine these with your startup's model to show how it "plugs into" their overall strategy.
If you don't have a model of your own, then the corp dev vultures will try to make the model for you. And you probably won't like the exit valuation that they derive as a result.
These are just a few reasons why being metrics-driven is key to your company's ultimate level of success. Above all, having a solid handle on your numbers will keep you more honest with yourself and should help reduce your stress levels -- whether you like the numbers or not.