Written by Faiz A. Rahman
Metrics are very important for potential VC investors or angels. Beside the team, product or market size, metrics performance plays a big role in numerous investment decisions. For startups that managed to secure financings from investors, they usually know what metrics are important and to keep an eye on.
In general, startups love to point out the big numbers: 7 million registered users, 14 million downloads, 12 million followers on social media, etc. Even though these metrics can be signs of traction, they are often not. These are what Eric Ries, the author of The Lean Startup, call Vanity Metrics.
The word vanity was originally from a Latin word Vanus, which means empty. In short, vanity metrics are numbers or stats that look good on paper, but they do not really mean anything important and do not fully guide founders to make decisions, such as registered users, number of hits, number of downloads, social media followers or raw pageviews.
Tracking numbers is taking a significant amount of time as well as focus, if you get caught up tracking things that don’t really matter to the company’s success and growth, you will look back after a few years and see how much time, focus and energy you wasted to maximize metrics that don’t matter much. Even though they aren’t completely meaningless, they just not what you should be spending the majority of your time or energy on.
If the startups do not properly instrument the data they need to track, they will not be able to know the true condition and health of their business. This will also lead to a false sense of success, for example a mobile app can get millions of downloads but only a small percentage of them are actually active, or a freemium product might have explosion in traffic but those users never convert into paying users.
Instead of focusing on vanity metrics that don’t matter much to the growth of your company, you better put more energy on metrics that correlate to the numbers that really matter such as engagement, active users, cost of acquiring new customers or revenues and profits. These metrics are usually called actionable metrics. Josh Kopelman of First Round Capital implied that startups that focus on the actionable metrics can make their products better, attract more customers and make them happier. These metrics are important as they will help you to make a decision about your future strategy going forward.
Actionable metrics answer the question of what metrics matter. If you think having more metrics is better, it might not be completely true. For each of the metric, you will somehow spend a certain amount of time and energy. So, it is always better to just focus on measuring what matters the most to your company. Having detailed reports on the behavior of the users is much more appealing when we try to diagnose a problem and come up with a solution. Actionable metrics could help us realize the problem we have and point us in the right direction to start solving it.
Additionally, metrics involve people, real people. Great and relevant metrics will allow us to audit and improve the accuracy of the report that we generate. When we are not sure of what the numbers mean or why the numbers decline, get those real people and ask them directly.
Metrics are just a component to achieve success in your startup, by focusing only on what matters, you can always spend the remaining time to other important activities to grow the business.
It is important from the beginning to ask what matters to your business and what metrics are relevant to keep an eye on. You can always look up on the internet or ask anyone who has been in your place before. Good luck! Don’t forget to have fun with your business.