Metrics – Useful tools or Vanity traps?

Choosing the right metrics is crucial for a company’s business growth strategies

I have written about the needs for standardized measurable marketing metrics before – pointing out from my own experience that finding performance metrics for marketing is really hard. Eric Ries, of StartupLessonsLearned.com, in an article for the Harvard Business Review website, points out a related but different issue with startup (and expansion stage) companies’ metrics: irrelevant metrics are being used as performance metrics just because they look good. Titling his piece “Entrepreneurs, beware of vanity metrics“, Ries shows how the typical startup metrics of “website hits” or “page views”, reported without other relevant information, would be more or less useless in helping the companies actually improve their products and gain more market share.

I can relate well to this, as part of our strategic consulting services for the portfolio companies involves helping them develop managerial and operational KPIs for their management teams and line business managers. Often times, we are tempted with populating the dashboards with a wide range of the metrics, ostensibly to show the different aspects of the business results, but often because we are not willing to give up on a metric or two that are showing positive growth in certain areas. For example, a company could state that they grew “X %” over the year – where X is a very impressive number, without specifying what growth it is measuring. It could have been revenue, bookings, number of customers or, in one case, number of employees. Whatever that number was, it was probably not useful at all – because it did not tell the management teams or their directors anything new about the company, the opportunities and the issues in its business.

Vanity metrics are especially prevalent when it comes to marketing. Charts showing number of sign ups, number of visitors or number of downloads always show incredible growth and predict continued success. However, I don’t often see charts showing monthly or annual cancellation rates, or charts that show bounce rates of visitors. These are equally important measures of success or the lack thereof, and thus are pointers to areas where the organization can improve. To generalize this, for any set of metrics to be useful at all, there should be positive indicators as well as negative indicators – charts that are meant to show growth as well as charts that are meant to show obstacles to growth. A sole focus on vanity metrics will distract the team from the problems that are hidden within the present success, and ultimately make them lose touch with the reality of the business.