How Can A SaaS Startup Learn From Benchmarks?

Benchmarks are a popular approach to business improvement. They provide an insight into how peers and competitors are performing. And identify areas for potential improvement. But they are an average. They highlight the status quo and undervalue innovation. The metric driven nature of SaaS makes it a great model for benchmarking. Think of this data as useful insight. You can learn from how others perform but don’t copy it.
 
This is another in my series exploring how ideas used by large enterprises might be of value to startups. In this post I am going to explore Benchmarking. Benchmarking or comparison shopping is a popular technique. Many enterprises us it for business performance improvement. It is a big business in its own right. With a subscription model just like SaaS. Gartner and Hackett are built on benchmarking as a service. Every large consulting firm has offered the service at one time or another.
 
The basic principle is simple:

• Find a bunch of companies with similar characteristics. This could mean they operate in the same industry or target the same customers. It even works for bits of companies. For example, comparing finance functions or IT costs.
• Measure their performance on a set of criteria. The key skill here is to find a common and consistent basis for the metrics.
• Create a set of standards for comparison. A typical benchmark study involves an average - either median or mathematical. Then performance is grouped around quartiles. Or deciles. Or best in class. Or some similar standard.
  
• Map where each company stands against it peers. Then offer other organisations the chance to make the same performance comparison.

Key Takeaways

The potential to add value for a startup seems clear. Often founders have little or no data about the market they are entering or their competition. Limited networks and experience create open minds. But they are no substitute for experience of the sector or the business. Used well benchmarking can offer:
 

• A picture of how your business is performing and which areas need improvement.
• Looking at the benchmark structure offers a useful insight into which metrics are important. 
• Using benchmark data can be a mechanism for setting operational financial performance targets.
  
• If benchmarks are being made public, a good score can be a potential marketing boost.

The Not So Useful Stuff

This all sounds great. But in my experience benchmarking is no more than a way in. It provides an interesting snapshot but not a yardstick or a basis for measurement. I used to have a global client that spent millions every year on industry specific commissioned benchmarks. They cancelled after a few years because they could discern no performance improvement. 
 
There are several reasons for this. It is worth thinking about the following whenever you look at a benchmark or similar report.
 

• No two businesses are the same. A whole lot of known and unknown factors will affect performance on any measure. Benchmarks do not capture or analyse these things.
• Benchmarks undervalue innovation. The method looks at the past. And needs a past which many companies share. This reinforces incumbents and undervalues or misses innovators.
• Standardisation may lead to missing some key metric or insight that is vital to your specific business. Or a new pattern of behaviour that provides an opportunity for disruption.
• Using benchmarks encourages you to spend time thinking about internal challenges. This diverts from focus on the customer.
• Unless you spend a ton of money on details and tailored analysis, benchmark data is based on surveys. The quality and reliability is poor as a result. Verification is non existent.

Next Steps

There is an emerging industry in SaaS around benchmarks. The metric driven nature of the business model lends itself to this approach. I would suggest a startup pays little attention to this stuff. It is nice to see something and think you are doing better than the competition. But after the warm glow its adds no value.
 
The best way to view this is like an insider blog post. Useful background and a point of view but not the absolute truth. Learn from benchmarks but don’t copy them.
 
If you are entering a market with established competitors it may be a handy way to learn about the competition. But don’t pay for it. Money is scarce and this will not be a good use.
 
Focus on finding the metrics that drive growth and development in your startup. Work to improve on those measures and the competition will not be a problem.
 
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