Painting by numbers for start ups

Arsham Memarzadeh of @OpenView Partners published a blog post on 13 November "Why Enterprise Mobility Calls For New Metrics and How You Can Help Fill The Void." He is identifying with a common problem. Many investors and advisors struggle to understand how tech start ups make money. Founders explanations are often unclear and business plans rarely include a simple description of the business model. Mobile start ups are even more poorly understood.

Helping investors, leaders and teams

Metrics might help solve this problem. Good business metrics do 3 things - paint a picture of the business for outsiders especially investors; help leaders make better decisions; and influence the behaviour of teams. In a start up context they can help investors, focus management, build culture and drive performance. 

Finding the right answers

How can you select measures which help achieve these objectives? Tomasz Tunguz (@tomtunguz) has attempted to fill part of this gap with his regular analysis of public filings by SaaS companies. This is useful but limited by regulatory requirements. To fully answer the question think about these dimensions.

• Tech is not a type of business. Make sure you understand your core business model and tie your chosen metrics to that model. Look at my post on the 6 business models for the mobile age for an example of different business models.
• Be clear about link between operations and revenue. The connection may be indirect but it needs to be clear and traceable. It must to be a link not a correlation. Too often business measures symptoms not root causes of performance or behaviour.
• Think about Audiences - investors, public listing, the crowd, advisors, management, commentators - and how they will react. You need each audience to do the right thing not just report the right result.
• Make sure all your metrics are based on consistent, reliable sets of data. Don't have one dataset for investors and a different one for your internal management. Vary the detail of measures not the basis of calculation.
• Only use consistent, reliable data. If no data is available or data is not quantifiable then don't measure. I have seen some bizarre business decisions taken from "trends" that are based on thin air rather than real data.
• Test and refine your metrics just like everything else. You can't be sure about the impact of different measures on your business any more than you can figure out which advertising copy will work. Your start up needs to learn the right metrics. Remember look at the impact behaviour and culture when evaluating metrics not just hard results.

Clarity and transparency

It will take some time to find common metrics which work for each business model and give investors and analysts an accepted basis for comparing companies. Until then the best approach is to try get a clear, easily explained picture of your business. I have to admire the openness of Buffer (@buffer) who have shared their investor term sheet, entire performance dashboard and even the salary levels of everyone in the management team. The dashboard is produced by another start up that believes in full transparency, @baremetrics.

How can we find measures that are clearly linked to business outcomes, communicate the right messages and will be understood by non finance people? What metrics do you use to drive success for your start up?