What Should Entrepreneurs Measure? Ditching What’s “Interesting”

Last week my friend Anu, CEO of NextDrop, asked me:

What we want to know is what’s the best way to track our progress, and the best way to communicate that to outside agencies/potential investors/funders. More specifically, what are the things you are interested in tracking?

My response:
I’d say that the best rule for tracking (be it social, financial, operational, etc.) is the same rule that I learned as a musician in high school: Keep it Simple. What you want is to find the minimum amount of metrics to track that give you maximum insight into what is driving the company; if you can do that well, and explain it well to investors, then you should be fine. So, for example, is it more useful for you to track total users of your service? Or new users each month? Do you absolutely have to know both at any given moment? What about employees? Is the number of new customers per employee the right metric for performance? And revenue–are you tracking your total weekly or monthly burn, your revenue growth, profit, margin, etc?
At the end of the day, what you want to boil all of this down to are the following two questions:
  1. What metrics and ratios are absolutely critical for me to know what’s going on with my company? Note that this is not ”What information would be interesting to know?” These should be numbers you’re willing to fire people over if you don’t get them.
  2. What metrics do potential investors consider absolutely critical to know about my company? There is no universal answer to this question, and even investors can get enchanted by “interesting” numbers and lose sight of “critical” numbers. Push back on this, and hard, until you get them to tell you what they’d be willing to fire you for not delivering.
Once you can answer these questions, then you’ve got a set of numbers that you can ensure end up in your inbox every Monday morning or with whatever frequency and format is appropriate. That’s the fun part, but the fun part turns into a nightmare if you haven’t spent enough time drilling into question number one.
How’d I do?

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