This year I had a great opportunity to work with Chi-Hua Chien of Kleiner Perkins. Kleiner had invested in a company in Seattle for whom I was doing product consulting. The Board wanted to make sure that Chi-Hua’s insight and experience were inserted into our thinking.

At one point during our session, Chi-Hua referenced his early involvement in Facebook (early = less than 5 employees). We were discussing the importance of tracking key metrics of the product and business. No matter what your opinion of Facebook, there is no doubt that their growth in usership has been nothing short of phenomenal. To an outside party looking in, it could be very easy to dismiss Facebook’s growth as one of those unexplained “viral” explosions that you read about in The Tipping Point. In actuality, in those early days, the team at Facebook tracked, followed, and managed against key metrics of their business with focus and discipline.

An example: As with any good social networking start-up, for user growth they had developed a metric that described the multiplier for users (how many additional users they would gain from the addition of one new user). The team was intimate with the components of this metric and how it’s growth fed other important metrics in their business. Growing their business was a matter of understanding how these metrics fit together and being able to focus an initiative on the most actionable components.

Every early stage business should have core metrics that the leadership team follows on a regular basis. In my years of applying metrics and measurement to organizations large and small, I think the Facebook example hones in on some key points.

1. Avoid metric overload. I remember leadership team meetings at Jobster where each team member would present their collection of metrics to the team. Each meeting surfaced new metrics to follow. Soon our metrics list was a multi-tab, multi-page collection with hundreds of numbers and ticks. Metrics meetings quickly became an overwhelming sea of information. Businesses must take the time to boil down all of this information into the core metrics that drive their business. While the “ultimate” metric is revenue, an executive team should be able to look at a set of 3 to 5 key metrics in order to get a strong sense for the health of their business. There should be sub-metrics that each functional lead tracks with their own teams, but those should only be explored in the broader meeting when it affects the core 3 to 5. Remember that the metrics you follow are always a work in progress; continue to refine them as you refine your understanding of the business.
2. Make sure the team is on the same page about what is important. If metric meetings are held without focus and understanding, the simplest thing to do as a team is to follow ALL of the metrics and make sure they are all going up. Some team members might look at how much they are going up versus a previous week and note a trend, which is of limited value. Others may see a bunch of green arrows in their peer functions and superficially conclude that all is well. This is the most dangerous disfunction that can exist.  Your leadership team must jointly understand and agree on which are the most important metrics and why. If you are to decide where to deploy precious and scarce resources, make sure everyone understands which metrics are the ones that MUST move.
3. Strive to understand formulaic relationships. Early stage businesses in many cases will start out like Jobster with too many metrics. To start, they will likely be all of the usual suspects you learn about in Business School. As these are narrowed down, the team must develop an understanding of precisely how much they need to push/pull on a component of a metric to drive a specific measured outcome. This is acheived through baselines, A-B testing, and consistent measurement tactics.
4. Goal team members against metric components. Accountability is another key aspect of metrics that is often overlooked. Oftentimes metrics are reported by managers with a sense of separation. Make sure people understand and feel the ownership.  Ownership will force them to naturally focus their initiatives toward improving those metrics. In a web software context, you will be startled with how easy it will be to decide what key features should go in the next release. It might be a feature that improves a user metric that drives customer satisfaction because your subscription renewals are slipping. It could be a social networking feature that insures that for every new user you get 5 more eyeballs. In a sales operations context, it could be an initiative to triple your qualified leads because your pipeline metrics prove your sales team can close a consistent and predictable percentage of them.
5. Manage the metrics and enjoy the focus. Enjoy is probably not the right word; it understates the difficulty of cutting off some projects in favor of others that have proven an impact on your business’s success. If you are managing metrics that are NOT forcing your teams to make painful tradeoffs in priorities, something might be wrong.

Remember that the metrics your team follows will always be a work in progress; continue to refine them as the understanding of your business develops.

For assistance in developing and refining your company’s sales, product and business metrics, please contact us at info(at)actureconsulting.com.