January 30, 2006
Show Me the Metrics!
About 10 days ago I interviewed a VP Sales candidate for one of my portfolio companies. The more I think about our conversation, the more I like him. I walked out of our conversation thinking that he would be perfect for any B2B software or SAAS company. Why?
This particular candidate pulled out his personal operating report and explained to me how he knows what is going on every day (even when he is on the road with customers) and what he does when particular metrics drop below a certain level. He showed me the different levels of his report so that he could see his deals moving through the sales pipeline and how each salesperson and sales group was doing vs. their benchmarks. He also explained how predictable his system is in forecasting sales as well as determining when he needed to add resources at various stages of the sales process. Finally, he was able to explain how his system allows him to accurately predict the results of adding new resources and, just as importantly, how he is able to relatively easily recruit and train people to follow his system. Separately, he has relevant experience and success managing several models of distribution (including telesales, field sales, and channel sales), each of which has its own unique best practices. Also, we were able to get a reliable reference that echoed what the candidate had said.
He did not quite “have me at hello,” but he did have me about 10 minutes into our discussion. I knew going in that he had relevant experience and was known for making his numbers, but it was his approach of managing to metrics that got me. Why?
When you can accurately predict your results in each operating unit, it means less risk and a greater opportunity to scale your company without blowing your capital (missed quarters get more and more expensive as you grow!). Being able to make accurate predictions also means that:
- You have an operating model (not just a collection of people), which allows you to scale better,
- You understand the key drivers of output in your operating model,
- You are consistently managing the unit to your operating model,
- You have a set of early warning signs (your key drivers) that you can focus more attention on when they get below certain thresholds (i.e., it helps you to know where to spend your time),
- You have a set of measures that you can benchmark against other companies to understand where you have opportunities to move to best practices, and
- You know when you need to add staff or other resources well before you get caught short.
Finally, the understanding of the above gives you a solid platform for experimenting with new approaches and accurately evaluating the effectiveness of the new approaches (thereby allowing you to kill the approaches that don’t work and expanding the approaches that do work).
Over time, the nature of emerging growth companies is that they move from simpler approaches to more sophisticated approaches (more specialists, more channels of distribution, more products, more marketing channels, more approaches to customer service) and you want to make sure that you continue to evolve in the right direction (note: this is not an argument to get more sophisticated as an end to itself, just that getting more sophisticated leads to better operating results as you growl…you clearly need to keep your operation as simple as possible).
Metric driven management can and should be applied in every functional unit in an expansion stage company, from product development activities (e.g., project management, bug fix reports, usability testing) to marketing (lead generation ROI, website path analysis, shopping cart abandonment, number of daily quality leads) to sales (e.g., movement through the sales funnel, salesperson activity analysis) to customer service (response time, close rates, close times, etc.) to overall customer satisfaction measured both qualitatively (surveys, interviews, etc.) and quantitatively (usage reports, retention rates, etc.).
The key to getting the right metrics program in place is to eventually understand the minimum number of measure that give you an accurate understanding of the state of your company.
- Many (most?) very early stage companies can get by without metrics-based management, as there are very few people in the organization, the processes you have are quite simple, and you can manage staff a lot easier. But as soon as you start getting any measurable number of users/customers, metrics-based management starts becoming useful, and as you grow more metrics become difficult to live without.
- There is no sense building systematic operating models and a set of metrics if you are not going to manage to them. I have met many intuitive managers who don’t get (or don’t want to get) this approach. If you don’t believe in the approach, shoot me a note or comment to this post. If you don’t completely get the approach, hire someone to work for you who does (I have done this multiple times at my portfolio companies).
- Once you lock into a set of metrics (it will take some time to determine the best most simple metrics), you should try to use the same metrics over time. I am amazed when I go into certain board meetings and see a different set of metrics each quarter…sometimes managers feel the need to present the metrics that show off the accomplishments of the company…I would rather see the metrics that show the improvement opportunities for the company…this is where the real upside is!
If you want to tell me about your results from or projections for your operations, my preference is that you show me the metrics!