January 30, 2006

Show Me the Metrics!

Posted in customer service, Economic Model, Execution, management, Metrics, Sales at 11:57 pm by scottmaxwell

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.

Some Caveats:

  • 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!

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29 Comments »

  1. Great post, Check out this article “Competing with Analytics” at HBR it has the same theme, Favor – I am due to make a presentation at a BSchool in India some time next week and have been trying to find success stories (of using metrics / analytics) to highlight in the same, Would be great if you could help me connect with the VP sales you are referring to, I would like to have a quick chat (over email) so that I can highlight this case as well. – thanks

    • Rahul said,

      I am in process of building a sales metrics……It has been three months and compared to last year the growth story is good…..call me on 9394334870….Rahul

  2. scottmaxwell said,

    Thanks for the post Prashanth. Can you provide a link to the article you mention? I will send you an e-mail on the other item.
    S

  3. Once again, great post. We analyze everything. Sometimes it’s hard to respond to shifts because of the daily noise of growing, but there’s nothing like knowing what’s going on, what’s hitting, what’s not, changing to improve, and seeing the changes really work.

  4. And btw–“gut” to me is “informed intuition’; I think it’s perfectly fine to act on gut for quite some time, and that’s definitely my style. But adding metrics and analysis helps translate that gut into something useful and consummable by others in the organization, and serves to validate/invalidate gut. Too often gut comes with ego; metrics keeps the ego out of the equation and leaves it for the celebration.

  5. scottmaxwell said,

    Great points Charlie. Your point reminds me of the book Blink…there is good “gut instinct” and bad “gut instinct.” It certainly is a lot easier to work off of intuition and is important to use. Your point on consumption from others and validating/invalidating are key as well.
    S

  6. Nick Gray said,

    I am going to copy-paste this into a Word document so that I can easily print it out for my dad. A great read – thanks from Atlanta.

  7. […] Advising startups I routinely find that one of the most under appreciated and least understood skills is that of the art of selling. So when the founders with one of my startups came looking for some advice before meeting with candidates for a senior sales role I asked them to first read two posts – the art of rainmaking by Guy Kawasaki and show me the metrics by Scott Maxwell – before we talked further. Our conversation that followed was significantly enlightened by them reading both posts and comments. And people wonder why I rave about the power of social software.   […]

  8. lee said,

    I enjoyed reading through this article. I am looking for articles taking a more holistic approach to business drivers. At the very early stages in my career I am looking to take on board the skill of tearing apart the operations of any business in less than 30 seconds. different businesses have different drivers in common so a general list of points to look at would help me immensely (e.g. raw material costs, methods of purchasing, distribution, market size). Is such a simple list out there? Please email back, many thanks.
    Lee

  9. John Brothers said,

    I struggled with this article for several days (which is why I’m taking so long to follow up). But in the end, perhaps reluctantly, I think you’re absolutely right. My current role is not one where financial metrics or specific organizational targets are achievable, but there are things that are under my control. So I’ve set up a personal operating plan, very similar to a New Years Resolution set, only focused on business goals.

    I’m not sure I can put it in front of potential employers, since the goals are so “indirect” (how many classes I teach for my co-workers, how many books I read to improve my ability at my job function etc). But I do know that they will help me, which is probably the next best thing.

    Thanks!

  10. scottmaxwell said,

    John, thanks for the comment. let me know how it goes!
    Scott

  11. Hetav S said,

    Thanks for the link Prashant! I’ve met a few BSchool professors in India and I’d be curious to know the emphasis they place on analytics and success metrics. Let me know.

  12. Good post to hold our salespeople accountable. What the hell did we do before internet companies and comp0uters whe data was hard t come by. We are spoiled!

  13. What if the model tracks the wrong business drivers?

    How does the model track changing business drivers?

    Who decides what the drivers are? The Sales guy, CEO, CFO, Investors, all?

    Seems to me like this approach would kill innovation because if forces inside the box focus exclusively. It also creates the box/ blinders.

    Sounds like an approach for mature companies not startups.

    Managing the metrics in a startup is combination of art and science. I would never hire a guy who depended solely on his spreadsheet.

    One of the critical success factors of any startup is to challenge your underlying business assumptions every day not institutionalize them. That’s the COO’s job after the IPO. 😉

  14. scottmaxwell said,

    David,
    Metrics and innovation are not in conflict. In fact, innovation can be driven by metrics if you use the right metrics (agile development, for example, is highly innovative with many explicit and implicit metrics).

    Your questions are good ones…my overarching answer is that it takes some thought to understand the right drivers for your business, but when you are through I would expect that there would be substantial agreement as to the key drivers of your business. What if the model tracks the wrong business drivers? I don’t think that any metrics are perfect, but if you have the right team and advisors you should get pretty close drivers. If you don’t, change them!
    S

    • Gajendra Pratap Singh said,

      Great Stuff! Right metrics is the key to success!

  15. […] One possible answer is “Systematic”. I knew I had read this posting at Scott Maxwell’s Now What? sometime back and just LOVE it! […]

  16. […] when managed well over long periods of time, will assist in the building of a great company. ( I had a summary post last year on the topic.) As I meet with companies, read press releases, and hear presentations at companies, I find that […]

  17. Roberto Taylor said,

    Excellent article Scott. David Henderson questions implied that he doesn’t use metrics often. Your answer also implies that you don’t use metrics. RT

  18. Tim said,

    Really great information. As a new VP of Operations for a company of about 200 people, I knew that I wanted to focus on the metrics and not fluff it up. This and a couple of other articles helped a lot. Especially “10 best ways to lie with metrics”…great stuff.

    What I’m trying to work out now is how to present the key drivers and metrics in a way that aren’t overwhelming and will get the board members the information they want in the quickest amount of time.

    Any thoughts on the best way to present this to the board? Static numbers… multiple charts… etc?

    Thanks

  19. Veejee said,

    Off late metrics is my cup of tea, day in and day out. Thgis artilce by chance hit me recently, good show !

  20. йога said,

    увидел вот сайт про йогу может стать йогом?

  21. Думаю сделать на заказ небольшой шкаф расскажите что нибудь,очень выбор сейчас большой не разбираюсь я совсем

  22. Костяника

  23. I drop a comment each time I like a article on a site or I have something to contribute to the
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    | Now What?. I was excited enough to write a leave a responsea response 🙂 I
    actually do have a few questions for you if you usually do
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    Would you make a list all of all your community pages like your twitter feed, Facebook page or linkedin profile?

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  25. WOW POST, NICE


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