metrics killing business growth

STOP: Vanity Metrics Are Killing Your Business Growth

Ah, the smell of analytics in the morning.

Reviewing views of the website, checking employee engagement scores and looking at billable work are all things a modern leader does. But are those the right metrics to look at? And how do you know if they drive SUSTAINABLE business growth?

Everyone loves a metric

We humans spent thousands of years chasing immediate rewards because, frankly, it was life or death. If we didn’t seek food, we died. That reward immediacy helped us survive.

Fast forward to 2019 and the threat of imminent doom and need for real time rewards for survival just isn’t there. Instead, we have to create those mechanisms. That means finding the measurable things that drive action and symbolise progress in a meaningful way.

Metrics leaders often gravitate to in their own business are:

  • Sales
  • Revenue
  • Website visits
  • App downloads
  • Employee satisfaction scores

These are vanity metrics because they look nice, but aren’t a true indicator of future performance. But how do you know if these are the right metrics to hook into?

When metrics f**k up your business growth

Sales people love to chase sales. Marketing people love to chase website views, likes, engagement and impressions. HR leaders bandy around employee satisfaction scores, while other chase deeper indicators.

The problem with most of the metrics leaders chase is their relevance to real growth.

Leading indicators are those metrics that are hard to measure but easy to influence once you nail them. Lagging Indicators are those that show how we performed in the past and may trail the true trend; easy to measure but harder to influence in that moment.

Metrics start wreaking havoc on your business when you start confusing the two, or worse, favouring only one over the other. So many of the metrics that we focus on are lagging indicators. Things that are easy to measure like:

  • Sales
  • Revenue
  • Website visits
  • App downloads
  • Employee satisfaction scores

Notice anything about this list… Yep, same as before. Vanity metrics again. $hit.

But lagging indicators are representative of past performance. That means YOU CAN’T rest on your laurels because the event that caused them to occur happened some time in the past, which is no guarantee of future performance.

Leaders gravitate towards lagging indicators because of their ease of measurement and need to measure something. The problem with this is the disparity between a lagging indicator and medium term growth, which only shows up months later.

I caught up with an executive recently who had ‘amazing’ employee satisfaction scores, but dismal attrition. ‘But everyone is happy’. Yeah, they ticked the box for the annual survey. There was also a ton of hype around it, meaning people were biased towards filling it in positively. Yet the attrition for the same period was unfavourably. ‘What the hell’?

Sanity > Vanity: how to find the metrics that make a difference to growth

There is an age old saying in business:

Revenue is vanity, profit is sanity and cash is reality

It’s easy to look at revenue and celebrate. The issue with this (and why profit is a few degrees better) can be demonstrated below:

break-even-analysis-model-toolshero.jpg

Notice that revenue could increase from a certain point but profit would continue to be non-existent if we don’t watch out for variable cost creep?

Basically, if we don’t watch our profit (sanity metric) and instead focused on just generating more revenue (vanity), we could end up making less money overall. This graph shows it from a break even perspective, but the issue still stands.

The other issue with this is we can’t act to fix revenue dips, since revenue figures are revealed well after the event that caused them e.g. a qualified lead, a sale, a delivery and then finally revenue. Attrition is also a lagging indicator since we also can’t counter attrition after a person resigns (please never ask a person to stay after they resign). What we can do is turn our attention to the right metrics by asking these simple questions:

  1. Can we control the outcomes of these metrics in real time by an action we take today?
  2. Is the metric indicative of our real, enduring performance?
  3. Can we make useful business decisions, that are accurate, using these metrics?

The attrition and revenue metrics fail this test. If we zoom in on that attrition metric, we could instead look at unplanned days off, productivity and project outcomes.

A university successfully used big data on students in this area to accurately predict if a student was going to drop out of university. Once they identified the potential issue, they implemented proactive measures to correct this. The result, a 32% (significant) decline in student drop-out rates. Read more about it here.

We can do the same for attrition. It isn’t easy, but leading indicators never are. You can take false comfort in the lagging indicators (vanity) or you can buckle down and unsurface those leading indicators (sanity) that help you build a successful long-term business.

Scalable, high-growth businesses focus on the metrics that mean sustainable growth. That means digging into the metrics that matter.

You’ve got this, now make it happen.

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