Metrics is all the big thing in startups. Be it number of users, clicks on site, time spent of a page etc. A lot of times, the startup founder look for promising metrics and the hockey stick graph in an effort to incorporate them in slide decks for investors. This is not prevalent only in startups, but also in well established firms. But is there something wrong with this model?
Let us consider two firms A and B. Suppose A has 150 consumers and B has just 15 consumers. And just to bias the sample let us say A has been acquiring users on a hockey stick graph while B has slowed down. Does this necessarily mean that B is not faring well?
This is the trap most people get into. They drive their sales teams to deliver on the hockey stick. And ironically most teams deliver (or are pushed out). The downside with this approach is that it only works if two key conditions are met:
- All the clients/consumers are of equal value
- There is minimal turnover among the acquired consumers
In the example above if B is able to retain all of its users and the value of their users is much higher than A, say $100,000 for B vs $1,000 for A. So B had accumulated a total consumer value of $1.5 million while A had accumulated only $150,000. It would be far worse it A is having a significant churn of their users.
As a friend of mine recently put is beautifully, these are all ‘lipstick’ metrics – only to attract and confuse the uninformed. I hope this serves as a gentle reminder for all of you who are in charge of metrics to dig deep and see if your metrics are of real value, and for those who are presented the metrics to see if they really makes sense.
P.S: I am not implying that hockey stick graph in itself is a bad thing. If your profits follow the graph, then there is nothing like it. However, I only suggest that you need to be cognizant of where you are looking for it.