Business is a numbers game. But knowing which numbers to pay attention to takes experience that new entrepreneurs don’t often have. You can measure performance in a hundred different ways, but which metrics really tell the story? What statistics offer the most accurate picture of whether or not you’re meeting your goals? Without a clear sense of what you’re tracking, even the most accurate stats are about as useful as a paperweight for your emails.
Churn rates. Expenses. Revenue. Email open rates. Subscription rates. Page views. Ad clicks. These are but a few of the ways you can slice the analytical pie and peer at the inner workings of your company. But which should demand the most attention? The fact is that some numbers matter more than others, especially in the early stages. In fact, my experience has narrowed it down to two.
Prioritizing two relatively simple measurements is the best way to maintain the kind of consistent, simplified focus that creates the best performance. Instead of being pulled in a dozen different directions and endlessly dividing your attention, give your full consideration to these two things. Yes, it means putting others on the back burner. But that’s exactly what it takes to maintain the big picture view that startups thrive on.
Priority One: Profitability
It may seem like a simple truth. It may even seem like a ridiculously simple truth. But the most obvious things are often overlooked. The most important thing to be measuring, all the time, is profit. Expenses out versus revenue in. That’s it. It’s non-negotiable. Accurately tracking your business’ profitability— and striving to maintain and increase it— should take priority over every other statistical consideration.
It’s vital to track every expense down to the penny, even the ones that may fall into the gray areas between business and personal. No matter what you’re trying to accomplish, if you’re not bringing in more than you’re putting out, you’re working with a limited runway.
This is most important for small businesses; startups should be lean if nothing else. It’s not even a matter of how much you’re profiting at first, simply that you are. From the moment you first sell something that cost you $5 to make for $10, not letting expenses outpace revenue is the way to stay on the winning path. This is entrepreneurship, not corporate investment strategy. Don’t overextend. Don’t see debt as an investment just yet. No matter how little it is, make money. Do that and you’ll always succeed on your own terms, however gradually.
Use a simple Google Sheet with two columns, one for expenses and one for revenue. Stay on top of it. If you look at one thing every day, make sure that’s it. See where you can cut the former and increase the latter. Widen the gap between the two, dollar by dollar, week by week. Whatever else is happening, if it’s shrinking that gap (or even worse, creating a deficit), stop it. And remember: paying the interest on a loan or investment is an expense.
Priority Two: You Call It
One thing I learned from Noah Kagan, founder of Sumo and early employee at Facebook, is to have a single yearly goal. This goal should define the needs of the company, and its attainment should be fundamental to its basic mission. In the early days of Facebook, that goal was a straightforward one: growth. Every action, every idea, was measured against this priority. If it didn’t contribute to growth, it wasn’t worth time and resources. If it inhibited growth, it was off the table.
The number to track in order to assess their success, then, was the number of users. Whatever got people to join was the right move. Facebook in concept depended on creating the biggest possible community of other users for each user to interact with. That’s how to judge the success of a social network, and that’s the number Zuckerberg & friends kept their eye on. Always.
At our software company, WebinarNinja, our most important number is that of active users. Not members or the number of people with access to our software, but the amount of people who actually use it regularly. We know that creating a collective experience of use is the key to spreading the word about the product and its merits. Whatever makes it easier or more attractive to not only pay us, but use the thing, is what we’re going to do. If that means constantly making the dashboard more user-friendly, so be it. If it means creating more templates, fine. Whatever makes a customer more likely to take advantage of what they’ve bought is what we’ll do.
Define your own goal, and identify the statistic that best represents it. We know what will bring about the fulfillment of our ultimate goals at Webinar Ninja. Zuckerberg knew what would make Facebook truly work. The challenge for every entrepreneur is to focus their work on what number will bring the company to its fullest potential.
That’s going to be a different number for everyone, but once you’ve discovered what it is, never take your eye off of it. Create long and short-term goals. Establish time frames. Identify milestones. Celebrate statistical achievements that represent the specific progress you want most. Reward yourself and your team. The numbers game can be as exciting and fun as..well, an actual game.
Focusing on just a few key stats can be incredibly motivating, and— perhaps more importantly for new entrepreneurs— incredibly simplifying. Be lean, not just in your strict management of expenses, but in the strictness of your focus. Your brain can only track so much. Avoid “analysis paralysis.” Sink your teeth into what matters most, and don’t let go.