Here at The $100 MBA, we’re all about doing the math. Crunching the numbers is vital to the success of any business. But which numbers matter most? There are so many metrics to follow: churn rates, subscription rates, traffic, revenue…the list goes on. And even the most analytical mind has to confront one harsh reality— you can’t follow them all. Not closely, anyway.
With so much to consider, what’s the priority? The answer lies in deciding which numbers paint the most accurate picture of how your business is doing. The metrics that matter are the ones that give you the information you need to plan for growth. By focusing on these, you can not just analyze, but analyze efficiently. You can crunch the numbers in a way that leads to results, not just knowledge!
How People Do It Wrong
There are two ways to do analytics that can hurt your business. The first is obvious: under-doing it (or worse, not doing it at all). Some people, especially those who aren’t mathematically inclined, find analytics too daunting. They’re so intimidated by the chaos of numbers that they can’t imagine themselves extracting any useful info from it.
The second is by overdoing it. While the urge to be driven by numbers is a good and practical one, there’s such a thing as over-analysis. Spending too much time on that chaos of numbers (even if it looks less chaotic to some) is counterproductive. The truly useful stuff gets lost in the torrent of information.
The solution to both of these problems is to simplify. By restricting your analytics to just one or two key metrics, you can find the path between opposite pitfalls. The mathematically challenged can handle one or two. The numbers nerds can excel by focusing exclusively on them. Either way, you get the information that makes the biggest difference.
For my money (and yours), there are two metrics that should take precedence over all others. The first is prescriptive, and the same for any business no matter what you’re selling. The second is more subjective, and depends on the business in question.
Metric #1: Profitability
Your business has to make money to succeed. Incredible revelation, right? But so many new entrepreneurs get this wrong, and it’s why their companies fail. They believe that if the product is brilliant enough or the marketing is clever enough, success is guaranteed. I’ll say it ‘till I’m blue in the face: success is never guaranteed. Not by any product, no matter how incredible. Amazing, potentially world-altering products that could genuinely improve people’s lives have failed. Fantastic, innovative and memorable marketing campaigns have failed. Any business can fail, because any business can operate beyond its means.
When profitability isn’t the priority, failure is only a matter of time, all other factors being optimal. If you’re spending more than you’re taking in for too long, it can only end one way. Personally, I think every second spent in the red is “too long,” but at the very least, growth needs to be demonstrably trending upwards to justify your expenses. It doesn’t take an MBA to understand, but too many new entrepreneurs fail to live by this philosophy— and their companies pay the price.
A simple Excel sheet (or, for the romantics, a literal set of books) is all it takes to track this all-encompassing metric. It comes down to two columns: one to total what you’re spending on everything from materials to salaries, and one to total what you’re bringing in via sales. The difference between the two is your profitability, or lack thereof. It’s that easy.
The first year is the toughest, so it’s ok if these numbers are uncomfortably close to each other. You’re trying to stay afloat despite startup costs and your relative lack of exposure. If you’re in the black, you’re doing it right. If you’re in the red, it’s still ok! But it’s time to figure out how to balance the scales. Profit margins are allowed to be thin at this stage. If there’s no profit, it’s important that the margins of loss are thin enough to be sustainable until things turn around— and crucial that there be valid reasons to think they will.
Again, that means realistic growth projections, not the possibility of a loan or other investment that would cede control of your business without actually solving the problem. Spend less if you have to. Charge more if you have to. But get to profitability no matter what it takes.
Metric #2: Your Single Annual Goal
I learned this one from Noah Kagan, creator of AppSumo and Sumo. He was also an early employee at Facebook, back in the days when no one outside the tech world knew who Mark Zuckerberg was. From Zuckerberg, Kagan learned that each year (especially the first year), should have a singular focus. One metric— other than profitability, of course— should take priority over the rest.
That metric should be something that will spur your business to grow. For Facebook, it was an obvious choice: signups. In order to make Facebook relevant, it had to attract as many users as possible. All that mattered was how many people were on it. Every decision was seen in this light. If an idea was likely to add users, it got the green light. If it didn’t, they didn’t waste their resources on it— even if it was a good idea otherwise. Zuckerberg knew that popularity was the key to every other goal he could envision for the business.
At WebinarNinja, our early goal was similar. We prioritized the number of active users the platform had. Our growth depended on having customers who actually used the product regularly, not just members to count on our rolls. Whatever we could do to make using the software easier, more intuitive, and more fun, we did. That’s what mattered, and the rest was put aside.
Decide what goal would set your business up for achieving future goals. Is it a certain amount of revenue to reinvest? Is it a number of customers? Is it a percentage increase in sales? Figure out what it is, and pursue it relentlessly, even at the expense of other perfectly good— but less vital— goals.
Keep It Simple
Realizing that you only need to focus on two metrics should be a big relief! You don’t have to track the endless streams of numbers that every business generates. Things like social media traffic are all well and good, but they can wait. These B-level metrics can be left to your analytics software and looked at on a monthly basis. The first year should be about the two goals described here. Otherwise, you open yourself up to a classic business-killing syndrome: Analysis Paralysis. You get lost in the numbers, and you can’t find your way.
I love statistics. I take a true nerd’s pleasure in watching numbers tell a story. I know as well as anyone how hard it can be to stop looking at certain metrics and focus on the central plot. I’ve had to force myself to stop spending time on numbers that simply aren’t consequential enough. Getting that ROI on my time and resources required doing less, which was a tough pill to swallow. But that’s what efficiency is about: getting the most out of the effort you give. It’s how businesses thrive, no matter what kind.