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Don’t Get Distracted By Your Data

April 14, 2009 By Nathan Kaiser 1 Comment
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From John Dietz at Adometry

As a technology-based startup, we have access to a lot of data. Thanks to Google Analytics, I can see how many visitors I’ve had to my website from Norway in the last month (1), or than 4% of my visitors are using Google’s Chrome browser. But unless I’m building a Chrome targeted web app in Norwegian, this isn’t a great help to me. There’s a lot more than just web traffic that I can look at, here are some examples:

  • Site traffic – At a minimum everyone should have some idea about the traffic on their web site.  This can come from server logs, Google Analytics, Web Trends, Omniture, etc.  Understanding how people use your website or application is key to most new businesses.
  • Sales data – Everyone should keep basic metrics about their sales pipeline, how long it takes to make a sale for various industries, who are making the decisions, what are the price points, where are sales contacts coming in etc.
  • Advertising data – If you are advertising (search, display, traditional, etc.), understand who you are hitting with your ads and what kinds of responses you are getting.
  • Search engine data – Pay attention to your search rankings and the kinds of traffic it is generating (which you should be able to get from your site traffic data).
  • User registration data – You may be collecting some basic demographic data from your users if they have to register. This kind of data can be very valuable in understanding what kinds of users you have, and what kinds of users end up paying for your service.
  • Operational data – Your application has databases, application servers, web servers, message queues, etc. Your servers can probably report on their resource usage as well: disk space, RAM, CPU, etc.

It can be easy to get sucked up into tracking all of this data somehow believing it will help my business. Here’s what I do:

  1. Know what data is available – Start with what you have or can easily get
  2. Which metrics reflect my business – What metrics do I have that tell me how well I’m doing? This depends on the business, for me it’s primarily my sales numbers and retention numbers.
  3. What metrics affect my business – What metrics are early indicators or drivers of my business? My advertising data and lead conversion data drive my sales, my operational data drives my customer retention (when combined with the right functionality), etc.
  4. Which metrics distract me from by business – Everything else might be interesting, but doesn’t contribute to your business, so limit your efforts in these areas.
  5. Track and monitor my reflective and affective metrics, ignore the distractive metrics – Now that we know what really matters, we can monitor (in some case automatically, like operational metrics) my company’s performance and the leading indicators that affect that performance.  These are the ones to focus on, and it’s important to know the difference.

John Dietz (LinkedIn profile) is a co-founder of Adometry, a startup focused on online advertising metrics and writes about online advertising metrics at blog.adometry.com.

Filed Under: John Dietz, Metrics, Startups

Metrics Will Determine Whether Your Business Is Successful of Not

March 10, 2009 By Nathan Kaiser 1 Comment

Metrics for Entrepreneurs, First in a Series by John Dietz, Adometry

Doing a startup? You’d better get really comfortable in spreadsheets. You will spend more time than you might have expected talking about market size, cash-flow, revenue projections, valuations, cap tables, traffic, capacity planning, and more, and these are all when you are just starting out. What you will discover (if you haven’t already) is that each of these can take a lot of effort, research, and a certain amount of reasonable expectations. This is an easy area to get stuck in, either by focusing too much time trying to get too much precision, or not spending enough time to really validate your idea.

If you end up spending all of your time doing research, watching market indicators, and refining your estimates, then you are likely missing other aspects of running your business, like talking with customers, building your products, marketing, etc. If you don’t spend at least some time, then you’re going to be hurt later when you find there isn’t sufficient market, or that there’s really no business opportunity, or even that you haven’t planned for enough capacity to handle your newfound success.

So here are a few tips to help you find the right level of research, forecasting, and elaborate spreadsheet formulas:

Do your homework. Don’t make up numbers, at least base them on recommendations from experts, research or your personal knowledge assuming you have relevant industry experience. There are plenty of resources available for industry metrics (depending on your industry), there are decent resources for standard costs, and your own support group of lawyers, bankers, investors, accountants, and other entrepreneurs can frequently help with some of these.

Be honest with yourself. When you talk to investors and customers, you will always want to focus on the positive, but be realistic.  When doing research, some data may help your case, other data my not. Don’t ignore the negative data, it’s your job to understand both the risks and the upsides. If you consistently use the most optimistic research, your results will almost certainly be off, and you aren’t doing yourself or your investors a favor by overstating your case.

Find the right level. There is a point of diminishing returns when doing research and forecasting numbers for your business. You don’t need to forecast every salary you are going to pay to estimate your labor costs, find a nice average, perhaps by general job role especially if you will have a large number of people in that role. You don’t necessarily need to account for every expected transaction when planning for capacity, just make sure you get the main ones. Remember the difference between precision and accuracy.

Identify the inflection points. When building your revenue projections, or your capacity plans, or your customer growth, you will likely end up with a spreadsheet formula that uses a series of estimates (hopefully based on doing your homework) to generate some final numbers. You will find that small changes to some of your estimates will make very large changes to your final results, and other changes won’t significantly impact the data. Focus your efforts on the ones that make the big changes, and don’t be afraid to specify ranges of values early in your process. It can be instrumental for you to look at both optimistic and pessimistic estimates, the actual values are likely to be somewhere in between.

Sniff Test. If after everything else, it just feels wrong, it probably is. Data and metrics don’t have value by themselves, it always takes someone to support and present them, and you shouldn’t present data you don’t feel comfortable with or don’t understand. Check again and make sure you have made the right assumptions and that you’ve applied the data correctly. It’s your credibility on the line here. I don’t know anyone who could get away with a shrug and blaming the data when things go south.

John Dietz (LinkedIn profile) is a co-founder of Adometry, a startup focused on online advertising metrics and writes about online advertising metrics at blog.adometry.com.

Filed Under: Metrics, Startups
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