While previous posts offer guidance on which metrics to prioritise (KPIs) or creating alignment across teams (OKRs), here we go into more detail on how startups can close the circle on ‘people, systems and processes’ to manage growth by metrics.
Harness the ‘power of one metric’ to foster an output-orientated culture.
Drill-down to understand the strategic drivers of high-level financial metrics.
KPI trees can help to define data sources and map financial metrics onto operational ones.
Think holistically about ‘people, systems and processes’ when adopting metrics.
Make use of organisational dashboards and reporting tools to democratise your data and monitor performance at relevant intervals.
The Power of One Metric
Depending on the nature of their business, founders develop mantras to achieve organisational objectives. Perhaps the most well-known is that of Zappos, whose employees strive to “delight customers”, which in turn, sets the culture and core values of the entire organisation. To make these objectives tangible (or at least, measurable) how can founders convert them into outputs or quantify them using metrics?
Now of course, in the case of Zappos, this doesn’t mean driving the whole organisation towards a perfect NPS score at the expense of profitability or flawless Trustpilot reviews by giving away endless compensation for operational setbacks. However, many startups do achieve superior performance by adopting a single metric that focuses efforts on what is most important for their business model to work, their sector or in a particular point in time. For instance, the main growth driver for a ‘clicks to bricks’ distributor of organic foods might be “more stock more stores”, or the measure of success for a just-in-time furniture company might be “zero stock, zero lead time”.
In other sectors, such as Software as a Service (SaaS), founders might articulate progress in purely financial terms, such as one company who adopted a play on words from the hit US police series: “5:50 Five-O” to communicate its goal for achieving £5 million EBITDA, £50 million revenue in five years (although, I’m not sure what the “O” stood for).
While some are more effective than others, setting priorities by matching KPIs with operational drivers that move the needle can offer a powerful tool.
People, Systems and Processes
There is a common tendency to match an increase in outputs with linearly more resources, which might imply for instance, that to double the size of the business you need to double your marketing budget. By taking a data-driven approach to such decisions you can often contain (or at least validate) gut instinct.
Checks and balances become increasingly important when a startup surpasses a certain size (often characterised as the ‘fifty-person’ mark), requiring new processes to cope with the added complexity of managing a larger organization. By setting up the systems and processes around collecting data and reporting metrics, and creating accountability for those that matter, founders can continue to match resources to value-generating activities, and preserve an output-orientated culture.
The Tree of Knowledge
KPI Trees are a graphical method of representing business activities in a simple and intuitive way (see example), and is a useful exercise in: 1) Linking metrics to teams or individuals who have the power to affect them; 2) Observing causal links between metrics and instances where they might conflict with or complement each other. For example, an increase in missed container delivery slots will cause a delay in customer delivery time, while a fall in NPS score will impact customer repeat rate and hence topline revenue growth. Finally, by mapping out activities, it is possible to locate data sources that can drive various reporting tools to track such metrics.
Democratising data with dashboards
Whether you’re reporting revenue to The Board, presenting the success of your last marketing campaign to the Chief Marketing Officer or visualising gaps in your delivery system, real-time business intelligence (BI) and organizational dashboards are a useful way of monitoring your operational metrics in a clear and transparent way.
As opposed to a tedious, time-consuming process, BI tools help to automate reporting, bringing data to life through data aggregation and visualisation. Following a review of the most popular tools around, I spare you the lengthy summary you might see in TechCrunch to give you the pros and cons in 140 characters with a Top 10 Review in Tweets.
Good to Great by Jim Collins on the “Fifty Person” mark and challenges of accountability
The difference between between metrics and KPIs and why it matters Grow (dashboard tool)
The power of habit by Charles Duhigg for Huffington Post