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Startups: Five Mistakes Business Owners Make When Defining Performance Metrics

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For any business owner, it's vital \you can always quickly see how well your company is performing. Larger, more established companies have generally used key performance indicators (or KPI) to drive performance for some time now, but startups cannot ignore the value of these metrics. If you own a startup, it's vital you start to measure the right things from the first day of trading. Learn from your competitors and develop the right performance metrics by avoiding these five common mistakes.

Vanity metrics

Vanity metrics are still common across businesses of all types and sizes. These measures are the big numbers that help senior executives and managers feel good about the business, without adding any real value. Vanity metrics often use up valuable resources and divert attention away from the really important stuff.

It's understandable that startup managers choose vanity metrics because they're often trying to grow their presence in the market. For example, tracking the number of visitors to your website each month can seem like a positive measure when you can see the figures increasing, but if nobody then actually buys anything, the metric is largely worthless.

Resist the temptation to track things that make you feel good, and focus on the numbers that can actually help you grow your business.

Too many measurements

Startup owners are often thirsty for knowledge. In an exciting new market, it's often tempting to look at every aspect of the business, tracking every measure in absolute detail. In fact, if you're looking at too many measures, you won't actually have time to do anything about what they tell you.

Relate the metrics to your critical success factors, and focus on the measures vital to your business model. For example, if you offer SaaS (software as a service), you need to know what you need to do to acquire and keep your customers. The metrics for this business model are likely to look very different to the KPI of a transactional, retail business.

Complexity metrics

The ideal metric does not need explanation. You shouldn't need to spend time talking to your employees, peers or customers about how they should interpret a measure. The best performance metrics stimulate discussion and debate and allow your team members to focus on what they can do to improve the business. Any unnecessary explanation or analysis will distract your employees from this critical task.

Errors and inaccuracies

People will occasionally make errors, but a metric that is fundamentally inaccurate is no use to your startup. For example, if you want to measure the sales conversion rate, a metric only including certain customers or transactions only tells you half the story. Similarly, if you have to make too many assumptions with the source information, the metrics aren't going to add much value to your business.

Startups often compromise because they are new. Startup owners believe it's acceptable to work with 'rough' numbers because nobody has yet had time to set up accurate measurements. This approach won't help you manage your business. Choose metrics you can rely on from day one, so you know when you make decisions, you can really influence the outcome.

Irrelevant time periods

Some measures relate well to any period. For example, it's important for a contact center manager to know about staff absence every day because he or she needs to consider the effect on call handling capacity. In other cases, metrics only really add value over a longer period.

For example, a sales conversion rate generally has more meaning over a longer time period. Performance can often rise and fall sharply between days, but, over time, you can see how your teams are performing. Look at rates and ratios over weeks or months, instead of absolute daily numbers that don't really tell you what 'good' looks like.

If you don't look at a relevant trend, there's a risk you will make a rash decision. In the early days of your startup, it's tempting to make quick changes to react to the numbers you are measuring, but a degree of patience (and a longer term view) will stop you acting too hastily.

Key performance indicators are relevant to businesses of any size, and startup owners should use these metrics from day one. Choose measures that add value to the business, so you can quickly and accurately pinpoint where you need to improve. Check out companies like Steton Technology Group to see how they can assist you.