Beware of Vanity KPIs

Startup Founders and Investors, Beware of the Vanity KPI

by Josef Katz on June 9, 2016

in Marketing Strategy,Start Ups,Testing and Metrics

Vanity can easily overtake wisdom. It usually overtakes common sense. – Julian Casablancas

I recently wrote that startups require focus and identified KPIs (Key Performance Indicators) as one area startups should focus on. However, having worked (advised and mentored) a number of different startups with various business models, I have noticed that it is amazing to watch how a KPI can become a vanity KPI.

A vanity KPI is sometimes used to talk about how great the company is doing when in reality, the KPI in question has little to do with the true health of the business or the bottom line. Many times people will pat themselves on the back for hitting a specified vanity KPI without realizing how little its “success” contributes to the business.

Every business has different indicators to their success. It is incumbent on the leadership team, investors and team members to question KPIs which seem too good to be true and may not be true indicators for the health of the business.

Let’s take a look at a few examples of Vanity KPIs:

A founder starts bragging about the product’s users counts and wants to cast the widest net to count “users.” Yet the data point in this case could be smoke and mirrors which are used to hide some major flaw in the business. This exaggerated KPI is one way to distract from a gaping hole in the business. This diversion can in some cases allow the team to avoid the difficult discussion about the core issue.

Side note to investors – don’t be fooled by large numbers. In today’s marketing environment it is easy to generate traffic and users for an app, website or social media platform. Oh yeah, and stop worrying about download numbers from the app store.  Those can be gamed too easily.  My advice (take it if you want) is to question every large number presented to you and dig into how it is helping the business.

Focus instead on what might be a harder KPI to generate. Get people signed up, engaged or paying for the service. I know they have to find the service first but if you want to focus on the top of the funnel metrics, do yourself a favor and watch the conversion rates too.

Many companies brag about their social media footprint. You know the type of company, they have X million fans, followers or “influencers” (today’s most overused marketing buzzword).  However, did you ask how they built those audiences or if those audiences engage with the brand?

Note – There are some great brands with huge and engaged followings, but beware if you start hearing how “amazing our social media platforms are” when talking to someone in a startup. Don’t get caught up in the hype.

More than once I have heard “we had a record sales month.” Unfortunately, there are good sales and bad sales. Good sales match the company’s product and long-term business strategy. Bad sales help short-term reporting but negatively impact the business since the “sale” doesn’t match the core business and has no potential to create long-term relationships and ongoing revenue.

Note – Investors, protect your investment and dig into any major sales to make sure they are going to serve the business long term. If not, figure out why and understand what is going on. Don’t be caught in the vanity of the big sales numbers over the long-term success of the business.

lies and statistics in startupsDid your company report some “out of this world” year over year (YoY) growth stats? In some cases, this can be another key flag there is something amiss. Start asking why.  Was the last year a bad one or did they have a huge marketing push? How much marketing spend did it take to achieve these goals and was the spend in line with expectations? Did your company overspend to hit a vanity metric? If the focus is on the vanity KPI, your company may be struggling sooner than later. Remember there are no shortcuts to success.

Note – I use YoY growth to show marketing success but also look at month over month growth along with cost per acquisition metrics and the key conversion rates to get the full picture.

Remember the old saying “there are lies, damn lies and statistics.” Don’t let a statistic or vanity KPI run your business.

Forget about just looking good on paper. Drive your business to success by focusing, sharing and rallying your troops around the KPIs which will delivery ROI to your business.

What KPIs does your business live by and how does the team rally around them?

 

Leave a Comment

Previous post: