The dangers of presenting irrelevant metrics

This post is going to be short and sweet. If you’re part of the tech startup scene, you’ve very likely come across the distinction between vanity metrics and actionable metrics. In a nutshell, vanity metrics don’t drive value for your startup and actionable metrics do. You would think that startups would only track and measure their performance against those metrics that drive value, but this is far from being the case. In the last week alone, I’ve met with three startups whose pitches focused exclusively on irrelevant metrics.

The reason why startups, especially at the earliest stages, present irrelevant metrics to investors is because the metrics that matter often have yet to be realized. A startup that has only been around for six months might have a lot of visitors to their site, or even a lot of registered users. However, these users may not be spending any time on the site. If the startup is a social network that plans to monetize through advertising, this isn’t a good signal. Buyers may not be engaging with sellers at another startup. This is a cause for concern if the startup is a marketplace that generates commissions from transactions.

Since founders are trying to sell their startup’s performance to the investor, they want to paint as favorable a picture as possible. Unfortunately, there are two problems in overlooking the metrics that matter during an investor pitch. The first is that the smart investors who you want to be working with will realize this. You may raise your round, but you’ll essentially be self selecting those investors who are unlikely to understand and add value to your business. The second problem is much greater. If you repeatedly emphasize irrelevant metrics during your presentations, you may start to believe your own fairytales. Perception may eventually become reality and you may work on optimizing your startup’s performance on those metrics that don’t drive any value.

Somewhat unexpectedly, the solution is not to include only those metrics that matter in your presentation. You should also include baseline numbers like visitors and registered users even if they are not indicative of user engagement as they show that you have the user base necessary to be successful if you solve the engagement problem. However, it’s vital that you complement these baseline numbers with what really matters. Although it’s best if what really matters is also on solid footing, this does not need to be the case. Acknowledging that the metrics that matter have yet to be realized, showing what you’ve tried to improve them in the past, and demonstrating what you will be doing for them to reach successful levels in the future, is far better than simply ignoring them.