Tag Archives: Metrics

An order of magnitude difference in performance

I was recently comparing the metrics of two companies which were founded at similar dates and operating in the same space.

Despite this similarity, there was a 15-fold difference in the companies’ core performance metric. This order of magnitude difference was the result of just two key choices which differentiated the approaches of the two companies.

Very often we look for operational improvements to gain a few percentage points here and there. And these are indeed important.

However, they only become important after you have made the right choice in those areas that create an order of magnitude difference in performance. Such areas often exist. And given the large payoff they offer, it’s worth spending time to think about what they are for your business.

Operationally-focused CFO’s

I recently read a post by Mark Suster from Upfront Ventures about how operationally-focused CFO’s can transform the business of startups.

Basically, Mark states that business-minded CFO’s can take a lot of the process work off of the shoulder’s of a startup CEO. This allows the CEO to focus on their most important responsibilities like setting strategy, hiring, and fundraising. Some examples of the key work which great CFO’s do includes setting metrics, preparing board presentations, and managing cash. Mark then goes on to give examples of great CFO’s at Upfront’s companies.

I fully agree with Mark’s observations and have seen the same dynamic play out at our startups.

Muge Basaran at Dugun is a great operationally-focused CFO who complements Dugun’s CEO Emek Kirbiyik. There has been a step change increase in Dugun’s ability to set, track, hit, and revise its metrics in line with the company’s strategy since Muge joined the company in 2014.


Metrics in startup press releases

We recently completed a new funding round for one of our startups. The startup prepared a press release for the round and the founder shared it with me to get my feedback.

As is the case for most press releases around funding rounds, it didn’t contain any numbers highlighting the company’s absolute performance. Instead, it shared growth rates for specific performance metrics. So rather than say that the company achieved X on metric Y, it said that the company achieved a growth of Z% on metric Y during a specific time period. This is a tactic that startups often use to signal how well they’re performing without sharing their actual performance. However, unless we also know the base figure from which the growth rate emerged, it doesn’t carry much insight into the company’s actual performance.

I believe that companies shouldn’t fear sharing their high-level absolute performance metrics like their number of active users, transactions, and net revenue. The reason is that being aware of an opportunity and being able to capture that opportunity are very different things. Companies succeed because of their ability to capture opportunities, not because of their knowledge of the size of the opportunity in a specific market.

However, my feedback on this press release wasn’t about the use of growth rates rather than absolute performance metrics. Instead, it was on the specific performance metric which the company was using to demonstrate its performance. In particular, the company had chosen the growth in its valuation as an indication of its performance.

A startup’s valuation is simply the value which one investor, or a small group of investors who are strongly influenced by the lead investor, places on the company at a given point in time. While it is derived from the fundamentals of the company, it’s subject to the whims of a small group of people and market multiples at a certain moment in time. What ultimately matters is not an intermediate valuation but the valuation at exit. And that will be determined by a much larger group of people (if not the entire market in the case that the company goes public) at a point in time where market multiples may be very different.

So rather than highlight your company’s valuation in a funding round, if you want to show how well you’re performing, you should highlight a fundamental performance metric like your number of active users, transactions, or net revenue. That’s much more reflective of the underlying strength of your company than the valuation which one or a small group of people assign to your company at a given moment in time.