When metrics are dangerous

When are metrics dangerous? When they lead to making decisions that put your venture in peril.

I was talking with a founder who was enthusiastic about his progress. Revenue up 300% over last year! Team size up by 500%! He committed to raising $1.5M in a seed round with numbers like that.

Then I started to dig deeper. What was last year’s revenue? $100k. What is this year’s expected revenue? $300k. Yes, he tripled his revenue. But is this the signal to invest all of his energies and bet the company on a seed raise?

Photo by Arie Wubben on Unsplash

Metrics are beneficial and also very dangerous. The purpose of metrics is to help sort signals from noise. If you look at the wrong metric, you will miss critical signals. Or worse, interpret false signals that lead you to lose everything.

When revenue is below $1M, the percentage revenue increase is meaningless. Indeed, all metrics at this very early stage are noise because they have no reference and no history.

At this initial stage, the founder is at the very beginning of H1 (Credibility). The focus of H1 is finding problem-solution fit, and specifically, the value innovation. Problem-solution fit focuses on identifying what specific job-to-be-done you propose to solve in a way that adds 10x value to the target user. This means mapping each step of the interaction to see the one subcomponent that is “broken”. You want to understand precisely why a buyer chooses you – what makes your solution more valuable than their other options, including doing nothing.

Continue reading