|#539 MWAVC| — Clarity Metrics, not Vanity Metrics 📊
True indicator of company performance
Hi,
Welcome (back) to MWAVC, a newsletter about finance, investing, venture capital and all that jazz. My name is Ato (more about me here and here) and I try to write every single day, inspired by Seth Godin (Seth’s Blog) and Fred Wilson (AVC). I haven’t done the best job over the last few months (read: years 😬), but I’m working to be better and more consistent, even as I manage this crazy schedule.
I’ve been investing in some way shape or form for the last 12+ years and now work with one of the pre-eminent VC firms in Africa - Microtraction, and the family office that acts as the GP - Pave Investments. Read more on us here and here. Most of these writing are stuff I find interesting that I’d like to share and hear your thoughts on. This is also an outlet for my thoughts, lessons, asks etc. and I think you’d find most of it valuable if you’re remotely interested in learning about venture capital.
I’d be developing the content more, including things I think will be helpful and would appreciate any feedback on what’s working vs. not, and what could be helpful for you over the long term. If you’d like to sign up, you can do so here. Or just read on.
And BTW, If you are a (or know any) pre-seed, seed or Series A investor, looking to co-invest in African founders, please introduce them to me (ato@microtraction.com). Happy to learn about the next generation of category-defining businesses.
Clarity Metrics, not Vanity Metrics
It looks like this week is all about investor updates and how to communicate information on your company in the best possible, and clear, way. There are a lot of investor updates that share a lot, but nothing at the same time. And often times, we’re left with more questions than answers…which is not a good sign *yikes*. I’m sure you’ve heard the term “vanity metrics” before. Not entirely useless, but they do not get to the crux of business building and performance. And it’s not our fault; like anything else, we want to present ourselves in the best possible light. This article might change your mind on a few things. I re-read this piece I’m Sorry, But Those Are Vanity Metrics from First Round Review and this extract stood out to me.
The metrics that are elevated — from daily active users to revenue growth — effectively compare companies, but don’t necessarily help them run better. In fact, these measurements often slant toward what investors want to measure, showing if a company is valuable, not how it can create more value.
“Vanity metrics aren’t useless. They have their use case, but are points of comparison for other people to evaluate you,” Tabb says. “Don’t focus on them internally. Tracking clarity metrics builds great businesses.
Vanity metrics are surface-level metrics. They’re often large measures, like number of downloads, that impress others. Use them to initiate partnerships and gain a following
Clarity metrics are operational metrics, like the number of minutes a day your product actually gets used or how long it took for a user to get service. These are the hidden gears that drive growth. Use them to solidify your competitive advantage.
If you’re selling a service, your vanity metric is most often the number of people using your service. Your goal is to answer this question: are our customers getting good service?
Zero in on the earliest act of service. Clarity metrics predict. For those in service-based companies, look earlier than you might to pinpoint that metric. Take car-sharing services. The often referenced metric is number of monthly active riders. “But that’s the vanity metric. It doesn’t explain why customers keep coming back or how services can improve. To make service better, measure pickup times.
According to Tabb, advertising companies are dangerously susceptible to vanity metrics. But ad impressions represent exposure not results. They also don’t predict behavior.
“Don’t just measure which clicks generate orders. Back it up and break it down. Follow users from their very first point of contact with you to their behavior on your site and the actual transaction.
“Once you get a user, attribute where you got them, how much you paid for them, and the time it takes to recover from that acquisition cost. Don’t stay on the surface. You paid for those clicks. You need to know. And that’s the only way you’ll truly understand your customer’s lifetime value,” says Tabb.
I hope this is helpful to some founders out there. I’m happy to speak more on this with anyone looking to build a company and wants feedback. Thinking of bringing my Office Hours back for founders to book 30 minutes to tell me about themselves, their businesses and ask for feedback, but haven’t made a full decision yet. Should I? 😬 (I’ve got 5 yeses to this so far, and looking for 5 more before I push it.
Currently Reading 🎒
Got a couple of open tabs with articles I need to read. Join me on that journey - India Stack, Excel Never Dies, Platforms and Ecosystems, Union Square Ventures: The Thinkers, How to do Great Work.
Currently Listening 🎧
Think Big and Move Fast on Invest like the Best. This was the obvious next step after listening to How To Make A Few Billion Dollars: Brad Jacobs on Founders. This man is wild. How many people have built 7 billion dollar or multi-billion dollar enterprises? Brad Jacobs is one of them. Take some notes.
If you are a (or know any) pre-seed, seed or Series A investor, looking to co-invest in African founders, please introduce them to me (ato@microtraction.com) and let’s do some work together.
Remember: “Until the lion learns to write, every story will glorify the hunter.”
Please share and subscribe as well.
Till tomorrow,
AB
Paul G's 'How to Do Great Work' is my favourite essay. Got very excited seeing it on your list! I'll check out the others. Thanks for the recs!