You’re proud of your startup. From conception to birth, you’ve doted on it. Now, it’s growing and providing tons of data for you to examine. Like a beaming parent, you explore the information eagerly, pleased at your company’s progress. But beware the blind spot all moms and dads face: Your apparent success might not be all that successful.
Entrepreneurs look at facts and figures far differently from investors and board members; consequently, they often overlook or misunderstand the growth metrics at their fingertips. As with anything in life, they must see the company’s data with open and accepting eyes.
Some growth metrics will highlight success; others will cast shadows of doubt. A founder’s job is as much a leader as an interpreter for everyone from employees to shareholders. Without old-fashioned arm’s length exploration, emerging business leaders might discover they know much less about their companies — and how to appropriately discuss them and move forward — than they presumed.
Let’s consider a startup’s raw numbers. From all accounts, the organization appears to be going like gangbusters. Then, the profit margin dips suddenly for a couple of months with no explanation. Investors get cold feet and ask questions. What they haven’t been told is that money is being funneled into contractor work, which is going to produce long-term expectations. Instead, all they see are unmet goals.
It’s up to entrepreneurs to lead the charge and send out the right numbers to showcase their organizations’ true progress. When they deliver data that gives a half-picture of what’s occurring, their credibility suffers. Everyone knows inflated numbers come back to bite; they can even lead to legal wars. Rather than earning and burning trust, entrepreneurs must foster exceptional partner relationships that will grow even when times get tough.
If that isn’t warning enough to be careful about data, founders should contemplate how disseminating poor data sets leads to lost business acquaintances. Business “buddies” don’t hang around long with disreputable people. Our society is quick to associate guilt by proxy; the last thing anyone wants is to be professionally defined by a close contact with poor judgment.
So what are the right growth metrics for startups, and how do entrepreneurs unearth and evaluate them?
In most cases, they start with facts that are never skewed. Yes, it can be difficult to explain the variables behind seemingly poor raw metrics, but it’s worse to use the wrong ones just because they look more attractive.
Instead of relying on traditional reporting methods, businesses must start to rethink the way they collect, evaluate, and organize their information. In other words, their leaders must fearlessly swallow their egos and put their full support into adapting to new technologies that help tell the whole story, not just a chapter or two.
Founders ready to avoid misrepresenting their startups should take these first steps to spot misleading growth metrics before they make their way to investors:
Don’t settle for a review of your data reports; do a deep dive to understand how the numbers are culled and compiled. You are ultimately the last bastion of truth before those numbers go out, so be certain everything is accurate and explainable.
Even innocent mistakes can end in serious headaches and wasted research-filled hours. And one mistake leads to doubt, ultimately snowballing with every new discrepancy. Partners have little patience for constant excuses.
Think like a toddler instead of a grown-up when faced with your growth metrics. Every kid asks “Why?” a million times to get to the truth — and you need to be equally curious and bold. Your consistent inquiries might lead to powerful discoveries.
For example, you might find out your team doesn’t have the right tools, reporting methods, or understanding to provide a satisfactory metrics-based report. If that’s true, implement solutions to those problems to ensure you avoid similar trouble going forward.
If you truly work to stay on top of your growth metrics and reports, you’ll start to see patterns in the numbers. This knowledge will help add crucial context when blips appear in your startup’s financial heartbeat.
If you’re not willing to give reporting your all, you’ll wind up blindsided when something goes wrong or your investors balk at the first sign of trouble. Of course, numbers always show hiccups; your job is to look closer to find and eliminate problems before they reach devastating conclusions.
Every entrepreneur deserves a bit of chest-thumping, but it shouldn’t get in the way of objectivity. When you dive deep into your data and spend time figuring out the “why” behind patterns, you’ll be able to avoid surprises, keep your investors happy, and enhance your company’s blueprint for future success.
Daniel Wesley is a Florida-based entrepreneur with a degree in nuclear medicine. He is the Founder and CEO of Quote.com, inspiring his team one word at a time. His work has been featured in Forbes, Mashable, The Huffington Post, Fox Small Business, Entrepreneur, and TIME Magazine. You can find him on LinkedIn.