Vanity Metrics vs. Actionable Metrics – Guest Post by Eric Ries
Written by Tim Ferriss
Topics: Marketing
Vanity metrics: good for feeling awesome, bad for action. (photo source: UK Guardian)This is a guest post by serial entrepreneur Eric Ries. He was most recently co-founder and CTO of IMVU, which has more than 20 million registered users and generates $1,000,000+ in revenue per month. Eric is also a venture advisor to Kleiner Perkins.
How do you get to $1,000,000 per month in sales? By testing the right things. Eric is a metrics man.
Here is just one business-changing example, taken from the outstanding “How IMVU Learned its way to $10M a year” on Venture Hacks…
IMVU learned its way to product/market fit. They threw away their first product (40,000 lines of code that implemented an IM add-on) as they learned customers didn’t want it. They used customer development and agile software development to eventually discover customers who would pay for 3D animated chat software ($10M in revenue in 2007). IMVU learned to test their assumptions instead of executing them as if they were passed down from God.
Enter Eric Ries…
Vanity Metrics vs. Actionable Metrics
The only metrics that entrepreneurs should invest energy in collecting are those that help them make decisions. Unfortunately, the majority of data available in off-the-shelf analytics packages are what I call Vanity Metrics. They might make you feel good, but they don’t offer clear guidance for what to do.
And a complimentary post…
Lean analytics: Questions VCs should ask (and you’d better answer)
Recently, I was in Israel for a cloud computing conference and some meetings with local VCs. The folks at Gemini, a VC firm, organized an evening with their portfolio CEOs to discuss lean analytics for startups. I concluded the presentation with a list of metrics that a web-based startup should track. I guess they were the right questions; at the end of the evening, Guy Horowitz, my host for the event, said,
“I feel bad for the CEOs of my portfolio companies that aren’t here. Their next board meeting will be miserable.”
Not measuring the right things can be fatal. And VCs are in the business of separating the soon-to-be-dead from the fledgling successes. There’s nothing quite as good at doing this as the cold, hard light of analytics. So here’s the list, with a slide deck and some examples.
Here are two good posts that are about metrics and analytics. If you actually read both of them, you might find some conflicts between metrics that have value vs. the ones that investors may be interested in, but that is life for you.
