Measurement

The ability to get information about our businesses is greater than ever. 

• Dashboards update in real time. 

• Websites tell us where visitors came from, where they went and how long they stayed. 

• Social platforms count followers, impressions, clicks and engagement. 

• CRMs measure pipelines, open rates and clicks. 

• Accounting software produces reports at the touch of a button giving you access to your bottom line as it happens.

Almost everything can be measured.

This should make running a business easier, but curiously, it doesn't. 

Part of the problem, it would appear, is that we have confused the ability to measure something with the importance of measuring it. A little like in the 1980s when the amount spent on marketing almost became the measure of its success, numbers now seem to acquire authority simply by existing. 

Put a number on a dashboard, add a percentage change and perhaps a little arrow pointing upwards. Doesn’t it suddenly look terribly important? But a business can have a hundred accurate measurements and still have remarkably little useful information. 

• Revenue. 

• Followers. 

• Website traffic. 

• Enquiries. 

• Meetings. 

• Hours worked.

All are real. And all measurable. But are they telling you what you actually need to know? 

The Story

I have a soft spot for Tesco, having grown up around the corner from where Mr Cohen had his market stall. And in the 1990s, around the time I first started in business, Tesco became famous for understanding something rather more valuable than how much money had gone through its tills. 

It wanted to understand customers. And to do so, it launched Clubcard. 

Launched nationally in 1995, Clubcard gave Tesco detailed information about what people bought, how frequently they visited and how their behaviour changed over time. The supermarket could begin looking beyond aggregate sales figures and see patterns within them. 

That really was a superpower. It almost gave them cheat codes. 

Imagine two supermarkets each reporting £1 million of revenue this month. On a traditional dashboard, they look identical. But suppose one generated that revenue from a growing number of customers visiting more frequently, while the other relied on a shrinking group spending more because prices had risen. Same revenue. Very different businesses. One number tells you what happened. But with the underlying behaviour, you’re told what might happen next. 

Tesco's advantage wasn't that it discovered measurement. Retailers had been measuring sales for generations. But Tesco became better at measuring the things beneath the sales. 

And to be fair to Tesco, while other clubcards have arrived, and some even do a pretty good job, for the customer Tesco Clubcard remains in a league of its own among the UK supermarket loyalty cards. Only Nectar really competes and that’s because it is not tied to one retailer but covers everything from groceries to fitted kitchens. 

A similar lesson, in terms of metrics counting, can be found in social media.

For years, businesses have celebrated follower counts. A company with 100,000 followers must surely have built something more valuable than one with 5,000. Except, how many of those 100,000 people actually buy anything? 

A smaller audience might contain 5,000 precisely targeted customers who trust the business, recommend it and regularly purchase. 

I was having that exact conversation today. A new client has 100,000 people in an email list with a very good open rate. They’re very proud of it too. But they’re failing to get subscribers to join them at £5 a month! 

You can find businesses with huge online audiences and surprisingly modest revenues. And we all know of extraordinarily profitable companies whose founders seem to barely bother with social media.

The measurement isn't false. It just might not mean that much. 

Signal Versus Noise

There is a significant distinction between lagging and leading indicators. 

Revenue is generally a lagging indicator. By the time revenue falls, something has already happened. Perhaps enquiries fell three months earlier, or conversion weakened. Perhaps customers stopped returning, or the sales team lost two strong people. Revenue eventually records the consequences, but it doesn't necessarily reveal the cause. 

A leading indicator tries to look further upstream. If recurring revenue matters, customer retention might tell you more than this month's sales. And if recruitment is important, the quality of applicants may tell you more than the number of vacancies filled. Likewise, if customer loyalty matters, repeat purchasing might tell you considerably more than Instagram followers. 

Revenue, profit and cashflow all matter. Ultimately, businesses need financial results. 

But what should we watch before those results arrive? 

And why do founders often get this wrong? 

The easiest numbers to collect tend to become the numbers we manage. 

• Website traffic is wonderfully measurable. Customer trust isn't.

• Meetings can be counted. But the quality of decisions coming from them is harder to quantify. 

• Sales calls can be logged. But logging whether the sales team is having the right conversations is more difficult. 

And what’s the most seductive metric of all? 

Being busy. 

A full diary feels like evidence. 

Sometimes it means that demand is extraordinary. But then sometimes it means delegation is poor, processes are broken, and the founder has accidentally designed themselves the worst job in the company. 

Good measurement doesn't begin with asking, "What data do we have?" Instead, it begins with asking, "What would we need to know to understand whether this business is becoming stronger?" 

Only then should we go and find the number and use it for decisions. 

The Season

Summer gives us an unusual opportunity within the business cycle. 

Having tested and refined during spring, we're now selling, delivering and operating at something closer to full speed. The business is doing its thing. And that creates data. Lots of it.

But summer isn't the moment to analyse the data. We cannot keep changing strategy because this week's graph moved in an unexpected direction. As we explored with lag, today's result may belong to a decision made months ago.

Our job in summer is to do, and simultaneously, to observe and record. 

• Which customers bought?

• What did they buy?

• Where did they come from?

• What converted?

• What didn't?

• Which processes survived pressure?

• Where did capacity become constrained?

Once autumn comes along and we see a slowing down, then we gather and sort what summer produced. Autumn sorts, allowing winter to do something much more important than reviewing a dashboard.

If strategy says repeat customers will underpin next year's growth, retention needs measuring.

If growth depends upon a new sales channel, its conversion rate matters.

If the plan requires the founder to become less operational, perhaps the number of hours spent firefighting becomes a surprisingly useful number.

But the things being measured should be chosen to follow the strategy, not the other way around. 

There will always be more things we can measure than things worth measuring. The trick isn't building a better dashboard. It's knowing which five numbers would rightly make you nervous if they started moving in the wrong direction before everybody else noticed why.

Easter Eggs in this week’s article 

“cheat codes” – Cheat Codes, by Danger Mouse and Black Thought  

“might not mean that much” – Can I Have My Balls Back, Please? by Pulp 

“strong people” – Initiated, by Daz Dillinger, 2Pac, Kurupt, Outlawz  

“Where did they come from” – Where Did They Come From, by Ras Attitude 

#StrongerTogether

P.S. 

What are you measuring and does it tell you what you need to know?