‘Track Your Growth Driver’
The sooner you identify the KPI that matters, the saner your business will be and the faster it will grow.
What is entrepreneurship to you?” I was asked during a light-hearted conversation at an event.
“I think it is a very expensive hobby,” I quipped. It raised quite a few laughs, but a small gang of entrepreneurs knew it was dark humour.
It got me thinking how this one small word contains so many extreme emotions. It ranges from taking a calculated risk to playing on the whacky gut, from having no ego so that one can accept brutal feedback to being egotistic enough to prove them all wrong. It is all about learning to take harsh decisions like a detached doctor but still nurturing your business like a mother. Then there is my most favourite (and overused) definition of all, a quote by
Reid Hoffman that says: “An entrepreneur is someone who jumps off a cliff and builds a plane on the way down.”
But like all laws of nature, like every other aspect of creation, entrepreneurship also comes with its principles. There are no specific rules or laws for survival, but the basic principles of physics and mathematics also hold true in this space.
Today, I am in my third venture. From being part of a garage start-up that was sold for good money to burning tonnes of cash in difficult markets to build traction, I am lucky to have seen it all. The more you travel, the richer the experiences and stronger the patterns you start to see. And the same goes for entrepreneurial journeys.
Here is a spoiler alert! What I am going to say is mundane. For some of you, it is rhetoric. But that is what business is all about. While innovation helps you change the game and create opportunity, it is the mundane and the boring that would help you milk it and make the moolah out of it. Uber changed the way the world travels. But even as the innovation continues, it all boils down to how many people are travelling from A to B and how many vehicles are available to help them do that. Once again, the mundane.
Business, small or big, young or in the growth stage, is all about taking multiple decisions every single day. At a start-up, you follow your gut more than data. But as data starts to accumulate, so does its power to help you do the right thing. Eventually, the speed of your business boils down to what you consider the key success factor of your business and how insanely you track it while you continue to innovate. Figuring out the key growth parameter or the key performance indicator (KPI) is one
of the most important activities for any young entrepreneur. The sooner you do that, the saner your business will be and the faster you will be able to accelerate it.
Our first business was a desktop search application. The game was simple. It was all about tracking the number of downloads and eventually, we realised consumption was more powerful than that (in our defence, we were rookies). When we moved on to our next venture, it was a platform to help students with their math/science problems. Our core commitment was a quick turnaround time with solutions from experts. It was a slow and okay start. Then we somehow realised that the key to our platform’s success was not the number of questions asked or the number of people visiting, but the speed of query resolution. So, we changed our KPI immediately. We started tracking one thing – if a question is asked by a student, how quickly it is being answered by an expert. That single shift in KPI changed it all. The traffic growth rate changed from 100 per cent a month to 300 per cent a month. That was the first time I realised how one small performance index could change the course of business. Since then, for every company I have been involved with, the key has always been to dig deeper and deeper to understand what the real growth parameter is.
KPI is a two-edged sword! You track the wrong ones, and the world can go for a toss. The e-commerce industry in India has been a classic example. Barring the top few, it has been an out and out bloodbath. The entire industry started to track just one KPI, namely, GMV. (For the uninitiated, GMV means gross merchandise value. If you are selling a product, you will track the sale value of the product even if it is returned, or in some cases, if the order is cancelled.) No other benchmark was considered as vital as this one for a long time. When the smartest guys in the country are told “the only parameter of your success will be the orders you book”, they can get pretty creative. What followed was a lot of fishy transactions – multiple bookings of same inventory by many new players. Eventually, physics and mathematics took over, and sanity had to prevail.
Now I run a lingerie brand, and we operate KPIs at multiple levels. The two KPIs that bind the company together are: Net promoter score, an indicator that says how likely it is for the customer to refer the brand to other people; and Repeat purchase. If the customer is buying and referring too, we, as a brand, are in the right direction. But then things get more granular at team levels. So, here is a bunch of small rules to keep in mind while setting the KPIs:
Do not overdo it. The more complicated you make it, the more difficult it is for the team to stay aligned at all times;
Make all KPIs visible to all employees. Do not get too paranoid about hiding inter-department data. The more your employee is plugged into the trackable goals, the more aligned he/she is to the company’s vision and execution. Of course, extra sensitive information can always be restricted at group levels; Keep the tracking period as short as your business allows. If the focus is sales, think how you can make it visible in real time – be it hourly, daily, whatever your business restrictions allow. Innovate there.
Whatever is a show-stopper, your first thought should be to make it trackable and visible. For us, gross margins were as critical as sales. So, while we started tracking sales first along with marketing, we eventually integrated cost-of-goods to real-time tracking. As soon as the costs shot up, it was easy to understand what the customer was buying to trigger bad margins and we could figure out ways to improve the purchase basket.
It is just a small set of rules, but we are entrepreneurs and creativity is our middle name. Get creative, think hard what will be the key driver of your business and get bonkers quantifying it. Avoid generic growth indicators. While you continue to seed, test, stabilise and grow businesses, the one major rule will always be critical to keep in mind: What you cannot track, you cannot excel!
Business, small or big, young or in the growth stage, is all about taking multiple decisions every single day. At a start- up, you follow your gut more than data