The WTFs of a Business Angel: # 4 Bullshit Metrics
When we started SpeedInvest about 18 months ago, we were a startup ourselves. A very well funded startup, but still, we were a team of people who had some experience in building companies and no experience in building a Business Angel fund. We are still learning an awful lot, because you can profit from other people’s wisdom, but there is no way around doing things yourself, making mistakes, trying again and again, learning from what you’ve seen so far. That is the spirit that we like to keep, a positive and pro-founder type of attitude, because the truth is: we love what we are doing. It is fun and exciting to meet visionary people, who have drive and enthusiasm to change whatever tiny bit of their world, step by step. However, there are those rare events where we sit across the table in our office and are having a facepalm moment. When one of us gets an email from a startup or reads a piece of news about our industry that just makes you go “WTF?”. For your reading pleasure, but also to offer you the opportunity to learn, we open up our treasure chest of awkward moments and give you our top WTFs, of course with all due respect to those contributing to them.
#4 Bullshit Metrics
For very good reasons a lot of startups are shifting towards a metrics-driven approach, meaning that they start looking very closely at values like retention, lifetime value or acquisition costs. This is part of a broader movement to learn from past startup experiences and shift the art of the start a little more towards a reproducible process rather than a piece of luck with some intuition added.
Naturally this increases the number of metrics we begin to see in pitches, presentations and reportings. But there is a difference between metrics and bullshit metrics. Let me give you some real world examples: recently we got a reporting sheet from one startup that had a confidence level with a colour coding. Now what a reporting should do, is to communicate the status of something that has happened. What would a confidence level of “orange” mean in that case? Is “green” good (because confidence is high) or bad (because “we just don’t know better”)? If having metrics means having some fancy chart in your presentation, then please, don’t.
Yes, it makes sense to look at downloads, but it makes more sense to look at registrations, active users, retention in cohorts or even actions of users. And if you have those, then please disclose their full power. Another example we recently saw, was a chart, that compared the competitive landscape of a company already in business, by using a combined index of the Alexa rank, the PageRank, the registered users and the traffic, all packed into one simple number. The chart had no information on the calculation of the index, the weighing of the factors, let alone a justification of the values used at all. It just made the startup look good.
That’s an awkward moment, looking at this kind of chart, asking yourself: “Why would you put a chart like this into your presentation?”. Andreas Klinger recently posted a rant that goes very well along the lines of this: if you use metrics to support your or others’ reality, then don’t. You don’t need to show us perfect numbers to catch our attention. We know that you are a startup – numbers can come later. Yes, we want to see numbers, but mostly to know that you care about them as much as we do, to evaluate your path. It is not always about numbers, but it is about finding out if we together are on the right or wrong way. Numbers help. But when we work together we want to look at the real thing, not funky charts or cooked up numbers.