One Metric to Rule Them All
A well instrumented business will have literally hundreds of metrics that they track to understand the key parts of their business. Each group within an organization likely has a key metrics dashboard that guides their department functioning and informs their decision making. These dashboards then roll up to other dashboards to form the core of the key metrics that an executive team or CEO look at daily (or more) to keep their pulse on the functioning of their operations.
But what if you didn’t have the luxury of having all these data sources at your fingertips? What if you were forced to decide on one number that was THE number. A single metric with which to keep your pulse on the health of your business.
I’ve asked this question to many CEOs and what’s surprising is how difficult it is to come up with the right answer. But also how illuminating it is once you do. It’s almost universal that your first response isn’t really the right answer upon further reflection. I’d encourage you to try this exercise yourself. You’ll likely focus in on something that is driving your business right now – something you’re keenly focused on and that gives you some kind of insight into future performance. Maybe a sales funnel number. Possibly cash burn. But think more deeply about it. At the core of what you do as a company, underneath the veneer of the business itself is typically an underlying data point that is at the heart of the product or service that you’re providing. That may be the number of domains that you manage, the number of emails that you send out daily, the number of unique website visitors that your business generates. Rarely is this number an input, nor is it generally a forward looking statistic. It’s also likely not a financial number – you won’t find this metric on your income statement. It’s generally an operationally derived output to the running of your business. Surprisingly (and this is part of the power of this exercise) in many cases it’s not something that you’re already tracking on your highest level dashboard. This last point shows the real value of thinking through the “one metric” question thoroughly. I’ve been amazed at how often the answer to the question of what metric would your business track if you were only able to track one thing is something that companies aren’t necessarily watching that closely.
While it may be tempting to just throw out the first thing that comes to your mind as you read the preamble to this chapter and then be done, that’s not the way to do this exercise. And like many things, the journey to the answer is half of the reason to ask the question in the first place. This is a brainstorming exercise that requires some thought and attention. And preferably the help of your management team and even some outside advisors who aren’t as close to the day to day business and can offer you the feedback that only that outside perspective can provide. As you come up with your list and pare it down you might even try focusing on just one of those metrics each day. Force yourself to live the exercise (at least at the CEO or department manager level) and really test out whether you feel that what you’re measuring is really getting to the heart of your company.
Why do this exercise?
Confining yourself to a single metric – even if it’s just for the purpose of a simple exercise – is a chance to remember what it is that your business does at its core. What’s the lowest common denominator of the service that you provide and how can you measure that? What were some of the other numbers you considered and why? Ideally this is an exercise conducted with your entire executive team. And like a Rorschach, the process of choosing a single metric to measure your business by can help you gain insight into the types of managers you have around your executive table and what their biases are. A good CEO can use this information effectively to better manage not just their business but also their executive team.
Should you run your business on a single metric?
Now that you’ve boiled down your company to a single, measurable metric it’s natural to consider whether you can shed all of the other clutter on your dashboard and simply focus on the one thing that really measures the heartbeat of your company. I have another post coming about how the best financial plans actually limit the number of operational inputs they consider in an effort to better focus the power of their model on the small number of things that actually matter (and to more easily run sensitivities on those inputs). Operational metrics can work the same way. And while I wouldn’t argue that you should pare your dashboard down to one large blinking number that is your “one metric”, consider using this exercise as a way to remind yourself what really matters in your business and focus on those things that most effect that number.
The power of simplicity
There’s a great story that Atlassian tells about how they leveraged the power of a single metric into meaningful data that changed the way they ran their business. In this case they were measuring employee happiness (we’re departing here from the “one metric” concept above, but the story illuminates how a single, relatively simple metric can be quite powerful). Outside of conference rooms, bathrooms and the break room this company placed a bunch of iPads on which it asked a single simple question: “Are you happy today?” There was no sign-in. No tracking of who said what. No 1-10 scales. Just a single question with a binary answer. And it was amazing how powerful this exercise was to the operations of their business. Participation was high (it was easy and anonymous to take part) and the company found that it was much more predictive and a better guide to behavior than the longer survey they sent around once a year. The point of this story isn’t that employee happiness is likely your “one metric” (it isn’t), nor even that you should consider doing this same thing in your company (you should; it is easy and cheap and very effective) but rather that sometimes the simplest of metrics has the power to meaningfully inform your understanding of your business.