I had lunch yesterday with Steve Blank. He’s a bit of a celebrity in the entrepreneurship world these days, as his books (including the seminal Four Steps to the Epiphany) have pretty profoundly shaped today’s Silicon Valley thinking on startup methodology.
With us at lunch was a young startup CEO who is running a tech company which uses the freemium pricing model. The CEO proudly told us that they had 200,000 registered users already. “Things are going great for us!”, he said.
“Cool. How many of those 200,000 are actually active users?”, Steve asked.
“Great, and how many of those are paying customers?”
“About 5,000”, the young CEO answered.
“Terrific. 5,000 paying customers. Now, don’t ever mention those other two numbers again,” Steve said, “because if you do, you are lying to yourself.”
He went on to explain further. “When you’re talking to outside investors it’s fine to impress them with vanity metrics. But for all of your internal discussions use the only metric that matters: the number of people who have pulled our their credit card and become paying customers. If you fall into the trap of talking vanity metrics in your internal meetings, then your team starts to believe that those are the numbers that they need to help drive. And at the end of the quarter everyone will be excited about what a great job the team is doing at hitting their numbers, and meanwhile you’ll be wondering why there’s no money in the bank. Use metrics that matter”.
Having a chance watch Steve Blank coach a young CEO was like watching David Beckham teach corner kicks. Use metrics that matter.