KPI’s and Pocket Protectors

The best business leaders in the world are able to filter through thousands of details and demands on any given day and know which is most important for them to spend their limited time focusing on. This, of course, takes a masterful understanding of their purpose, organization, industry, etc. It also requires access to the facts to help form educated opinions.

A few weeks back a friend of mine emailed me asking my take on Key Performance Indicators (KPI’s)… what are they for, which are most important, etc.

He is in the process of figuring out which pieces of information to keep track of for his new business. For an established business knowing what data to look at to understand your business can be even more difficult. You have lots more data at your disposal and people offering their “unbiased” opinions on what you should care about most.

It seems to me that understanding a business is a pretty even mix of art and science. Ultimately, businesses serve people, and it can seem a bit naive at times to think that we can interpret people’s behavior correctly by looking at a spreadsheet or reading some 1-way piece of communication (email, product review, etc). It get’s even more convoluted because story tellers can use data or anecdotal feedback to paint multiple different pictures of reality. The best we can do is seek CONTEXT for the information, and that typically requires looking just below the surface of the feedback and being slow to draw solid conclusions about any one piece of information.

The temptation is to think that you understand your business context by looking at a spreadsheet, but if you are physically present and watch the human behavior where decisions are made regarding your product you will quickly see that it’s much more complicated than it was on the spreadsheet. That’s context. High customer empathy and understanding helps when interpreting feedback. 

tl;dr preface… there is a ton of grey area when it comes to interpreting feedback then using that insight to decide your next move. Use caution when drawing conclusions from data, and always look at context to try and make sense of it.

[You know it’s long when the preface needs a tl;dr — Pardon me as I re-adjust my pocket protector before we dive into KPI’s]

Key Performance Indicators (KPI’s) are basically pieces of information, typically quantitative, that help you understand your organization. I think of it as a form of user feedback.

The different functions of KPI’s:
– use them to discover what parts of your product, service, or business model are most or least valuable.
– use them to keep a pulse on if/how well your product, service, or core business operation is delivering the promised value to your customers. They allow you to watch people’s behavior from a bird’s eye view.
– use them to convince key stakeholders what decisions need to be made.

This is generally needed if you are doing something new — before you have a customer base for your product/service, or before you have proven your business model. However, there is a bit of “constantly discovery” that’s critical for every business to do to understand its present value.

Every product or business has different KPI’s that will be indicators of success. I won’t go into detail about which KPI’s go with which products or business models, you can just ask jeeves (ha! kidding. Just “Bing” it) and find some helpful answers. But I want to explain the idea behind what you are looking for.

It’s important to measure people’s behavior and listen to what they say, because those two pieces of feedback paint a more vivid picture of how to serve them. Often a user will tell you one thing and do another. In a pre product-market fit business you are trying to use those two pieces of feedback to tweak (iterate) or change directions (pivot) until the numbers (KPI’s) are telling the story that your product is providing the promised value.

It seems like KPI’s are more important to confirm that the change you made to the product is doing what you intended it to do, and qualitative feedback is important to understand why a product or feature is or is not working. I’ve heard someone say that customers aren’t good at coming up with solutions to their problems, but they can tell you (via qualitative feedback) what their pain points are. It’s your job to create solutions to their problems and see how they behave and react to those solutions.

[For further reading on this point and definition of above terms: Lean Product Playbook, Lean Startup]

Keep a Pulse
Once you have a product or business that is serving a group’s needs consistently, it’s important to keep a close watch to ensure that you continue to improve on that customer experience. You can use KPI’s to raise yellow and red flags when key metrics start to change.

The business I work on is built on monthly and yearly paid subscription. Therefore a key metric we keep our eyes on is churn. We build our business on serving our customers month after month, and the way our business grows is if the total number of members increases over time. That means we need more people signing up than are leaving.

It’s critical that we understand what is most valuable and irreplaceable about what we are providing to understand what keeps people coming back month after month.

So in this case, we keep our eyes on churn rate to see if customers agree that what we are providing is valuable and for how long. We also try and dialogue with different types of customers to understand their behavior as a member or non-member.

If you aren’t the sole decision maker, you need to learn how your stake holders are motivated and communicate the info to them that they find compelling… or at least relate the info that you think is most important in terms that they find compelling. Certain people will be more compelled by numbers more than others, but in business you can’t make any viable case for change without them.

Focus is the biggest challenge, and simplicity is key in effective communication. Use the KPI’s identified to move research into action, which in many cases requires the buy-in of people outside the project.

Last thing I’ll add — Getting good data can be difficult. Start small, and keep moving forward even if you don’t have all of the necessary information to make the best decision. Timing is more important.
“Most decisions should probably be made with somewhere around 70% of the information you wish you had. If you wait for 90%, in most cases, you’re probably too slow.”
-Jeff Bezos in his 2016 letter to shareholders

For those of you who made it to the end, you deserve a gold star.
The information in this post is just a starting point. Please feel free to add to or question the points above. Would love to learn from you!

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