A Secret You Never Thought Would Impress Your Investors

Scott Maxwell
Scott is the Senior Managing Director at OpenView Venture Partners.

A few years ago, a VP of Sales candidate for one of OpenView’s portfolio companies walked into my office and handed me his personal operating report. It showed me exactly how deals moved through his pipeline, and explained exactly how each salesperson on his team was performing against their metrics. Just as importantly, he explained how this operational system was incredibly effective at:

• Creating predictable sales forecasts
• Determining when to ramp-up resources at various stages of the sales process
• Enabling the recruiting and onboarding of top sales talent

I was sold. And the company hired him.

Why Was I So Impressed?

Because, in my book, predictability and accuracy are more impressive than growth.

When an executive at any level and in any function can accurately predict results in each operating unit, it means less risk and a greater opportunity to scale a company without unnecessarily blowing through (or “burning”) capital.

As a business scales, that’s incredibly important because missed quarters get more and more expensive. And this is where growth can be deceptive.

Yes, growth is important. But to scale efficiently and intelligently, CEOs and boards of directors need accurate information from each operating unit. When a business — and, even better, individual executives — can deliver accurate predictions and forecasts, it typically mean that a company has:

• A true operating model (not just a collection of people), which allows you to scale better
• A clear understanding of the key drivers of output in that operating model
• A warning system that alerts the management team when the company dips below certain thresholds (which, in turn, helps them know where to spend their time)
• A set of measures to benchmark against other companies that reveal competitive advantages and opportunities to improve
• A clear formula for when to add staff or other resources before they’re desperately needed

Collectively, those components give a business a solid platform for experimenting with new approaches and evaluating the effectiveness of them (thereby allowing executives to kill the approaches that don’t work and expand on the ones that do). As a result, you get fewer mistakes, more efficient use of capital and human resources, and stronger growth on the back-end.

In other words, an investor’s dream.

Caveats to the “Accuracy > Growth” Argument

For startup CEOs and their management teams, delivering this level of accuracy and predictability requires an absolute commitment to metrics-based management.

That means that every functional group in a business (from product development to customer success) must understand the minimum number of measures that give them anaccurate understanding of their performance.

With that said, there are some caveats:

1. Many very early-stage companies can get by without metrics-based management. That’s because the organization is smaller, the processes the business have in place tend to be quite simple, and managers can track things much easier. That said, as soon as you start acquiring a significant number of users or customers, metrics-based management becomes incredible useful. And as you scale even bigger, accurate metrics become difficult to live without.
2. There’s no sense building systematic operating models and establishing a set of metrics if you’re not going to manage to them. I’ve met many intuitive managers who don’t get (or don’t want to get) this approach. If you don’t believe in what I described above and you have no intention of committing to it, then don’t waste your time. I don’t think you’ll like the results, but that’s your prerogative.
3. Once you lock into a set of metrics (it will take some time to determine the most important ones for your business to track), use those same metrics as you scale. I’m always amazed when I go into board meetings and see a different set of metrics each quarter. This typically happens when managers feel the need to present the metrics that only show off the accomplishments of the company. As an investor, I would rather see the metrics that show the improvement opportunities for the company — and executives should feel the same way. This is where the real upside is!

Over time, startup businesses will naturally move from simple approaches to more sophisticated approaches (more specialists, more channels of distribution, more products, more marketing channels, more approaches to customer service, etc.). And as that happens, the sophistication of your metrics and reporting will change, too.

The first step on that long journey, however, is to make sure that you have a firm metrics-based foundation to stand on, and then continue to evolve in the right direction.

(Editor’s note: This is not an argument for increasing company sophistication just for the sake of it; rather, my point is that gradually increasing sophistication when it makes sense can lead to better operating results as you grow)

A version of this post appeared on the OpenView Venture Blog.

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