Startups And Vanity Metrics

Blowing your own trumpet

As an angel investor, I do my best to help my founders succeed and get their companies to grow. I find it quite interesting (but not impressive) that startups, instead of focusing on trying to find a business model which serves their customers and helps them to become profitable, get distracted by a lot of stuff which is completely irrelevant to their business. I think this has now become more of a game which is headed in a downward spiral, because it has become frothy and fashionable. Most of the websites for these startups are full of laudatory articles which talk about how much has been written about them in the press. These are often PR exercises, which put a positive spin on the company and what the founders want to do. Sadly, a lot of this is just sizzle with very little steak, and only a handful of them live up to their early promise.

The other common denominator for a lot of these websites are the logos of all the awards at the various startup competitions which they’ve won. While this may give the team a good feeling, it is not very useful as a predictor of the success of the business venture .

Awards and articles don’t guarantee success

All these ideas are great for providing fodder for public relations, but in one sense,they are just pointless surrogate markers. At the end of the day, as an investor, I just need to know two things :Are you solving a migraine problem for the customer? Are you profitable in the process of doing so? The articles and awards end up becoming distractions, which are actually bad for the founders, because getting someone to write an article about you, or winning an award in a competition, consumes a lot of time and energy.

The founders naively believe that there is a positive correlation between the number of awards they win and the articles which are written about them, and their ability to raise money from investors. Actually, that’s not true. Investors are fairly smart, and it’s not easy to take them for a ride. These are just games which some founders play, and the really smart founders understand this. They will focus on what’s important –the customer. Of course, in the early days, when there’s no profitability, PR is more important than PE. Yet, you can’t afford to get distracted;you need to stay focused on what’s important. All these surrogate markers may look very good, but there are hundreds of start ups who won innumerable awards and have had lots of column inches of news space talking about how they are the next hottest thing in the industry, but have miserably flopped in reality.

Focus on CR, not PR

Founders need to keep their head down and focus on what’s important. The awards and newspaper articles should come as a consequence of the great work which they are doing in solving their customer’s pain points, rather than because they have a slick PR agency. The sad truth is that getting a journalist to write an article about you or even winning an award in the hundreds of startup competitions which have become so popular these days is not very hard, but to delight your customers can be extremely difficult. And this is what makes running a startup a tough job.

The more sophisticated startups will use other kinds of markers, which they feel are more quantitative and tangible. Often a lot of these markers are designed and developed by investors, because they want to see how well the startup is performing. Unfortunately, this again becomes a game, so that rather than focusing on the bottom line, the team starts focusing on irrelevant stuff such as “eyeballs ” (their web-traffic) , or gross merchandising value, rather than on what’s actually happening in the real world. The one thing startups cannot afford is all these distractions, and sometimes investors actually end up making a bad problem worse by defocusing the founder’s energies.

This disconnect between the real world and the metrics which are tracked and reported becomes progressively worse over time. Ironically, the problem is exacerbated when the startup is growing and needs to raise more money. The startup realizes that it’s not able to acquire customers or to keep them happy, because it has lost focus of what’s important, and its primary energy now seems to be on raising more money or keeping its current investors happy by hunting for a “greater fool,” rather than keeping its customers happy.

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