How to Use a Single Metric to Run Your Startup
a single number that you want the entire company to focus on and improve upon. I call it
The One Metric That Matters (or OMTM),
First, let’s understand a bit more about the OMTM, then talk about what makes a good metric, and finally how to pick the right number to focus on.
Here are five rules of thumb for what makes a good metric:
1. A rate or ratio is better than an absolute or cumulative value. For example, “New users per day” is better than “Total users.” Absolute numbers tend to be vanity metrics.
2 It is comparative to other time periods, sites, or segments. “Increased conversion from last week” is better than “2% conversion.” The key here is cohort analysis, where you track a metric over different groups of people, typically over different periods of time. For example, you drive traffic to your site through Google AdWords and measure conversion for a week
3 A good metric has to be incredibly simple and easy to understand; otherwise, people won’t remember it and discuss it.
4 . For “accounting” metrics you use to report on the state of the business (to the board, investors, media, etc.), a good metric is one that makes your predictions more accurate.
5 For “experimental” metrics you use to optimize the product, pricing, or market, choose something which will produce an answer/result that will significantly change your behavior. Metrics that don’t cause a change of behavior are likely vanity metrics and of little value.
Problem validation: This is the first stage for any startup, answering the question, “Am I solving a problem painful enough that people really, really care?”