Today, I would like to elaborate on the farce of Vanity Metrics. These are shiny, seductive numbers that look great on paper but mean absolutely nothing when it comes to real progress or value for your startup. They might make things look polished and impressive, but they don’t tell the real story.
While they’re tempting to chase (because they’re easy to measure and even easier to inflate), they can lead founders and investors down a dangerous path of false confidence.
So, what are some common Vanity Metrics used on pitch decks?
Social Media Metrics – while their usage has tapered off, I still see the occasional founder tout these as a measure of growth.
a) Follower Count: Sure, having 100K followers looks cool, but if none of them are buying your product, what’s the point? A big audience doesn’t always equal big revenue. Esp. when these followers are on 3rd party platforms that limit linear monetisation.
b) Likes / Shares: Again, similar to follower count, these might make you feel popular, but they don’t guarantee conversions. Engagement is great, but it’s not the same as sales.
User-Related Metrics, or, as I like to call it, Google Analytics in technicolour.
a) Total Registered Users: Sure, 10,000 people signed up, but how many of them are actually using your product? Probably much much fewer than you think.
b) Number of App Downloads: Downloads are just the first step. If people download your app and never open it again, it’s not a win—it’s a waste.
c) Pageviews: High pageviews might feel like a victory, but if users aren’t finding value in your content, and bouncing, then it’s just noise.
Financial Metrics. Just because you can put a $ or ? sign in front of these numbers, it doesn’t automatically make them relevant.
a) Gross Revenue: Rev is important, but it’s only part of the story. If your costs are sky-high, that revenue number isn’t as impressive as it seems. I’d like to see CM1, CM2, gross margins, and Net margins, to truly make sense of your revenue.
Also, early-stage startups need to show Month-on-month (MoM) for at least the current and last 6 months to truly tell the correct story.
Please understand, investors don’t mind if the numbers are small (we work with early stage startups all day), but we care if there is growth vs stagnation.
b) Valuation: A high valuation might make you feel like a unicorn, but it doesn’t automatically mean your company is successful. Valuations are a lagging indicator at best, and uncorrelated to your business growth, at worst.
Ok, so why are these Vanity Metrics a trap?
Vanity metrics are like junk food – they give you a quick dopamine hit, but they don’t nourish your business.
a) They create a false sense of progress: Seeing big numbers can make you feel like you’re winning, even if your business isn’t actually growing.
b) They mislead investors: Investors might be impressed by vanity metrics at first glance, but they’re savvy enough to dig deeper. If your metrics don’t show real traction, they’ll see right through the facade. And you are left having to defend your choice of vanity metrics, that’s a tough spot to be in.
c) They distract from what really matters: Chasing vanity metrics is probably sucking up time and resources that should be spent on building a great product and acquiring high-retention customers.
If not “these metrics”, then what?
Instead, try and focus on Actionable Metrics that actually drive growth and provide real insights.
How to identify an Actionable Metric?
a) They align with your goals and should directly tie to what you’re trying to achieve as a business.
b) They are measurable and you should be able to track them consistently and accurately. Also, they should allow for a fair benchmarking against other players in your sector.
c) They will drive action give you clear insights that help you make smarter decisions.
You want some examples on Actionable Metrics, right?
(note: these examples will differ depending on your sector or business model, so you will have to figure out what is relevant to your startup)
a) Customer Acquisition Cost (CAC): How much does it cost to acquire a new customer? If this number is too high, your growth isn’t sustainable. If it isn’t reducing (or, it’s actually going up), then thats a massive red flag.
b) Life-Time-Value (LTV): How much revenue does a customer generate over their lifetime? This helps you understand the long-term value of your customer base.
In the early days, founders usually fumble of how to calculate this “lifetime” – you will have to take an approximation that is defensible.
c) Monthly Recurring Revenue (MRR): A key metric for subscription-based businesses, MRR shows you how predictable your revenue stream is.
d) Churn Rate: How many customers are you losing? A high churn rate can be a red flag that your product or service isn’t resonating. Cohort analysis of your Weekly/Monthly acquired and lost customers is a critical graph for any founder. I repeat, critical.
e) Conversion Rate: Are your free users turning into customers? This metric tells you how effective your funnel is. If you don’t have your clear articulation of your customer journey funnel, do it asap.
I’d like to reiterate that presenting metrics during your pitch, or regular board meetings, or even to your own team, or your self is not about “feeling good” or “looking good”, it’s about being good.
The worst thing we can do as founders, is drinking out own kool-aid!