Let us start by looking at the world of beauty. While there exist many benchmarks, I genuinely believe that true beauty is intrinsic and begins with the comfort one has with one’s existence and appearance. Therefore, in essence, beauty is a very subjective word, which is unnecessarily complicated by beauty product and fairness product companies.
I guess the same holds true for the world of business these days. Many of us have come to realize that the value of a business is becoming extremely subjective, like beauty.
In reality, three of the most intrinsic focus areas in the world of business would be – best customer and seller experience, great HR and governance practices, and profitable growth. These three focus areas are sanity, rest could be defined in the category of being vanity.
And yet, there could be different periods of time when even vanity metrics could converge into sanity metrics. Let us look at some real-life scenarios, particularly related to the most happening business of online, ecommerce and start-ups.
Let’s start with GMV, which stands for Gross Merchandise Value. This is an interesting metric. Most companies usually describe it as the total value of goods sold on their platform. Multiply the selling price of a product with the number of items sold, and you get a platform’s GMV. Multiply this by the total sold across all platforms and you get the GMV of the market for that category.
Many e-commerce companies still use this metric to describe the state of their business. Targets are set in GMV. Growth is also measured in GMV. Many online businesses pamper customers with deep discounts, often subsidizing buyers from their own pockets. It is a rather convenient arrangement, especially for cash-rich companies. Bigger discounts lead to more transactions. More transactions translate to higher GMV figures that are flaunted before potential investors.
Yet, GMV is the only metric that tells us how much money customers are paying for an online transaction. When growth stops across the market, GMV then stops becoming a vanity metric, and finally becomes the most important metric across e-commerce. It’s the most useful and truthful metric these days because it tells online players how they are actually performing. And that’s because GMV doesn’t just measure growth, it also measures their share in that market.
These days, there is a huge number who want to jump on to the startup bandwagon. Rightly so. The trend among the booming startups is to attract the next round of funding through their ever-expanding vanity metrics instead of running it like a true business.
To give a sense of vanity metrics, things like registered users, downloads and page-views are numbers that can be easily tweaked and manipulated. Vanity metrics give a false sense of startup success, where active users and profitable numbers are nowhere in the picture.
This is the primary reason why the comparison with beauty products where large populations are psyched by vanity numbers, especially when they begin to believe that fairness creams actually work and that being fair is a sign of better beauty.
Vanity metric is when our website traffic increases by say 30%, but it doesn’t tell us the reason behind the sudden rise in traffic. As we are unaware of the reason behind the spike, we can’t even replicate the success. But in the world of real business, the number of active users, engagement, revenues and profits matter. These are actionable metrics or sanity metrics that play a major role in measuring success.
Sanity metrics inform us whether we are inching closer or moving away from our business goals.
I have had the tremendous good fortune of always working for and heading organizations where our owners and seniors regularly reminded us that revenue is vanity, margin is sanity. It was important for us to make money for the business. But if we did so without margin then it wasn’t helpful for the business to grow in a sustained fashion. In today’s inflationary environment, when organizations are paying for all the ingredients and costs, we know at the end of the day, it’s not revenues that are as important. It’s our profits. It’s the same as getting an ever-increasing salary but never being able to save.
Too often, people are impressed with revenues and are not mindful of expenses. From my perspective, the success formula for technology companies in recent decades seems to be to grow big, grow fast, and not to worry about profitability. Just get market share. Its good to be disruptive. Yet majority turn destructive.
The bottom line is that we must dig deep into the metrics that matter and look at what they are telling us. In the end, we have to decide to focus on the right numbers. I believe this is what will help us sleep well at night—and keep our respective organizations around and healthy for at least another few years.
“We coach the whole person who shows up in front of us, not just the work side and not just the life side but whatever combination they bring. We do this because work done well cannot be separated from personhood done well. And agile done well cannot be separated from values lived well” – Lyssa Adkins in Coaching Agile Teams
(This article is written by NIRANJAN GIDWANI, CONSULTANT DIRECTOR | MEMBER UAE SUPERBRANDS COUNCIL | CHARTER MEMBER TIE DUBAI | HBR ADVISORY COUNCIL, and the views expressed in this article are his own)
