ic_excursion Excursion 31

More About Key Metrics

Of all the elements of the Lean Canvas, the “key metrics” is perhaps least liked and appreciated. Having taught entrepreneurial finance and served as CFO for multiple ventures, it may be that I overemphasize the importance of metrics. The fact that new entrepreneurs often seem to dread this discussion leads me to believe it is an area of significant importance and opportunity for rapid learning and opportunity evaluation.

Key metrics are the data measures that will determine whether or not the opportunity is viable as well as whether the organisation is exploiting the opportunity effectively. Key metrics are the quantification of Critical Success Factors (CSFs). If the entrepreneur or organization gets these wrong or cannot implement them effectively, the venture has very little chance of success.

The most important thing about identifying key metrics (and CSFs) is that they should not be generic measures of organizational activity. Metrics like customer satisfaction, revenue growth, and profit margin are appropriate to all organizations; they are not, therefore, CSFs or key metrics. It is often appropriate to build generic measures into your key metrics, but only when they are specific to the organization and the critical business model elements that determine viability and long-term sustainability.

I suspect that one of the reasons students and entrepreneurs struggle with key metrics is because there is no algorithm or decision process that can be applied to effectively identify key metrics. My own anecdotal observations (and experience) suggest that the best way to identify CSFs and key metrics is to speak to people with current and prior experience in the target industry and market.

Every scholarly analysis that I have seen for identifying CSFs and related key metrics propose an extremely complex and time-consuming research process. To be sure, such a process probably works, but few entrepreneurs, especially at the early stage of opportunity evaluation, can invest the time (or money) required. Interestingly, most of these analyses do note the importance of “intuition” and experience-based insight. The hard truth is that experience is a powerful teacher, especially when it comes to understanding industries and markets.

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