Editor’s Note: Each week Maynard Webb, former CEO of LiveOps and the former COO of eBay, will offer candid, practical, and sometimes surprising advice to entrepreneurs and founders. To submit a question, write to Webb at dearfounder@fastcompany.com.
Q. I could use advice on setting Key Performance Indicators. Let’s say increased sales come in during an advertising campaign. The ads may have contributed to the gains, but how do we account for something totally unrelated to the campaign, such as a competitor going under? The campaign gets the credit, but is that where the credit is due? Or, the KPI might be too pedantic such as hits on the website, which can easily be faked by interested parties who want to get a bonus. Where is the right level? What guiding principles are best?
– Founder of an Australian-based IT company
Dear Founder,
I appreciate that you are using metrics, and specifically KPIs, to help you scale. I believe that one of the ways to navigate hurdles is to learn how to become more discerning. You need to understand which priorities are most important. As you grow, there will always be more items clamoring for your attention, and it’s up to you to decide which of these are most important. Having a methodology that enables you to look at the company, see where you are, and determine where you need to be, can help you drive predictability to your company’s operations.
You ask some specific questions about KPIs, but I think having overall principles is the name of the game here—and will change your thinking about this and ultimately yield more success.
Let’s talk about why we are using these tools in the first place—to measure what matters, as John Doerr talks about in his new book by that name on OKRs. For that, you must really do some soul searching to determine what it is that will move the needle. What will really make a difference? Increasing revenue, profit, number of employees, these are all indicators of the health of your business.
Allow me to share a story. When I arrived at eBay the infrastructure was melting. What did we need to improve, and how would we measure it? Availability, of course. But the team didn’t want to look at availability from the consumer’s point of view because they didn’t control the Internet Service Provider connection or the computer device in the consumer’s home. I chose to look at availability from the consumer’s perspective because looking at it from the end-user perspective is what actually mattered. Later on, once availability improved, we chose to measure response time. We wanted to make it faster and this is what we needed to measure to do so.
I serve on the board of Visa and we use all kinds of metrics to measure how we are doing. That said, these indicators don’t solely rely simply on what we are doing, but rather are at the whim of how the economy is doing. For example, currency exchange rates have an impact on cross-border trade. Or, we know that when gas prices go up, spending goes down. Does that mean we don’t measure cross-border trade or spending? Of course not. After all, the goal is to gain a picture of how we are doing and rely on using all of the information to understand how we can to improve.
My advice: It’s more important that you get a holistic view of the situation. There will be some things that affect your results that you don’t control, like we had with currency prices or ISPs. Factor those in and take responsibility for how you are doing. Remember, you don’t get a hall pass if someone has the flu or the internet is out—you still have to meet your deliverables.
Always hold yourself accountable for the results and expect to get great outcomes, regardless of things that may happen, which are out of your control. Discounting them or using them as excuses is not how you get to greatness.
KPIs, OKRs, all of these tools can be useful. But I find another methodology to be quite simple and effective.
• First, talk about what success look like.
• Decide what’s important and develop metrics on the key things that matter.
• Implement forcing functions.
• Have timely communication where issues are addressed in minutes or hours, not days or weeks.
• Escalate problems.
• Understand that it’s not about what information you discover, but what you do with it. (Always ask: “What do we know now and what do we change?”)
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