Richard Branson tells a story in his book “Business Stripped Bare” about how his team of investors don’t let him into the room when they’re sourcing potential business deals. They don’t like his, as he puts it, “intrusions and interruptions”.
When he has an intuition about someone though, Branson doesn’t let that stop him. He finds a way to get the deal, to hell with the due dilligence & investors team.
This story is Branson’s way of earmarking a broader point — on the value and utility of “founders intuition”. In the age of big data, it’s become commonplace to quantify and analyze every micro-interaction on your product. And at scale that’s certainly the best way to make decisions.
But there’s a common trap that founders, particularly in early stage companies, will find themselves: “metrics obsession”.
At scale, it makes sense to gear your entire strategy against things like churn rate, resurrection rate, cohort lifetimes, etc. These numbers in aggregate paint a picture of your average customer, which you can then target in an elegant and approachable way. The problem is, this approach is fundamentally flawed in an early stage.
Until you have a few thousand customers, your metrics are meaningless.
As we outlined in a previous piece about the futility of worrying about churn, particularly with early stage companies, focusing on business metrics makes little to no sense. For a few reasons:
- Sample Size. Until you have a few thousand customers, aberrations in churn (or growth) mean absolutely nothing. A few extra customers or a few less customers in a week or a month are solidly within error bounds, and yet they can sway your aggregate metrics by huge amounts. Until you have thousands of data points (and comparative lifetimes) your numbers are relatively meaningless.
- Variability. In his famous essay on Startup Growth, Paul Graham suggests that early stage companies should shoot for a 5–7% WoW growth rate. Thousands of founders then misinterpreted this and assumed if they aren’t hitting that they’re failing. In reality, there’s a hundred different reasons why your growth might suck — the most important thing is do you have successful customers.
One of the biggest challenges of early stage companies is allowing yourself to focus on your intuition rather than metrics. If you really dig into the data, the vast majority of successful companies had shitty metrics early on (and several failures like Path had wonderful metrics to start off with).
The only 2 questions you need to ask yourself are:
- Do I have a paying customer who would be very upset if my service disappeared today
- Are there at least 5 or 10 million other people like that person in the world
If the answer to both of those questions is yes, then all that matters is unit economics. It’s about finding those people exactly like that customer and reaching them in a cost efficient way.
Simple, isn’t it?