Don’t Be Too Obsessed with Your Metrics
A while ago over lunch, I asked our VP if he was worried about our company not growing as quickly. We had been experiencing triple-digit growth, but things were starting slowing down.
As someone with a bias for action, I wanted to do something to get us back on our previous growth trajectory. The inexperienced product manager in me brainstormed all sorts of ideas and initiatives we could try to give us a boost.
Little did I know that my impatience could’ve hurt the business. What our VP taught me about strategy that day still resonates with me today.
Grow your business, not your numbers
It feels good when your company’s KPIs (e.g. revenue or monthly active users) are growing. You feel like you’re making all the right decisions and that nothing could go wrong. However, when that growth slows and plateaus, you start to panic, like I did.
In that panic, it’s easy to have a knee-jerk reaction and run short-term initiatives that don’t provide additional value for the customer.
Examples of this are running more ads, providing temporary discounts, spinning up a marketing campaign, etc. Our VP pointed out to me that all these initiatives will have temporary effects on your KPIs since something was done. But those initiatives rarely are the ingredients for long-term growth. Your KPI trajectory will end up looking something like this:
When you obsess over your metrics instead of your customers, you tend to waste resources on pumping up those metrics. What you should be focused on is growing your business.
Evaluate your business critically
What great companies should do in those moments is evaluate their business, revisit their core assumptions, and ensure that they are truly serving their customers. They ask difficult questions like:
- What can we do better to solve the customer problem?
- Is the business model we’re using the best for our customer and company?
- Are we doing enough to make our customers happy?
After evaluating these questions, you may realize that you need to make an investment into new technology, shift your focus on improving your product, or change your business model. Following through with that realization is hard. Especially since it may take a long time before you see the payoff for these intiatives.
Sometimes you’ll get away with not asking these questions. You may be able to cruise at that plateau for a while with your current strategy. But more often than not, you’ll lose that lead because competitors will come in and out-innovate you.
That’s exactly what happened to Blockbuster.
Blockbuster’s Blunder
Blockbuster had a massive year in 2002 by making close to $6B in revenue. The majority of their revenue was gotten through late-fees; Blockbuster’s success relied heavily on penalizing their customers.
Netflix was looming in the distance, and they just started to catch fire. Netflix’s competitive advantage was their cheap subscription model for video rentals.
Because they didn’t have any physical stores, they were able to offer their customers a better deal on rentals. More importantly, because they had a subscription model, there was no need for late fees. Customers could keep their rentals for as long as they wanted.
This was concerning to Blockbuster because a big part of their revenue model was late fees. Blockbuster’s then-CEO John Antioco realized that this wasn’t going to last, so he eliminated those late fees and made a bet on innovation.
He invested $200M to build Blockbuster Online, an online streaming service, as a hedge against the video rental business dying. With that move, their business continued to grow, even though they took a huge hit in investment expenses.
Shortly after, famed investor Carl Icahn got a stake in Blockbuster. Icahn questioned Antioco’s strategy from the beginning. Icahn thought that dropping late fees and launching Blockbuster Online was damaging profitability, so he launched a proxy fight to gain control of Blockbuster.
Icahn eventually won and ousted Antioco. Antioco’s successor reinstated the late fee, killed the online business, and refocused on in-store profitability. We all know how this ended for Blockbuster in 2010.
Focus relentlessly on your customers
Hindsight is 20/20, and it’s unclear whether Blockbuster Online would’ve taken off.
One thing is clear though: companies that don’t innovate won’t last, especially in today’s business environment.
It’s not easy examining your own company with a critical lens and asking tough questions. It’s even harder following through with innovative initiatives when your business is already doing well.
You’ll be criticized by your investors, coworkers and the press, just like Antioch was. It’s much easier to go the easier route, which in Blockbuster’s case was to continue profiting off their customer’s mistakes.
But at the end of the day, your business is not serving your investors or the press; it’s serving your customers. Remember that and invest in delighting your customer. Build for the long-term and rally your team around that goal. These are the ingredients for success.
“Because of our emphasis on the long term, we may make decisions and weigh tradeoffs differently than some companies. Accordingly, we want to share with you our fundamental management and decision-making approach so that you, our shareholders, may confirm that it is consistent with your investment philosophy: We will continue to focus relentlessly on our customers.”
Jeff Bezos in his first letter to his shareholders in 1997
