Hello again and welcome back to How to Start Your Business. This is Module 3 on how to validate your business model based on the lean start-up philosophy. Today I'd like to tell you about metrics. Let's begin. If we remember last session we were talking about lean based on the three great pillars of create, measure and learn. When we create the minimum viable product we've just started validating, once we leave the office and we start having contact with customers. To do this we'll need to measure a whole set of metrics. That's today's session. There are two types of metrics. Metrics are data points that help us evaluate our business' evolution. There are two types of metrics: the vain ones and the processable ones. What's the difference? A vain metric doesn't have a real impact on our business, but it makes us believe the business is growing and it impacts our ego. However, a processable metric, a key performance indicator, or KPI, is a metric that has a direct relationship with our strategic objective. It's a metric that is processable and that, in part, helps us evaluate the development of the minimum viable product. All the KPIs are metrics but not all metrics are KPIs. So, we need to be able to differentiate between vain and processable metrics, o KPIs. To do this, I'll give you a couple of examples that will help you identify a processable metric and a vain metric. Let's look at an e-commerce company, or electronic commerce, identifying examples of processable metrics and vain metrics. Starting with the vain metrics we could think that web traffic, the number of pages viewed, the likes and followers on social media, even e-mail subscribers, or the downloads of our app on smartphones, might be metrics whose increase might be seen as symptom that our business is growing. In reality they're metrics that only distract us into thinking our business is healthy. The metrics that are truly important would be our purchases made by our website visitors, the average ticket price, if this price is actually increasing or if it's high enough for the business to be viable... How many customers come back and purchase again? What's our cost when acquiring new customers? Is it really a very high cost which ensures our business is sustainable? What's our mark-up on each purchase? These are truly processable metrics, measurable and comparable across time and which impact on the health of our business, rather than the vain metrics mentioned earlier. Here's another example. A restaurant, a more traditional business. Let's start again with the vain metrics. Our online reviews, whether users review us positively, good customer service, whatever. That's great, but if we don't have repeating costumers, with high average ticket prices to ensure sustainable business, repeat customers and customers who recommend us to the friends and family because they had a good time in our restaurant... These are processable metrics. But online reviews, the fact that we're busier than the competition, the likes and followers on our website or social platforms for restaurants... These are vain metrics. Having customers, ensuring their satisfaction, ensuring they repeat, that they invest and spend their money in our business and having customers who recommend us are processable metrics in the case of a restaurant. To end this session, remember than processable metrics are the base on which to take the big decisions of a start-up. Again: the processable metrics are the ones that tell the truth.
