Developing startup metrics whilst enjoying your pizza

I was invited to the launch of an ‘Italian Pizza & Pudding’ restaurant on Friday evening and made sure I was in my seat for 630pm as requested. I’d helped them with their bank funding for launch and was looking forward to the opening night. With a great buzz about the place, I ordered a 9” Pizza Marina, a version of the original Neapolitan with lashings of cherry tomatoes - Pomodoro fiaschetto di Torre Guaceto no less, garlic, oregano, and extra virgin olive oil. Yes, I’d got to know their product offering well helping with the business plan!

Within ten minutes the waitress brought two 5” pizzas and said the 9” pizza was not available as we couldn’t find the baking tray, so we’re giving you two 5” pizzas instead, which means you’re getting 1” more for free! I knew this wasn’t quite right, so I asked her to call the owner over for a chat.

Sofia came over, smiling and happy as the place was noisy with customers enjoying themselves. Not one to dampen her spirits, but I said I need to give you a quick pizza maths lesson. It went something like this: the formula to calculate the area of a circle is π r2 where π = 3.142, r is the radius of the circle. So, a 9” pizza area = 63.62 sq.in while a 5” pizza area is 19.63 sq.in. Two 5” pizza areas add up to 39.26 sq.in. I said that even if she gave three 5” pizzas, I would still lose-out. How can you say you are giving me an extra inch for free?!

Sophia was speechless, but we both laughed as I was probably the only member of the Quantitative Pedants club there working out the areas of pizzas! Oh, the pizzas were delicious by the way and no one else in the restaurant was thinking about Archimedes (who devised the formula for the area of a circle) or π (popularised by Euler). ?I moved on to pudding, and a slice of the well-filled Amarena Cherry pie, twelve inches in diameter. I just ate it you’ll be pleased to know.?

Ok, a frivolous example for sure, but one of the main issues I frequently come across with startup founders is that they don’t pay enough attention to their numbers, especially the critical ones. Not that the surface area of a pizza is a key metric. However, turbulent economic forces are conspiring to make the job of the founder even more challenging: inflation is gnawing away at margins, interest costs siphon off cash, both reducing profitability. Customers will seek price reductions and hold off paying invoices, eating away at your working capital. Against this backdrop, staff will want pay rises to keep step with inflation. ?

A perfect storm, so you need your finger on the pulse and ‘own your numbers’ to keep on top of the financial health of your startup. Forget the palaver and complexity of financial projections for investors, understand and create a ‘performance cockpit’ of your venture that you will use on a regular basis to keep tabs on current and future performance, trends, and vital signs.?It’s knowing and understanding the mechanics of your business model and metrics which inform the operational levers to push and pull.

Your numbers tell a story, and understanding the story is one of the most important ingredients for startup success. But this isn’t?boring,?accountant-geeky?stuff, it’s a core competence of a startup leader. Having the?key metrics?at your fingertips will inform you if your business model is viable. Confidence of future success must be tempered with the reality?of where we are today. Judgement and gut instinct are good barometers, but we all make mistakes, so we?need to measure things?all the time and make adjustments as soon as possible if required.

As a pilot needs to know altitude, speed, fuel levels and direction, in a startup focus on tracking your key indicators, simple answers to complicated questions - cashflow, customer success and growth – but it’s not the measures rather the insights they provide, for example, is your pricing model moving you towards the tipping point of breakeven?

Hunches will take you so far, but as you scale, you need to be analytical to make good decisions, and for that you need relevant information. In the early days of a startup there isn’t much to measure, but that doesn’t mean you shouldn’t start building a dashboard. Consider what will provide insight into your current progress and operational cadence, and help short-term forecasting, whilst also focus on growth velocity and trajectory.

It’s a combination that ensures you have a dual focus on ‘business of today’ and ‘business of tomorrow’. This current/future orientation is a good step towards discipline and attention that will lead to informed decisions. For me, knowing where you are is just common sense. It’s all very well having moonshot ambitions, but you need to know the current pulse in order to know what to do next. Once we have a grip on the ‘business as usual’ drivers, we can then look to the horizon.

There are many blogs and advice on what metrics and KPIs a startup needs to track on its dashboard, but I’d like to take a step back and get you to think for yourself and curate your own cockpit dials, so here are some issues to consider when setting up your framework.

The ‘what’ and ‘why’ of measurement The following are not the same: What do you want to measure? What do you need to measure? What do you think you should measure? What have you been told you have to measure? Just because there is a tool or metric ready, doesn’t mean it measures what you need to measure. The measurement is not the reality but, a measurement of the reality (don’t manage the score).

In my experience, startup founders can fall into the habit of deceiving themselves with their own view on data. We all have cognitive bias, tending to home in on the metrics we know, and ones that sound impressive without much context.

You can measure anything You just need to define ‘measure’. The default is a score or a number on a spreadsheet, which leaves out very legitimate qualitative measurements and often preferential ones. This rationality has been challenged, as in reality, numbers should just confirm your instinct on performance and progress, a reality check of where you are on the runway, offering a balance to the emotional ‘feel’ of what represents progress on growth aspirations.

Just because it can be measured doesn’t mean it’s relevant Look for no more than ten metrics – one to have on each of your fingertips: on your left hand, metrics that inform where you we today; on your right hand, what will tell you about trends and the direction of travel? Equally, What can’t be measured can’t be managed contains high levels of uncritical thinking. Some things may not be measurable, or it may be difficult to do so. The statement that we repeat like parrots may lead to diverting the attention to things that are easier to measure, regardless of their relevance.

Avoid your own bias Tracking progress must be multi-measurable, hard, and soft. ‘Activity’ is an easy data point, mostly useless - e.g. number of new LinkedIn followers (unless you can track to conversions). Beware of ‘vanity metrics’ such as these, they don’t provide any meaningful indicators. Focus on metrics that inform you on your direction of travel in a meaningful, clear way. The only thing worth measuring is what you care about – your customers. Start with that thought, but it should be What do our customers care about? – make it an externally driven metric, not internal. Measuring is close to a dogma, so it requires serious critical thinking.

Ask questions What do you need to know? It is difficult to prioritise product and customer growth: Should we write a new feature? Remove a feature? Redesign a user interface? Remove a step in the sign-up process? Change pricing? Hire a customer support person? You must have an understanding of what levers can be pulled towards achievement of your North Star, which is then reflected in KPIs. The focus should not be on the KPIs themselves but asking questions to get to the meaning behind them and knowing what impacts each one.

Acknowledge uncertainty Making better decisions starts with understanding that uncertainty can work a lot of mischief. Getting comfortable with I’m not sure is a vital step to better decision making.? When we accept that we can’t be sure, we move away from holding just two opposing and discrete boxes that decisions can be put in - right or wrong.?Making better decisions is about calibrating the shades of grey, so use your measures to filter and shape your thinking.

Think in terms of probabilities, not binary outcomes If we don’t hold an open mindset, we’re going to have to deal with being wrong a lot, such that we overlook the range of possibilities. This can lead us to miss opportunities because we don’t recognise them. Human nature means we spiral into imagining extreme outcomes. Stop thinking in binary terms - stranded or not stranded, ?considering the full range of possible outcomes and assign probabilities to them, we see things differently.?

Throw the thinking forward What are the measures telling me about my options in 10 days ? In 10 weeks ? In 10 months? Proceeding this way reduces the weight of the emotion of the moment and brings more rationality to the context of timescales and application of measures. We don’t need a thermostat; we need a compass – which way should we jump?

Pre-mortems give us a balance While throwing the thinking forward is a positive perspective, a pre-mortem imagines a negative one. It may not feel so good during the process to include this focus on the negatives, but the balance of lead and lag measures gives us a contrast to turning a blind eye to negative scenarios.

To me, the indicators that matter most for a startup are about customer development. If you don’t have a handle on these numbers, then you’re fiddling around the edges, as your actions will make less of an impact on growth direction, velocity, and scaling ambitions.

But let’s end with pizza. A startup is full of challenges, but I always have the four Ps: passion, patience, persistence – and pizza. As highlighted at the outset, does selling a bigger pizza provide better value for customers?

It's hard to spot a bargain when there is some serious competition. That's why I did some in-depth research. Oddly enough, Dominos massively under-price their 7" pizza, and overprice their 9.5" pizza. Recall that formula? A Dominos small pizza (9.5") gives you less pizza than two Dominos personal pizzas (7") and is more expensive.

The smaller pizza at Pizza Hut is worse value for money than Dominos, but get cheaper quickly with size, but are still more expensive per square inch than Dominos. Papa John's selections, well they start off way more expensive, but end up as cheap when you get bigger. They offer larger sizes than Dominos and Pizza Hut too, meaning when you buy bigger you get even more bite for your buck. And finally, Pizza Express is cheaper on the whole, but can have its foibles in terms of regional price differences between restaurants – as much as ￡4 per pizza.

My conclusion: it pays to go big for your customers. Pizza prices drop quickly when you order bigger sizes, with a 15” pizza costing roughly 10p per square inch compared to 20p per square inch when you order an 8.5”. That means you're paying?twice as much for every bite of pizza. Happy to chat more about my set of measures in the pizza-conomy of scale.