Metrics Minimalism: 2 metrics is all you need

Selection Criteria & Metrics

If you were to focus 100% of your attention on the most vital metrics, what should those metrics be and why? In my opinion these metrics should be acquisitions and customer lifetime value. Before we expand on these metrics, let's first outline the criteria that any set of metrics should satisfy in order to be considered:

1. They should be causally related to the most fundamental business outcome, aka profit, and explain the biggest part of the variation that any minimal set could explain.

2. They should be uncorrelated.

3. They should be easily measurable.

4. They should be objective (no NPS or surveys sent to our friends).

Acquisitions

Besides the standard question of "what's the market cap of the business" another frequent question that customers or investors ask is how many customers are using your product. Acquisitions not only correlate with active users/customers but have the extra benefit of being forward-looking (proxy for future growth) when compared with the size of your current customer base. For example, a big customer base with dropping acquisitions signals tough times ahead. An established business needs new customers to generate growth and expand in new markets, while a new business needs new customers to test their product and find product-market fit. Organic acquisitions are also a proxy for retention as in most cases they come through word of mouth from satisfied (retained) customers.

Customer Lifetime Value

LTV is usually uncorrelated to acquisitions. You can find businesses of different sizes and LTV ranges. For a new business that has just found product-market fit the next challenge would be to monetize their products and services and prove that their customers will stay even when they have to pay for it. In addition, whether you have customers, users, or both, a precondition for someone to keep paying is that they are also retained. So, with increasing LTV you also cover for retention.

Conclusion

While every business is different and these two metrics might not be enough, the point I'm trying to make is that the majority of your time as a leader should be allocated in building stuff and fostering a culture for people to thrive in.