INTRINSIC FOCUS AREAS OF BUSINESS NIRANJAN GIDWANI CONSULTANT DIRECTOR | BOARD MEMBER SSGMUAE | MEMBER UAE SUPERBRANDS COUNCIL | HBR ADVISORY COUNCIL | CHARTER MEMBER TIE DUBAI.

 

Let us start by looking at the world of beauty. While there exist many

benchmarks, I genuinely believe that true beauty is intrinsic and begins

with the comfort one has with one’s existence and appearance.

Therefore, in essence, beauty is a very subjective word, which is

unnecessarily complicated by beauty product and fairness product

companies.

I guess the same holds true for the world of business these days. Many

of us have come to realize that the value of a business is becoming

extremely subjective, like beauty.

In reality, three of the most intrinsic focus areas in the world of

business would be - best customer and seller experience, great HR and

governance practices, and profitable growth. These three focus areas

are sanity, rest could be defined in the category of being vanity.

And yet, there could be different periods of time when even vanity

metrics could converge into sanity metrics. Let us look at some real-life

scenarios, particularly related to the most happening business of

online, ecommerce and start-ups.

Let’s start with GMV, which stands for Gross Merchandise Value. This is

an interesting metric. Most companies usually describe it as the total

value of goods sold on their platform. Multiply the selling price of a

product with the number of items sold, and you get a platform’s GMV.

Multiply this by the total sold across all platforms and you get the GMV

of the market for that category.

Many e-commerce companies still use this metric to describe the state

of their business. Targets are set in GMV. Growth is also measured in

GMV. Many online businesses pamper customers with deep discounts,

often subsidizing buyers from their own pockets. It is a rather

convenient arrangement, especially for cash-rich companies. Bigger

discounts lead to more transactions. More transactions translate to

higher GMV figures that are flaunted before potential investors.

Yet, GMV is the only metric that tells us how much money customers

are paying for an online transaction. When growth stops across the

market, GMV then stops becoming a vanity metric, and finally becomes

the most important metric across e-commerce. It’s the most useful and

truthful metric these days because it tells online players how they are

actually performing. And that’s because GMV doesn’t just measure

growth, it also measures their share in that market.

These days, there is a huge number who want to jump on to the startup

bandwagon. Rightly so. The trend among the booming startups is to

attract the next round of funding through their ever-expanding vanity

metrics instead of running it like a true business.  

To give a sense of vanity metrics, things like registered users,

downloads and page-views are numbers that can be easily tweaked and

manipulated. Vanity metrics give a false sense of startup success,

where active users and profitable numbers are nowhere in the picture.

This is the primary reason why the comparison with beauty products

where large populations are psyched by vanity numbers, especially

when they begin to believe that fairness creams actually work and that

being fair is a sign of better beauty.

Vanity metric is when our website traffic increases by say 30%, but it

doesn't tell us the reason behind the sudden rise in traffic. As we are

unaware of the reason behind the spike, we can't even replicate the

success. But in the world of real business, the number of active users,

engagement, revenues and profits matter. These are actionable metrics

or sanity metrics that play a major role in measuring success.

Sanity metrics inform us whether we are inching closer or moving away

from our business goals.

I have had the tremendous good fortune of always working for and

heading organizations where our owners and seniors regularly

reminded us that revenue is vanity, margin is sanity. It was important

for us to make money for the business. But if we did so without margin

then it wasn’t helpful for the business to grow in a sustained fashion. In

today’s inflationary environment, when organizations are paying for all

the ingredients and costs, we know at the end of the day, it’s not

revenues that are as important. It’s our profits. It’s the same as getting

an ever-increasing salary but never being able to save.

Too often, people are impressed with revenues and are not mindful of

expenses. From my perspective, the success formula for technology

companies in recent decades seems to be to grow big, grow fast, and

not to worry about profitability. Just get market share. Its good to be

disruptive. Yet majority turn destructive.

The bottom line is that we must dig deep into the metrics that matter

and look at what they are telling us. In the end, we have to decide to

focus on the right numbers. I believe this is what will help us sleep well

at night—and keep our respective organizations around and healthy for

at least another few years.

“We coach the whole person who shows up in front of us, not just the

work side and not just the life side but whatever combination they

bring. We do this because work done well cannot be separated from

personhood done well. And agile done well cannot be separated from

values lived well” - Lyssa Adkins in Coaching Agile Teams