Revenue is the best north star metric
Don’t make revenue the enemy. Embrace it. Instead of building arguments internally on why to focus on a metric other than revenue, help drive a clear understanding of how revenue comes to be.
A couple of posts came out over the past week in the data space that got me fired up. Benn Stancil wrote, “Startups shouldn’t care about Revenue” and then Anna Filippova followed that piece with “The Perfect North Star Metric.”
Benn writes, “But no matter how top of mind revenue is for a leadership team, to most people inside a startup, it’s not a useful fixation. And as data teams, it’s our job to make sure there’s something better to pay attention to.”
I normally find myself nodding along to Benn and Anna’s posts. :) But both evoked quite a strong reaction. They deliver a message I’ve heard many times in the data world. Each urges data teams to push their companies to focus on a north star metric that’s not revenue. It’s a noble aspiration but a dangerous one.
Many data teams will die on the hill of “let’s measure something other than revenue.” There’s no faster path to “the data team is too academic” and “the data team isn’t focused enough on business impact.” The reality is that by the time most data teams are formed, most companies are well established on the hamster wheel of revenue.
To data teams, I offer something else: a path of less resistance. Don’t make revenue the enemy. Embrace it. Instead of building arguments internally on why to focus on a metric other than revenue, help drive a clear understanding of how revenue comes to be. What would have been a north star metric present instead in terms of an equation for driving long-term revenue. Help connect the dots for those who don’t understand revenue. Come to the table with ideas for how to maximize revenue, presented with short-term and long-term tradeoffs in mind. We should absolutely strive towards what Benn and Anna push for - to understand the underlying vectors of value and growth in a business - without needing to change the language of the company.
Revenue isn’t only a lagging indicator. Yes, revenue comes after a customer gets or perceives value (which is often multi-faceted), but revenue is the ultimate quantification of that value. The fastest revenue growth segments and highest expansion / ACV customers almost always illuminate interesting, new ways customers get value from your product. Even short sighted things like price increases are ways to test the ways in which you might be over or underestimating value. And for the earliest of startups, building revenue tests whether they’re on to solving real problems for users. To think we can understand value without revenue feels backward.
Remember, north star metrics were popularized by companies like Facebook, Twitter, and Spotify, whose business models put at odds user value and revenue (e.g. more ads take value away from the user). For the rest of us, our goal as businesses is to align price (revenue) and value. The goal of a data team should be to drive that same alignment and understanding internally.
Finally, a part of the case for north star metrics is based on the premise that revenue isn’t motivating. While I don’t entirely disagree… Have you ever been a part of a company that’s not hitting its revenue goals? How about one that’s smashing them? What if it’s okay to want to build a massive business - is there not some simple truth in working towards that?