I know that I’m a bit late to the game on this, but one thing that is starting to make noise here in Silicon Valley and elsewhere is the fact that Venture Capitalists are starting to pay less attention to so-called Vanity Metrics and starting to pay attention to metrics that are much more meaningful to growing successful long-term businesses.
What are vanity metrics you may ask? Back in the early days of the web, people used to brag about how many ‘hits’ their website received. I’m not sure that metric was ever truthfully defined, but it eventually evolved into things like visitors, unique visitors, and more modernly app downloads/installs and even sign-ups and registrations.
What’s the problem with these metrics? A quick side story - two years ago I was chatting with a partner from a top VC fund and I was showing him the (what I thought was impressive) spike in unique visitors from a start-up I was consulting at. He literally laughed at me and said “You know I can see right through that, right? I was in advertising once too.” The issue with these metrics is they are easily manipulated and they don’t necessarily produce revenue or long lasting customers (i.e. long term revenue streams).
So what are meaningful metrics? Well, the number of active customers you have is one. This can be everything from number of times a customer logs into your website to the number of times a customer uses your app on a daily basis. From a commerce perspective, you can look at how frequently a customer is buying from you and how much are you increasing a customer’s average purchase. Other things to look at is to see how frequently a customer is recommending your product, service or app to his or her friends (hint: your best customers will be doing this frequently).
The end result of this is we should expect companies who focus on these metrics to be more stable to be stronger and to be longer lasting. Long gone are the days when companies will get $5 million in funding simply because they can get a million unique visitors to their site within a given month - anyone with a few dollars and a decent marketing background can do that. What is more interesting is how you can keep those visitors coming back to you month after month.