What does a tech company CEO need to know every morning?
The competitive power of fact-based management
In today’s fast-moving tech marketplace, quarterly reports look more like archeological relics than management tools. Highly successful senior managers are tracking business results not just every quarter or month but every hour.
In this piece, five tech executives discuss how they use data throughout the day to make instant course corrections, outperform the competition and build growing businesses.
Know when something is broken
Adam Berger is CEO of Digital Room Inc. (www.digitalroominc.com), a leader in online digital printing. “I’ve joined four companies in the past 20 years,” he said, “and my first act was always to determine what people needed to know at 8 AM—the three to five things that can tell us whether our business is healthy.”
Sales numbers top the list. “We look at independent variables,” Berger explained. “How many people come to the site? How many upload something? How many new customers? Average order size?” His team gets emails on metrics for each product category compared to the same day of the same week for months or even years.
“The inbox is a precious piece of real estate,” Berger said, “but if ten people keep their fingers on the pulse of the business, there’s a good chance that at least one will catch something that’s broken.”
Manage customer and market satisfaction
In 2003, when Jon Oringer founded Shutterstock (www.shutterstock.com), a subscription marketplace for royalty-free photographs, videos and illustrations, he received an email every time an image was downloaded.
That would be impossible now. Customers downloaded more than 25 million licenses in the fourth quarter of 2013 while photographers, videographers and artists uploaded new content. To keep track, he and his senior team receive a “health metrics email” every few hours. “We see revenues by business unit and region,” Oringer told us, “and what customers have been downloading and contributors uploading throughout the day.”
“If there’s an issue with service or the website,” he said, “we can address it quickly.” The company’s business intelligence team combs through a terabyte of information every day looking for business trends, anomalies, new customer behavior patterns and content demands. Oringer uses internal reporting tools to watch the business himself, monitoring marketing and coupon experiments and customer satisfaction.
“We measure and benchmark our net promoter scores,” Oringer said, “but I monitor customer satisfaction through Twitter. Our customers and contributors are pretty vocal.”
Make timely course corrections
Peter Segall, CEO, and Bryan Chicoyne, CFO, keep a close eye on traditional metrics like cash flow and depth of sales pipeline at HealthcareSource (www.healthcaresource.com), the leading software-as-a-service provider of talent management solutions for the healthcare industry.
Cash gets priority. “Rather than focusing only on GAAP, we look closely at invoicing—money in—compared to actual expenses,” Chicoyne said. “For a SaaS company, cash is the best measure because GAAP financials don’t reflect cash spent on infrastructure capex,” he explained.
Next to cash, Segall believes the sales pipeline is critical. “We live and die by our pipeline conversion metrics,” he said. “We expect to see sufficient leads at the top of the funnel in any quarter, and we know the rate these prospects typically convert to deals.”
If Segall sees conversion rates change, he understands how it will impact revenue and quarterly results. “Knowing the base sales metrics for your type of business and market enables you to make real-time course corrections,” he said. “The metrics help us understand market dynamics and stay ahead of the game.”
Focus managers’ attention on the right things
As a CEO, Adam Berger says he wants to live in “a democracy of facts and logic.” The daily flow of information helps him make that dream a reality. “Relying on data removes capriciousness and any kind of politics,” he explained.
“Data also focuses people,” he said. “They don’t worry about things they shouldn’t and they make sure that they have answers to the issues that the data brings to light. Managers begin to focus not only on whether we had a good day or not,” he said, “but why.”
HealthcareSource’s Peter Segall believes that the right metrics help engage and motivate his people. “They know know where to focus,” he said, “and how they’re performing.”
Get more out of the board
Jeff Lieberman, a managing director at Insight Venture Partners (www.insightpartners.com) who has invested in Shutterstock, HealthCareSource and Digital Room, believes that new sources of real-time data have transformed board meetings and the way board members interact with executives.
“Ten years ago,” he said,” a board would look at the numbers once a month or quarter and then ask questions about what happened. It was backward-looking.”
“Today,” he explained, “thanks to real-time metrics, board meetings are much more strategic and forward-looking. We’ve seen the data and we’re ready to talk about how to solve problems or how to take the company to the next level.”
Stay ahead of a fast-moving marketplace
Lieberman believes that using data to manage a business is a hallmark of a good CEO. “Most high-performing companies have someone, maybe the founder, obsessed by the numbers,” he pointed out. “It doesn’t have to be the CEO, but someone on the senior team should have those skills.”
The executives all agreed that it takes time and money to build systems to gather data and analyze it. They also agreed that the alternative is driving without a clear view of the road ahead.
“When you really care about something in your business and you find the simplest way to measure it,” Berger said, “it doesn’t usually require a big investment. And it’s immensely satisfying to know you have better control. The alternative is sort of like saying, ‘I know I should put my glasses on but I’ve got to keep driving down the highway.’ No. You’ve got to pull over. It will cost you a few minutes, but you’ll drive a lot better.”
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Hilary Gosher is a managing director at Insight Venture Partners. She leads due diligence and Insight Onsite, the operations consulting team that collaborates with portfolio companies to drive growth, profitability, M&A and exits that benefit all stakeholders.