A good idea is not enough, execution is what matters. The problem is entrepreneurs find themselves staying busy, but unclear if they are making any traction.
We have easy ways to look backwards to determine if we executed well. We can look at monthly cash flow, return on investment (ROI), number of new customers signed, share prices, and others. It becomes difficult to forecast our success when these lagging indicators are nominally zero. In The Lean Startup, Eric Ries introduced the concept of innovation accounting; the theory by which entrepreneurs can use leading indicators to determine progress of a given project that is absent lagging indicators.
Leading indicators are data that predict what’s going to happen in the future.. They are easy to change, but hard to measure. For example, you may be able to predict future revenue based on the number of new visitors to your website.
Deciphering signal from noise and prioritizing work accordingly is a key skill for any entrepreneur. Many fall victim to chasing vanity metrics (i.e. Twitter followers) at the cost of building something customers care about.
When assessing how you are executing as an entrepreneur, consider these factors:
Management of Business Model Uncertainty
Any new business has various levels of uncertainty. Some we know (i.e., government regulations, certification requirements) and some we may not (whether customers care about our project, what our pricing model should be). As entrepreneurs, our goal is to de-risk uncertainty as quickly, rigorously, and inexpensively as possible. As David Bland discusses, our uncertainty can be categorized in three buckets:
1. Feasibility: Can we build the product or service?
2. Desirability: Do customers want the product or service we are offering?
3. Viability: Can we build a sustainable business around the product or service?
Identifying your business risk is key to ensuring you are executing properly. If you are not aware of what you need to be testing or the assumptions that may cave your business if incorrect, chances are you are not working on the things that matter the most to your success.
Metric to Track: # of predictable experiment results
If an entrepreneur's goal is to reduce uncertainty in the business, a system of experimentation needs to be used to do this rigorously and accurately. Given the complexities of any business, one-off experimentation is not adequate for managing uncertainty. We need to run regular, proper experiments to systematically remove risk from your business.
A proper experiment includes:
The Assumption being tested: “I believe…”
A falsifiable hypothesis: “If I do [activity], this [activity] / [metric] will happen.”
Clear Action: The thing you are going to test the hypothesis and when you are going to do it.
The key metrics you are tracking
Results of Experiment
What you’re going to do next
Metrics to Track: Experiment Velocity (# experiments per week), Insight Velocity (# insights per week)
Customer Journey Clarity
Entrepreneurs often focus primarily on customer acquisition. While this is a critical function of any business, it is certainly not the only thing that determines success. When assessing your early execution, examine the entire journey a customer experiences with your organization. Revenue is left on the table when entrepreneurs chase new customers and ignore their current ones.
As you examine the entire customer journey, seek hard truths. Are customers truly happy with what you are providing? What do they dislike the most? What features are they not using? Are they accomplishing what they wanted when making their initial purchase? It is often our earliest customers that are most forgiving, so do not be afraid to tell them the product isn’t perfect. They already know.
Metrics to Track: Acquisition, Activation, Retention, Revenue, Referral (Pirate Metrics)
Assessing execution is essential for us to get sober truths about our business. Do not wait until your runway is at the end to figure out if you are working on the right things to make your business a success.