What Makes a Truly GREAT Entrepreneur?
Transcript
The other day I was teaching at the Kellogg School at Northwestern and a student asked me,
Hey Troy, what do you think makes a great entrepreneur? And I started rifling off the usual things.
I like people who are comfortable with risk and have a penchant for problem solving, who are tenacious and coachable.
And then I had to pause because those are all things that make a good entrepreneur. Those are table stakes.
She asked what makes a great entrepreneur. And I think the difference between good and great in this case is an entrepreneur who is intellectually honest.
Someone who will be honest with themselves and their inside team about what is really going on in the company and not whitewash and make everything look pretty.
You see, it's not just with entrepreneurship.
I mean, think about 12-step programs, Alcoholic Anonymous.
The very first step of the 12-step program is acknowledge there's a problem.
And entrepreneurs out there, I got news for you.
Your companies, they got problems, and it's way more than one.
So we have to acknowledge those problems so that we can then fix them.
So one of the tools that entrepreneurs use to manage their company are KPIs, key performance indicators.
But too many times I see people using KPIs to whitewash their business, make it look too good.
I want to give you a concrete example of how you can use a KPI to accentuate what's going on in your business,
accentuate what's going right or going wrong.
Let's go to the whiteboard.
All right, so I got Acme Company here with 200 customers.
It's a recurring revenue business.
They pay an average of $100 each month for a total of $20,000 in MRR.
I think you all have seen businesses kind of like this.
So if I told you that in the subsequent month, they did a bunch of sales and they added $2,000
in MRR, you would think, wow, they're doing great.
They just added 10% month over month growth.
That's awesome.
I might give you another stat and let's say they added 30 customers to their base.
You might think, wow, that's even better.
They added 15% to their base of 200 customers.
So how do you use this data to create a KPI?
And a KPI around what types of customers and how good your customers are.
One thing you might be tempted to do is look at the average revenue per customer.
Now I told you in their base it was 100.
But at the end of this month, let's do a little math.
So revenue, $22,000.
And they have 2,300 customers.
So the average revenue per customer is 95.65.
Well, it's down a little bit, right?
It's down $4 and some change.
That's not a big deal if you want to whitewash your data.
But if you want to create a KPI that is much more effective at telling you where your company's
going, you won't measure average MRR of the whole base.
You'll average MRR of my new customers.
What trend am I seeing?
And we can see that when we take the $2,000 and divide it by 30 customers, just the new ones from this month, that is only $66.67 per customer.
Wait a minute.
We just went from $100 a month to $66 a month?
That was a really bad month.
Hopefully, you can see that there are ways to craft your KPIs so that they will show you in a much more sensitive way what the trends are doing.
I don't want to see the average of my whole base.
I want to see the results of what I just did and was that good or bad.
And I want to do more of it if it's good, less of it's bad.
So intellectual honesty is a tool that will give you and your team the power to identify
what is broken and what is working.
And there is always something that's broken and that's your opportunity to fix it.
To be an entrepreneur you have to be tenacious, coachable, comfortable with risk, and have a penchant for problem solving. Those are “table stakes” that will help make you a good entrepreneur. To be a GREAT entrepreneur you need to be intellectually honest with yourself. Do away with the vanity metrics, and set up metrics that will keep you honest in how your business is doing.
Originally published on the MATH Venture Partners blog.