Harvard Business Review recently published an article on how using the same old business metrics can result in missed opportunities for entrepreneurs.
The author, Eddie Yoon, says one of the reasons why investors seem increasingly unwilling to bet against Tesla is that when you look at Musk’s projections outside of traditional metrics, there’s an incredible case for continued growth and profit.
Yoon says, “Classic metrics like market penetration and market share, which many leaders are measured on, are the very things causing us to miss market opportunities and threats.”
I checked in with Palo Alto Software’s COO, Noah Parsons, to get his take on how using the wrong metrics, or asking the wrong questions, can affect small business’s perception of growth potential. He said, “Too many companies don’t really understand the problem they are solving for their customers and need a better way to measure satisfaction with existing solutions and workarounds.”
Yoon says market share and market penetration are two dusty calculations that need a second look.
“Most penetration is calculated from data providers gathering transaction-level data. First, just because you bought something once in the past year doesn’t mean you use it, like it, and want it again. Transaction data tells you what people bought, not what they want—and sales are not the same as demand.”
Parsons suggests that calculations like Net Promoter Score (NPS) can actually be a much better indicator of product and market fit.
Yoon’s advice lines up—instead of focusing on market share metrics, it makes more sense to approach from a share of growth perspective—or measuring how many people are actually satisfied with the solution.
“For example, you might say 90 million households have a coffee maker, so there isn’t much upside,” says Yoon. “And then Starbucks, Keurig, and Nespresso come along and show us that the core problem isn’t getting a cup of coffee, but getting my ideal cup of coffee, when I want it, how I want it, wherever I want it.”
The bottom line, according to Parsons: “The right metrics and data can make a seemingly crowded and competitive market seem like a much more attractive target for disruption.”