Sam McRoberts

 
 
As an Internet marketer, it is absolutely critical for me to define and track key performance indicators for my clients, not to mention my own business ventures.

As the saying goes, "What gets measured, gets managed". In my experience, this is absolutely 100% true...and so is the reverse. If it isn't being measured, the chances are good that it isn't being managed, or at least not managed well.

The real question, and the one that I see so many people stumble on, is this:

"What do I measure?"

Such a simple sounding question, but there are so many possible answers that most people just can't decided what to measure. In such cases, one of two things happens: they try to measure everything and get burned out, or they decide to measure nothing and end up making bad decisions and losing money.

I've been setting goals and tracking data for years, and when it comes to online marketing I've discovered that there is really only one metric that MUST be tracked:

Cost Per Acquisition by Marketing Channel

If you track absolutely nothing else, track this metric. Now, granted, this metric is composed of a number of others like conversion rate, web traffic, average order value and profit margins, but it can be funneled down to that one simple metric.

Think about it, all companies want one of three things: leads, sales, or ad clicks/impressions.

By monitoring your cost per acquisition by marketing channel, you will have the data necessary to use your marketing budget as efficiently as possible, thus generating whatever it is that your company wants at the lowest price possible...and that is what wildly profitable companies are built from.

In addition to business uses, you can also use metrics in your personal life. Let me give you an example from my personal life.

Have you ever thought about resources as renewable vs. non-renewable? Oil, trees, precious metals? What about time?

You see, out of all the things in this world, the only thing that is truly non-renewable is time. You can't ever get it back, you have a finite amount at your disposal, and you never really know just how much time you have. You could run out of time anytime.

As such, I would argue that your time is not only the most valuable thing you possess, but the most valuable thing in the world, and it should have a value commensurate with that understanding.

So, for myself, I've developed a personal metric that I track religiously:

Net Income per Hour Worked

I have a clear list of priorities in my life containing both things I want to do and things I need to do. Spending time with my family, learning new things, traveling and teaching are very high on my list.

By assigning a dollar value to my time, I can then budget enough time to make the money I need to make, while leaving enough time to do the things I really want to be doing.

For example, a salaried worker making $50,000 per year who puts in 80 hour weeks is actually making less per hour than a cashier at Costco. He may have more money, but his time is the non-renewable resource and he should be valuing it higher.

Wealth is determined by cash flow, not by gross income, so approach work with that in mind. And, at the end of the day, if you're miserable from working too much and never have any time to enjoy the fruits of your labors, what was the point?

If you assign values intelligently, measure religiously and make course corrections accordingly, you can have your cake and eat it too :)
 
 
What? You mean there's a difference? You wouldn't believe how often I hear this!

Yes, there is a difference. To put it in construction terms, a business plan is the scaffolding, while the business model is the foundation and building materials.

Far too many business schools focus on teaching their students to create business plans, without ever teaching them the art of creating business models. The result of this flawed approach is what we see today, a host of businesses operating under an "if we build it they will come mentality".

Entrepreneurs who think, "Hey, I have a great idea! I'm just going to get this thing built and then see if I can figure out later how to get people to buy it" are what I refer to as business plan entrepreneurs. Think Twitter.

On the other hand, business model entrepreneurs might think, "Wow, there seems to be a huge potential market for my idea, and it would definitely solve a need/pain...I think I'll do some testing and market research to see if this is really the case. Then, if the market really is there, I'll figure out how to build this and make it cash flow profitable right from the start". Think 37signals.

Do you see the incredible divide between these two approaches?

Think of it from the perspective of an investor. Angel investors and venture capitalists expect there to be a large measure of risk in their investments. They expect many of the companies they invest in to fail, or at best break even. Why? Because so many of them were trained in the art of the business plan, as were the people they are investing in.

Business plan entrepreneurs will almost certainly burn a TON of money, possibly for years, while they try to figure out how to monetize their company without straying from their carefully prepared plan. They are so focused on executing the original plan that they far too often fail to adapt and pivot as needed.

Business model entrepreneurs are the complete opposite. They think about money right from the start. They approach capital with a bootstrapping mentality, spending when it's needed, but never just because the money is available to be spent. Instead of a plan, they have a flexible outline, bullet points instead of paragraphs, and at least 3 or 4 different monetization options in mind.

So please, pretty pretty please with a cherry on top, don't be a business plan entrepreneur! If you are a startup, the only metric that matters is cash flow, and don't ever forget that. Don't start building anything until you've sat down and figured out AT LEAST 2 different ways to monetize your idea (and preferably 3 or 4).

And then, once you've figured out how to sell it, build it and test your ideas. Start selling. You'll never forget the feeling the first time someone buys your product.

I promise you, if your idea is good, addresses a need, has a large potential market, and you've already come up with monetization options, you will get the money you need when you approach investors.

If you have already started selling product, proving that your model is viable, scalable and repeatable, you'll get more money from investors than you ever dreamed possible, because you've alleviated a great deal of the risk for those investors.

So come up with a business model, not a business plan. Once you've proven your business model, feel free to plan to your heart's content.
 
 
I had the privilege of attending a speaking event today where serial entrepreneur Steve Blank spoke about startups, business models and misconceptions. I'll admit, I'd never even heard of the guy before this, but he had a lot of fantastic insights to share, and I walked away better for having gone.

One of the things he talked about, and something that I have both experienced and absolutely detested, is the way too many startups try to behave as if they were larger corporations.

Just as children are not and cannot be treated like little adults, startups are not and cannot be treated like little Fortune 500 companies.

The startup phase is the time to search for a business model. Emphasis on SEARCH. This is not the time to create a business plan and stick to it. This is the time to make a few guesses and then test test test, constantly seeking and listening to the feedback from current and potential customers.

As Steve said, "No business plan survives first contact with the customer". You can plan all you want, but never, ever let that plan paint you into a corner. For a startup to succeed it absolutely MUST be flexible, nimble, and quick to consider and embrace new possibilities and routes to income and profitability.

When a startup begins to behave like a large corporation, even though it is not a large corporation, that is essentially the kiss of death.

I've worked at a number of companies that have done exactly that, adopted policies and plans and approaches that were more suited to large companies than startups, and the employee pain and stifling of creativity were palpable.

So the lesson every startup should learn is this: If you are starting or thinking of starting a company, don't become rigid and inflexible right from the get go! Focus on creating a business model, not a business plan, and adapt and change and pivot as often as needed until you've found a model that is both scalable and repeatable.

Remember these words: Flexible, Scalable, Repeatable.

If your business model is flexible, scalable and repeatable, you've won.
 
 
I was contacted recently by a reporter for Inc. magazine who wanted to interview me about the positives and negatives about running a business from home. I'd given it some thought, but I honestly hadn't considered the question in-depth prior to his asking, so I spent a bit of time brainstorming...

And it seems there are actually quite a few of both. I think the simplest way to present this is probably in list form, so here it is:

The Pros of Working from Home:
  1. The ability to work whenever you feel inspired, not just from 9-5
  2. Ability to take sick days, go to Dr. appointments and run other errands as needed
  3. Getting to spend more time with your family
  4. Very, very little overhead expense
  5. Being motivated to constantly focus on efficiency
  6. Being able to try new things and innovate without going through a committee
  7. The ability to appear like a larger business thanks to technology
  8. Learning about many different aspects of business
  9. Getting to spend time learning, staying on the cutting-edge
  10. Getting to work on side projects as time permits

The Cons of Working from Home:
  1. Not having an office for when clients want a meeting (co-working space solves this).
  2. Interruptions (wife, kids, neighbors).
  3. Separation of work and personal space/time...it's easy to work too much.
  4. Having to wear too many hats sometimes.
  5. If you are self-employed, chasing down money at the end of the month sucks.
  6. Sales are a bitch. Most people are either doers or sellers, rarely both.
  7. Isolation (I solve this by working from a local café as often as possible).
  8. Motivation. Being at home, sometimes it can be hard to make yourself work.

And that is pretty much that. I'm sure there's more of both, but that's what I could come up with after an hour of brainstorming.

I've worked from home since July 2009, and I've been self-employed since May 2010, and I've absolutely loved it...but there are days when I truly miss working in an office, brainstorming with the team, going to an interesting meeting, and knowing for certain what day my checks will arrive and how much they will be :)

If you can think of any other pros or cons, please list them in the comments.