Gregory Shepard explains the difference between value drivers (growth, margin, retention) and KPIs, and how to use leading and lagging indicators to build plans that track against them. If metrics repeatedly miss, adjust your target dates instead of chasing unrealistic goals.
Chapters
I want to talk about the difference between a value driver, aka valuation driver, and KPIs. So first of all, a valuation driver is going to be growth, margin, and retention. Early on, it's going to be the minimum amount of annual recurring revenue you have to have in order to attract the attention of an acquirer. On the outset of that, so once you get to the point where you start to get into where you have some revenue, you want to deploy KPIs. And there's 2 types of KPIs. There's your leading KPIs. These are the things that lead the future. And then you have your lagging KPIs. The results are lagging. So these are things that have already happened and you can't change. And so when you think about managing your KPIs, you think about the breakdown of that. So if you're doing KPIs for sales, as an example, a leading KPI would be How much demand generation created how many leads? How many phone calls were made? What was the conversion rate of those phone calls that happened? How many contracts went out? How many demos happened? All of those things are leading. The lagging KPI would be how many sales did we do? Example. Now, before that would be marketing, right? Because marketing feeds sales, sales feeds service, and service feeds growth, margin, and retention. Which are the valuation drivers for your business. So, it's very important to know that you have your growth margin retention valuation drivers, and then you have your leading and lagging indicators in your KPIs. It's extremely important when you do this that you have actual, plan, better or worse. Plan backs into where you need to be. So, if you're heading to profit, then you say, okay, I'm going to be— I want to be profitable on this date. You back into what needs to happen with your valuation drivers, your revenue, and all your KPIs, and then that's plan. And then you measure your performance not based on, you know, oh, I grew 20% or something, but based on plan, because the plan is where you want to end up. So if it's a GPS and you put in the coordinates, you should end up in a certain destination. This is really, really important that you sit back and you say, okay, if I want to end up here at this time, needs to be time constrained, That means that I have to be here at this date, here at this date, here at this date with my primary valuation drivers, and then the KPIs by functional area need to be at this level at these different areas. And if that happens, you accomplish the objective. If it doesn't happen, then the numbers roll into the next month. If you go 3 months and the numbers keep rolling and they build up but it doesn't look possible, then you have to kick out the date that you set to accomplish that objective. I hope this is helpful.
