When Building a Startup, Data is King—But Not for Everything

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In the tech and entrepreneurial world I live in, data is of significant importance.  Consider:

  • A SaaS business:  MRR, CLV, Churn, CAC, Gross Margin
  • An online marketplace:  GMV, CAC, ASP, CLV
  • Cohort analysis

Do those acronyms & terms mean anything to you?  If you’re running a SaaS business or online marketplace, I sure hope your answer is yes!

In a previous post I discussed the importance of metrics and described what these mean and why they are important:

Metrics provide data. 

Data provides evidence. 

Data informs choice. 

Data is king.

In some contexts, data is important and makes its way into other aspects of our lives too, mostly without us consciously recognizing data’s role.  Consider the following:

When buying a new outfit, you consider the qualities of each of your options.  Price, color, style, and comfort are some qualities you may consider when deciding between two outfits. In your mind, you are collecting and comparing data, just as you do when analyzing online metrics.  In this example, the use of data is a bit different.  It’s more emotional.  More subjective data points, like “Does this look good on me?,” add perception into the mix.  You may think it does, but someone else could disagree.  Subjective data is still data and sometimes it even holds more weight than the hard data.

There are also feelings.  When you try on an outfit, you feel something as a result; you may feel good, confident, attractive, unattractive, self-conscious, or not so good.  Are feelings considered data?  Certainly feelings create data points to consider when making decisions, but a lot of times, feelings are not easily transferred into a data point.  “On a scale of 1 to 10, how good to you feel—10 being great?” is the type of question that can turn feelings into numbers that can be analyzed and acted on.  But even that type of question has a strong element of subjectivity.  My 8 could be someone else’s 6.

Data-driven decisions are useful and lead to some of the best made decisions.  I find that I tend to be very analytical when making decisions, especially purchase decisions. I consider: price, need, who the manufacturer is, what the return policy is, and so forth.  Feelings play a big role in my decision making as well, and a lot of times, I find the analytical and emotional sides of my brain fighting against each other.  For instance, I really want a dog.  Months ago I wrote a blog post about it and recently I have been revisiting this decision.  Why do I want a dog? Most of the reasons I want a dog are related to feelings.  When I start to think more analytically about owning a dog, I end up talking myself out of it.  So far, data has won this battle.

I use data to drive my decisions about flights, travel options, insurance packages, and monthly/yearly personal budgets—to the point where I will build spreadsheet models to evaluate which option is best.  Those choices are all data-driven, so I can measure them if I want to. But, there are some things that just can’t (or shouldn’t) be analyzed in an Excel spreadsheet.

I’ll pause here because some of you analytical data geeks out there may be hyperventilating.  Yes, there are decisions that data may do more harm than good.  I’m still working on coming to grips with this as well, but trust me, the more you live it the happier you’ll be.  Overuse of data will drive you crazy and you may miss out on amazing opportunities that cannot be calculated with numbers.

Take relationships, for instance.  Relationships represent an area of your life where data-driven decision making may not be the best idea.  How do you analyze a personal or professional relationship in Excel?  Well, you could make a list of qualities you want in a relationship, give each quality a score to rank how important it is to you, and then on a scale of 1-10 scoring how your current (or potential future) relationship levels up with each quality.  Shazaam! You have your relationship score.

Now what?  You could compare that number to a perfect score, or the score of your last relationship.  If you score all your relationships you can build a graph to show whether your relationships are trending up or down.

What if your current relationship is a 42, when a perfect score is 100 & your last relationship was a 70?  What does that mean?  What should you do?

If the above contemplation of relationship scoring sounds silly, that’s because it is.  Some things should not be over analyzed.  Relationships are about feelings, emotions, and not a number on a piece of paper.  Listen to your heart.  Even if you don’t actually write out numbers and score qualities on paper/computer, watch for your mind to do it without much conscious effort.

When you use data in so many areas of your life, the tendency is to also bring the data-driven mentality  into parts of your life that shouldn’t be measured with data. 

Data is king in some contexts, but it’s not for everything.  Life is full of opportunities to leave data behind and often times non-data driven decisions are the best you’ll ever make.  Living in the moment, paying attention to cosmic clues, and listening to your heart are just as important!