Former Dragons’ Den star and co-founder of Implement AI, Piers Linney, has warned founders not to “stick their head in the sand” in relation to three key metrics that are central to success.
Speaking on the first episode of the Founder Metrics podcast launched by equity management platform Vestd, Linney outlined the important measures that founders can’t afford to ignore.
“The key in most businesses is having KPIs and metrics so you know when you need to pull a lever,” he said. “That could be the market slowing down, it could be interest rates, the cost of energy, or the ability to access the talent you need.
“But most founders might stick their head in the sand because they don’t want to hear it until it hits.”
Ifty Nasir, founder and CEO of Vestd and host of the Founder Metrics podcast, added: “Founders need to use their judgement and work out which levers they need to pull for success.
“The sooner you can make the changes the better. It’s like an aeroplane heading towards a mountain, if you adjust your altitude a little earlier your trajectory will improve and you’ll get over. If you just carry on, you’re going to have to take a very severe action and burn more fuel to make it over the mountain.”
Linney revealed his top three signals that founders often avoid, but which could be central to their business’s success or failure.
Growing too quickly
“I have had this on Dragons Den with businesses I was investing in, where they were growing massively but too quickly – and probably couldn’t raise the finance fast enough for the cash they were burning through,” he said.
“They had to stop. The metrics were telling them that they could grow, but they couldn’t fund it. They had to make the growth and ability to fund it match up again. The founders I worked with did that, they reset, changed the cost base and ultimately became very wealthy.”
Tighter margins
He continued: “This is an area where I stuck my head in the sand. When the market is getting harder and you’re trying to win deals and be cute on pricing to out-do competitors, there comes a point where you shouldn’t actually do those deals. Rather than trying to support a cost base you’ve already got by squeezing margins, you’ve got to change your cost base.
“That can mean when you’re reasonably new to building a business that you look at the metrics and they’re telling you that you need to make some pretty big decisions.”
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Rising costs
And finally, Linney said: “When a business is growing, recruiting people and managing employee churn is a significant cost. The cost of maintaining a team can quickly become very high.
“For other businesses the costs are physical, and we’ve seen those costs going up. What you tend to do is hope they will revert back to the norm or the median. Eventually they will do, but over a period of time that can kill you, or they might not.
“The most difficult action to take is reducing your headcount, which you don’t want to do, so you’ll start to fiddle with the metrics and almost kid yourself that they’re telling you something they’re not.
“This is when you need someone that can see the wood for the trees, be objective about it and say ‘I hear you, you’re not listening and this is going south’. You need to change something sooner rather than later.”