The Problem with Competitive Metrics

I’ve I’ve mentioned previously my MBA class this term is centered around an online simulation which I’ve mentally dubbed “Sim Startup” (although it has no affiliation with The Sims or Sim City.) The simulation is divided into 6 quarters, during which our executive team must make decisions about product, manufacturing, advertising and so on, and then see how we do in the marketplace. The class is divided into four such teams so that we have competitors and our hypothetical customers have more choices.

Last quarter, my team achieved the following:

  • Revenue increased by $2.9 million
  • Operating profit increased by $400,000
  • Our products were rated 5-8 points higher by consumers
  • Our ads were rated up to 10 points higher by review boards
  • We matched manufacturing to demand so that we neither sold out nor had too much excess inventory.

Not bad, eh? But our team is depressed, because we’re now in 4th place among the competing teams instead of 2nd.

Does it matter?

There are some advantages to looking at your competition. But it doesn’t make sense to judge “success” based on whether you did better or worse than other businesses. Did you go into business because you wanted to do better than existing companies? Did you quit your job and take on the risks of being an entrepreneur because you wanted to beat the pants off that guy down the road? I’m guessing not.

The purpose of metrics is to help you achieve your objectives. So the metrics you use should be based on what you want to achieve. Did you start freelancing to get more money? Then measure how much money you made compared to last year. Did you become your own boss so that you’d have more flexible hours? Measure how many of your kids’ soccer games you missed. Did you open a store so you could share the joy of your hobby with others? Measure how many of your customers have taken up that hobby. What your competitors accomplished is not relevant to your goals.

Don’t count the other guy’s money.