The startup economy is thriving, so you're in good company if you've taken the plunge to start your own business. Whether your business is focused on physical or digital services, one thing every successful company of any size needs is data.
The faster you can begin collecting and analyzing data, the better your chances of success are. In a recent survey, MicroStrategy found that 63 percent of companies enjoy improved efficiency and productivity by leveraging the right analytics. In addition, 51 percent cited better financial performance, and 48 percent believed that a significant competitive advantage was the top benefit of investing in business analytics.
Data analytics are a startup's best friend, and here are five reasons why.
Analytics help unlock important secondary metrics early on.
In the early stages of a startup, founders usually run the business with all guns blazing, so they usually focus on the most basic metrics: orders, users, and revenue. While these are important, you can't identify opportunities and gaps without looking deeper.
Investing in analytics early means you have access to essential metrics like CSAT, conversion rates, retention, churn, CAC and LTV. Most entrepreneurs overlook these initially, but if you think of it in terms of trying to drive a car without an instrument panel, you can see why this is a mistake. Without these metrics, you can't answer the critical questions that will keep you on the path to success.
Data analysis allows for efficient, effective strategic planning.
So, you understand that the data is important, but you might still wonder why it's essential for the early stages.
Consider this example: Every new business wants to attract as many customers as possible. With analytics, you gain two crucial insights – where the customers are coming from and how much you've spent to acquire them. Now, you have fundamental information that helps you better use your marketing budget and shows you clear acquisition targets.
The best part? You can repeat this process for each part of your business and get equally valuable results, especially if you use frameworks like OKRs.
Basically, it boils down to this mantra: "Understand. Plan. Monitor. Repeat."
When you start with a strong foundation of data collection and analysis, it sets the expectation that your brand is a data-driven culture. As the company grows and your processes become more refined, your team will be able to make better, more significant decisions with data.
Data-driven cultures start from the top, so you must lead by example. You're the one training your early leaders to make data-based decisions. You're also responsible for ensuring that new hires are on board with this philosophy.
Think of every company you've ever worked for in the past. How difficult was aligning management and workers to anything new, especially if it required technology? When you start with analytics from day one, it lets you align people, tools, processes and strategy right away.
Your company will achieve operational and financial excellence sooner.
Entrepreneurs know that operations rarely go to plan. All the theoretical projections and expectations in the world can't fully prepare a business for the real world. Your company and customers are constantly evolving. An efficient and real-time data flow is the only way to stay on top of these changes.
McKinsey notes that 32 percent of companies have successfully altered long-term strategies thanks to the changes that data and analytics have brought.
For example, the initial assumptions used to build your financial model will require adjustment once you have more recent data about actual customer behavior. Maybe you expected customers to order quarterly, but they actually order monthly. This changes the assumptions for order frequencies, average order values, lead times, logistics and everything downstream.
A solid analytics strategy allows you to track these changes and make real-time adjustments. It also means you can modify your operational and financial processes early to avoid future problems and pain points.
It's a common misconception to think that implementing analytics has to be an expensive, complicated undertaking. On the surface, it can seem like it's the kind of ordeal that requires pricey software and top talent.
Fortunately, the truth is that today's technology has made it possible to find affordable, accessible tools that anyone can operate. In many cases, basic analytics tools (which are all most startups need in the beginning!) offer free versions that will track and analyze the metrics you need to collect important data.
Tools like Heap and Google Analytics are incredibly affordable, easy to navigate, and perfect for website tracking. For mobile tracking, try MixPanel or Amplitude. The quicker you can implement these tools, the faster you can see your user funnel and identify fall-off points.
Before you plunge into hiring a full-time analyst, you need to understand what type of person your business needs. I recommend hiring a freelance data expert (platforms like Upwork and LinkedIn can be helpful here) first. They can help you set up your essentials and give you a clearer picture of whether you need a dedicated data person yet or not.
This strategy costs a few hundred or so up front, but it saves thousands in bad hires and incorrect implementation down the line!
Data is the Future of Business Success
The only thing that will help you stay ahead of your competitors and keep your finger on the pulse of your company is data. Analytics can seem intimidating at first glance, but the truth is that it's not nearly as complex as it sounds.
Insight-driven companies are 58 percent more likely to surpass their revenue goals than their counterparts. Forrester notes that companies that rely on data and analytics can take up to $1.8 trillion annually from the "less-informed competition."
Today's tools make gathering data more manageable and accessible than ever before, even if you don't consider yourself a "data-savvy" person. Once you've dipped your toes into the world of analytics, you're sure to see the ocean of possibilities.