What gets measured matters

One of the main products that my company offers is credit cards. The question we constantly have to ask is: do we evaluate ourselves by the number of credit card signups or how much revenue/profit we generate from the cards? If the objective is to increase the number of credit card users, there will be some unintended issues. There will be gamers who sign up for credit cards to take advantage of incentives or bonuses and leave the cards unused. Since we are legally required by the laws to set aside funds to cover for credit cards’ limits on the books, that will be money uninvested and financial losses. Also, bonuses may lead to net financial losses for our company as the revenue generated from revolving balance or interest isn’t enough to cover for the bonuses. Nonetheless, as a business, we are not in operations to lose money. Hence, the objective should be geared towards profits. As a result, our strategy, plans and actions should reflect that objective.

I used to work for the advertising industry in Vietnam. Back then, there was a time when brands raced to accumulate likes on Facebook. There was even an index to show which fanpage received the most likes. However, that metric was misleading. If the goal is to get likes, the marketing team or advertising agency will do whatever it takes to get likes, regardless of where the likes come from. If your brand is in Vietnam, yet the likes come from outside the country, will those likes matter? Plus, if users like the page and have no consequent interaction and later unlike the page, does the initial like matter in the first place?

In Vietnam, a lot of brands prioritize publicity. Being on the most popular newspapers every week or month is more important than the reason for such presence. Brands pour a lot of money to be featured with no meaningful or helpful content. Take Cocobay as an example. The company tries to sell luxury condotels in Danang and usually shows up on the most popular newspapers in Vietnam. They even managed to have Cristiano Ronaldo advertise for them and host high-profile events. Yet, the company recently announced failure to honor financial commitments to investors.

Publicity is great. But it should come with authenticity, credibility and good will. Enron is famous in the business world, but I doubt you want to be associated with it. Hitler is a well-known name, but would any brand want to be associated with it?

The recent backlash against unprofitable businesses is another example. A plethora of startups received a high valuation which, to be fair, is more about an agreement between founders and private investors, despite no path to profitability. The high valuation is largely based on a prospect of future growth on revenue. But if the revenue comes at the expense of cash and without any profits ever, is the company a good investment? Uber, Lyft and Slack have seen their valuation drop significantly after their respective IPOs. WeWork even had to shelve its own plan to go public. The market suddenly realized what matters more and it’s profits and free cash flow, not revenue growth.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.