A lot of us investors and founders often confuse metrics. In the early days of the mobile apps, we would ask developers how many downloads they had. “You have 5 million downloads? Great! This must be a very successful app!” In fact, just 10% of those 5 million downloads actually used the app. That’s not as great. It took two years for the investor community to realize it’s about engaged and retained users and not downloads. Just like there’s a difference between downloads and engaged users, there’s also a huge difference between people who have expressed interest in doing business with your company and those who are already customers.

A lot of Silicon Valley buzz is created by our collective addiction to vanity metrics. We’re all about saying things that sound both plausible and very impressive or things that make us sound really smart and full of insights. But in reality, if you investigate the hype we create just a little bit, you may discover a lot of silly arguments.

Questioning some of these smart-sounding Startupland statements is something that always makes me smile. Looking into the underlying reasons behind some of these outlandish remarks is something us investors should consistently be doing. Founders should also make sure that one of these ambiguous statements doesn’t make it’s way into your next pitch meeting.

“We have hundreds of years of collective experience…”

One of my all-time favorites is when you see people, especially in the enterprise space, say “hundreds of years of collective experience.” It makes me wonder: are we going to be investing in a museum, or a non-profit university, or is this a team that’s nimble in their thinking and contemporary and agile enough to be moving quickly?

In actuality, “twenty years of experience” may very well be twenty times one year of experience. In that case, you haven’t yet had time yet to learn anything from your prior adventures. Instead of relying on a multiplication trick that may sound impressive, relating what you actually have learned and accomplished is far more powerful to any VC.

“Our app has 5 million downloads…”

A lot of us investors and founders often confuse metrics. In the early days of the mobile apps, we would ask developers how many downloads they had. “You have 5 million downloads? Great! This must be a very successful app!”

In fact, just 10% of those 5 million downloads actually used the app. That’s not as great. It took two years for the investor community to realize it’s about engaged and retained users and not downloads. Just like there’s a difference between downloads and engaged users, there’s also a huge difference between people who have expressed interest in doing business with your company and those who are already customers.

I’ve seen younger companies that are selling to businesses or government agencies that confuse LOIs with contracts, where they overstate what they have in their sales pipeline. Then six months later, you do another meeting with them and of course, they fall short of their projections.

“We only spent a million on marketing…”

Did you though? A lot of consumer-facing online companies will spend a ton of money on the marketing front. One of the tricks there is to say “We only spent a million bucks on Facebook to acquire new customers and our revenue is growing 50% every quarter.”

That sounds great, but then you have to ask what they count as marketing spend. That same company might be giving discounts to engage customers that amount to another million dollars, but they’re not counting it toward their total spend. Often, they’re not even thinking about this internally and eventually if a company’s drinking its own Kool-Aid on growth numbers for too long, they’ll drown in it.

The way you would evaluate or present the health of your business in terms of the growth and return on capital is very different if you bake discounts into the bottom line. Be vigilant about what you count as marketing and you’ll be able to more clearly understand and communicate the health of your business.

The “So what?”

Not confusing basic metrics makes a big difference when it comes to predicting how the future is going to unfold. What we VCs want from our businesses, as time goes by, is for the founders to have full control and the ability to predict with very high accuracy rates what’s going to happen in the next quarter. That means leaving all the flashy buzz words at the door and instead focus on giving investors a comprehensive and real look at your company, customers, and future. This isn’t just for your investors either. Being able to explain your company without all those vanity metrics will give you a deeper understanding of your business as a whole and make it easier to chart and stay a successful course in the long run.

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