Good Operators Focus On Inputs, Not Outputs

Looking at data can be incredibly illuminating. You see how things are performing, how much revenue you’re bringing in, and how well the business is doing. I do it all the time. I open up Stripe, see the subscription revenue coming in, see how it is ahead of where it was last year, and give the old back a pat.

The problem is that none of this helps the business. Yes, it keeps me informed and helps me understand the business’s health. But it doesn’t actually make the company more successful. Instead, it simply tells me something that has already happened.

Too often, operators lose focus, spending too much time on the outputs and not enough time on the inputs. In other words, the best operators focus on all the things being done rather than the effects of those activities.

Let’s use AMO as an example. On Tuesday, I said I would be investing more time in making the subscription you all pay for much more valuable. I wrote:

However, I also want to focus on other things premium members need. And so, I am going to be adding, over the next quarter, the following:

Transcripts of all previous podcasts: having to listen to the entire episode to find nuggets is annoying. I will be getting all the podcasts transcribed. The podcasts will remain free to listen to, but the transcripts will be part of the subscription.

Earnings reports: I write about the earnings of media companies in my Tuesday newsletters, but there’s no structure. I want a place for people to see the earnings and short commentary. This will be a resource for CEOs and investors.

Live discussions: When the pandemic started, I hosted one or two evening Zooms with other media operators. The conversations were great. I want to bring those back. I need to figure out the timing for these because I know everyone is busy, but I think they’re an excellent way for people to connect, especially since AMO readers are worldwide.

The output—otherwise known as my expectation—is that I will see a decrease in churn and an increase in the number of people who pay to subscribe. And when I look at the data in 3-6 months, I imagine I will see those changes if this value is legitimate.

But that’s the end state. If I want to be successful and have those expectations become a reality, I need to do the work. And that means I need to spend all of my effort on the inputs of running this business. That means getting the podcasts transcribed, writing the earnings reports, scheduling the live discussions, etc. The idea is, if I do that, money goes up.

This is also important when it comes to planning. There’s a saying that revenue is a lagging indicator because the output of revenue growth lags behind the inputs of the work done. Too often, businesses plan based on these lagging indicators rather than on what determines success: the work being done.

So, let’s dig into a couple of examples…

Sales

So, if we agree that revenue is an output or lagging indicator, then what matters? At its core, sales is a numbers game. If you talk to no one, you will not generate any revenue. If you speak to many people, you will likely generate revenue.

I’m being very simplistic here, but you must talk to people to generate revenue.

Therefore, what matters is that you understand how much work your sales team is doing to generate the revenue you need. A major first step here is to deeply understand your pipeline and forecast. This gives you a visual representation of what the revenue might look like at the end of a period of time.

And so, as conversations go from cold to closed sale, the confidence level increases. You might hear the team talk about how there are deals at 25%, 50%, 75%, etc. For example, a proposal being sent might be labeled as 50%. That means you close half of the accounts to whom you send proposals. And so, if there’s $10 million in the pipeline at 50%, you’d estimate generating $5 million in revenue.

This means that your pipeline needs to be far bigger than what you want to generate. If, as a business, you need $10 million in revenue and only close 25% of all your sales conversations, your pipeline needs to be $40 million.

Suddenly, you’re in a position to understand the health of the business. Instead of waiting for $10 million, an output, you’re looking at how much prospective business your sales team is finding, which is an input.

But you can take it a step further, which I highly recommend. It’s important to judge the quality of the inputs. For example, what % of the revenue that closes came from advertisers reaching out to you vs. you reaching out to them?

Here are other things to look at:

1. How many cold pitches are sellers making?
2. How many meetings are they taking?
3. What is the response time for RFPs?

And the list goes on. These are all inputs that can be tracked. And if you track them, you’ll get a good grasp of the business’s health. If the sellers only take one meeting a week, you might have a problem. Are RFPs languishing for days on end? Perhaps you’re not moving quickly enough or are understaffed on that team.

Audience & marketing

We can tackle this from a growth and marketing perspective as well.

The output of all your audience development and marketing efforts is how many people participated in whatever you were promoting. Maybe it’s just traffic to the site or the number of event tickets sold. In either case, these are the outputs. By the time they happen, all the work is done.

And so, you should be looking at whether or not a sufficient amount of work went into generating said traffic or ticket sales. If it’s traffic, is there a sufficient pipeline of evergreen content being created to drive that top-of-funnel traffic? If it’s tickets, are you sending a sufficient number of marketing emails?

But the quality of the work also matters. For example, it’s very easy to use low-quality sources to acquire newsletter subscribers. They likely don’t cost all that much. You might go months—even longer—before it starts to impact performance in the newsletter.

However, if you focused on the inputs, you might catch it sooner. A good data point to track in this case would be the performance by cohort by source. So, how did the January 2023 Facebook-sourced newsletter subscribers perform compared to the December 2022 Facebook-sourced newsletter subscribers? If there’s a marked difference, that’s something you can modify.

Or, what about the CACs? If all you care about is the end goal of a certain number of subscribers and the incentives for the team are tied to this, it’s all anyone will care about. If you focus on how much you’re paying per subscriber, you’ll either find you can decrease how much you’re spending or, more likely, that you can grow faster.

Track inputs, not outputs

In both the sales and audience/marketing cases, the important thing to track is the work being done. In other words, track what you can control.

You can’t control if a client will spend with you. Ultimately, they are going to decide where their budget should be deployed. But what you can control is how many clients you talk to. And if you are focused on improving both the quantity and quality of your sales conversations, revenue will then go up.

As the economy continues to go through turmoil, I think a lot about what I can or can’t control. I can’t control the macroeconomic conditions of today. Nor would I even try. What I can control, though, is how hard my team works. Track the right things. Track the inputs. The rest will fall into place.

Thanks for reading today’s AMO. If you have thoughts, hit reply or join us over on Slack. I hope you have a wonderful weekend!