2020-06-12T08:40:10-04:00 June 11th, 2020/Business/By /

Business: The Critical Number: The Strategy that Facebook and Netflix Used to Stay Focused

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When you’re running a business, it can feel as if there are a thousand tasks at any given moment.

You’re trying to grow revenue, but you’re stuck in the whirlwind of endless meetings and other people telling you what to do.

The problem is every team member has their own priorities. It can feel like you’re trying to row the boat forward, but everyone’s paddling in a different direction.

There’s so much movement, but you end up in the same spot a year later.

Can you relate to this?

So how can you get the entire company on the same page and row in the same direction?

The best way to do this is to decide on a single priority. From there you need to create a Critical Number to measure your progress against it.

In 2005, Noah Kagan was one of the early employees at Facebook.

He was constantly bringing in new ideas to Mark Zuckerberg. One day he brought in a few ideas to him. They were all ideas to increase the revenue of the company.

How did Zuck react to his ideas?

He got up and wrote on a whiteboard, “GROWTH.

He didn’t want to entertain any idea unless it had to do with Facebook’s Growth.

His single priority was growth.

His Critical Number to measure growth was the Total Number of Facebook users.

Once again, he said no to everything that didn’t involve growing Facebook’s number of users.

Let’s imagine a scenario where he did listen and focused on revenue instead.

He gets his team to find advertisers and focus on monetizing the existing user base. They might’ve been profitable much earlier.

But at what cost?

At the time, he was battling rivals such as Myspace, Friendster, and Google’s Orkut. If he spent resources on generating revenue, it would have come at the cost of Facebook’s growth.

Perhaps one of those networks would’ve had more users than Facebook and end up dominating the social landscape.

By focusing on growth, everything else sorted itself out.

That’s the power of the Critical Number.

Source: What Happens After You Get Shot Down by Mark Zuckerberg.

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Photo by Skitterphoto from Pexels.

Do Less

Years ago I was constantly burning out from running affiliate marketing campaigns.

I’d get a campaign profitable, and then I’d do everything possible to scale it. I’d expand it to multiple traffic sources, and I’d expand it to multiple countries.

The creatives would burn out.

An offer would die and I’d have to replace it.

I was working 10x harder, but my profits weren’t growing 10x bigger. The only thing that was 10x was my stress and anxiety.

It wasn’t until I started doing some serious thinking time that I realized I could make more money doing less.

If 80% of your output comes from 20% of your efforts, what happens if we 80 / 20 that?

64% of your output comes from 4% of your efforts.

So I narrowed that campaign to a single traffic source, and focused on the top 3 countries.

I had fewer offers to manage. We created way more creatives so we never faced burn out. I had the space to test my landing pages.

I ended up making way more money by doing less. I focused on the traffic sources and the countries with the most leverage.

I believe in dominance over diversity. People that diversify do it out of fear, and end up spreading their resources too thin.

Being a leader means you have to do two things well:

  1. You Need to Set the Vision – Don’t just say what the goal is. Paint a vivid picture and get buy-in from everyone.
  2. You Need to be an Editor – Be ruthless when it comes to saying no. Accomplishing anything great means sacrificing a lot of good ideas.

Netflix and The Critical Number

In 2013, Netflix’s Chief Content Officer said that “The goal is to become HBO faster than HBO can become us.”

Let me share some context with you.

HBO was known as the gold standard of quality programming. They had hit shows such as Sex and the City, The Sopranos, and the Wire.

They weren’t just great shows – they were cultural icons.

At the time, Netflix licensed everything from other providers. Those dinosaurs had no idea how valuable their shows were.

Netflix was sitting on a ticking timebomb.

There would come a day when these networks would stop licensing out their shows, and creating their own streaming platforms instead.

Netflix also realized that the licensing fees would become more expensive by the year.

The key differentiator in the streaming platforms would be quality, original content.

Netflix set its priority to create quality, original content.

It then set the Critical Number to create at least 5 new shows a year.

Right now we’re in the middle of the streaming wars with players like Apple, Amazon Prime, Hulu, HBO, and Disney Plus.

One of the most popular series on Netflix is The Office. It’s not owned by Netflix, however. In a few months, The Office will be exclusive to NBC’s new streaming platform.

Netflix already anticipated this years ago and are prepared. They have a series launching from the creator of the Office that stars Steve Carrell. They’re not going to lose that many subscribers because they attacked the issue years in advance.

What if Netflix didn’t make original content a priority? The competitors would’ve taken back all their content and we’d be left only streaming B list movies.

What Makes a Great Critical Number

If I asked you to pick a critical number for your company, chances are that it’s going to be money-related.

Your gut instinct is to track the revenue or the profit of your company.

Tracking the revenue or the profit of your company itself doesn’t do anything.

A great example is losing weight. Everyone’s instinct is to track their weight, but that’s a lagging indicator. It’s far more productive to track an activity that affects weight loss.

Imagine if your critical number is 1200 calories a day. As long as you hit 1200 calories a day, you’ll lose weight.

Instead of tracking just revenue, think about what activities lead to revenue.

Let us look at some other criteria.

1. It’s the Leading Domino

Imagine you have a row of dominoes lined up.

The lead domino is the first one that you push over. By taking care of it, everything else falls into place.

Early on, Mark Zuckerberg’s critical number revolved around growth.

A few years later, he realized that more and more of Facebook’s active users were going mobile.

That was a threat because Facebook wasn’t ready for mobile. He pivoted the company to focus on mobile.

In the next few years, he developed the Facebook mobile app, created the Facebook Messenger app, bought Instagram, bought mobile, etc.

What if he didn’t focus on mobile? Facebook could’ve been overthrown by another social network.

Now Facebook is set for mobile.

Their next “threat” is privacy. They’ve dealt with a ton of issues from the Cambridge Analytics scandal, and the Russian politics scandal.

They’re focusing all their efforts now on privacy.

2. Be Careful of Vanity Metrics

Have you ever heard of the term “Vanity Metric?

It’s a metric that looks great but doesn’t indicate how great your company’s doing.

One great example is your employee count. It can become a dick waving contest to talk about how many full-time employees you have.

But is that a solid indicator of how well your company’s doing?

What if instead of 25+ employees, your company was more productive with 10 employees.

That difference in salary, benefits, and office space could be realized as profits instead, or re-invested into the company.

(Or you could survive something like COVID-19 without laying people off.)

Let’s say you’re big on YouTube and you decide that your critical number is the amount of YouTube followers you have.

You set that as a goal. You then focus on creating more clickbait content and doing collaborations.

You achieve your goal! You have 5 million followers! However, your engagement is horrible.

I’ve seen a ton of channels that have millions of followers, but only get 1% of their views on average. (For example: a 2 million channel that gets 20,000 views per video on average).

YouTube has permanently punished them!

3. Set a Deadline

Critical numbers need deadlines. I suggest either setting them on a yearly or a quarter level.

By setting deadlines, it creates urgency and it gives you time to reflect the relevance of it. It gives you a tight feedback loop.

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4. Set a Single Number

I said Critical Number.

I didn’t say Critical Numbers.

You’re more than welcome to track multiple metrics, but the critical number is special.

It’s the number that you obsess about. It’s the number that you have weekly meetings about. It’s the number that the entire company rallies around.

That’s the difference between a critical number and a simple “KPI”.

5. It Addresses Weaknesses

Every company has a “boogeyman.” Every company has a weakness that could destroy it. Many companies set critical numbers designed to attack the biggest weaknesses in the company.

Facebook’s weakness was mobile. They poured everything into mobile.

Netflix’s biggest weakness was original programming. They poured everything into original programming.

Either you attack your biggest weaknesses, or your competitors will do it for you.

Examples of Critical Numbers

I’m going to share with you some examples of critical numbers.

1. Losing Weight

Let’s say you’re interested in losing weight. The critical number isn’t tracking your weight on a weekly basis.

What activity or number can lead to weight loss?

I have learned that abs are made in the kitchen. Your diet is the 80 / 20 of weight loss.

My Critical Number = Total amount of calories I ate on a weekly basis. As long as it was under 12,000, then I’d lose weight.

So I laser-focused everything on controlling my calories. As a result, I lost weight.

2. The Growth of a Software Company

Tobias Lütke is the founder of Shopify and a proponent of critical numbers (he calls it a compass metric).

There were a ton of candidates for their critical numbers, but they landed on the CMRR.

Committed Monthly Recurring Revenue.

In his own words,

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3. Critical Numbers for Campaigns

So, the majority of readers are probably launching campaigns. You’re not dealing with “growth” or customer service.

What’s a good critical number besides just tracking your profits every day?

I can share with you two ideas.

I’m sure you’ve heard of the 10,000-hour rule. You need to spend 10,000 hours to become an expert in a field.

A far better rule is the 10,000 experiment rule.

So one critical number I’ve tracked is how many split tests I run on a daily basis. It was a way to make sure that I was constantly experimenting.

It was easy for me to fall into the trap of low-level activities like “networking.” By holding myself accounting to running split tests, it made sure that I’d always be improving my campaigns.

Let’s say you’re trying to break into e-commerce. If that’s the case, then nothing’s more important than testing different products.

Set a critical number that measures how often you’re launching new products. It makes sure that you’re launching campaigns rather than wasting time watching YouTube videos.

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Tracking the Critical Number

Planning is the fun part. Execution isn’t as fun.

Look at how many people set New Year’s resolutions, only to break them within several weeks.

Not only should you set the critical number, but you need to keep track of it.

1. Keep track of it.

Don’t get fucking fancy.

I repeat.

Don’t get fucking fancy.

I know it’s tempting to find a software to automate all this shit.

You’re not going to do that.

You’re going to create a Google spreadsheet.
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2. Bring it Up on a Weekly Basis

You should have weekly company meetings on Friday. During that meeting, it’s a great time to bring up the critical number.

Where are you at this week compared to the goal?

What worked and what didn’t work? What actions is the company as a whole taking to move the needle on that number?

3. Evaluate to see if the Number’s still relevant

It’s the end of the quarter.

Did the critical number accomplish its goal?

If you tripled your number of YouTube subscribers, but you’re still broke, then it might be a good time to change strategy.

Other ideas for your Critical Number:

  • Net promoter score – How likely would you recommend this product / service to a friend or colleague?
  • # of Days without an Accident – in 1987, a new CEO arrived at Alcoa. The aluminum company of America. The CEO took stage and mentioned his focused worker safety.
    Not profits or revenue.
    By focusing on worker safety, Alcoa’s profit would hit a record high.
  • Oura Sleep Score – I found myself having an issue with energy throughout the day. I realized the lead domino would be my sleep. I kept track of the critical number with my Oura Ring and my Sleep Score. As long as my Sleep Score stayed above 80 each day, I’d have energy.
  • Attention – It seems that we’re all losing a little bit of our ability to focus each year. I’ve played around with monitoring my phone screen time, and how many minutes a week I spend meditating.

Simplify and Prioritize

There’s always this temptation to do more.

I’ve realized that it’s more important to do the right things and stay focused on them, then trying to 10x everything.

The easiest way to do that is to stay focused on the critical number.

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