3 angles to consider when you evaluate your company's performance

I recently had a discussion with friends on how to evaluate their company’s performance. Which companies to benchmark with. Where to find the data points. And so on.

There’s a few interesting things I think are worth discussed here…

3 angles to consider when you want to evaluate your company's performance

1. Your peers

The following are the elements of how to pick your peers:

- Business
- Sector
- Country or region
- Size (mostly revenue, or market cap for a public company)
- Stage

Ideally, your peers should be very similar across the 5 elements as any difference could potentially result in different profitability and valuation.

However, as we also know, it’s impossible unless you’re Coke and Pepsi. So, it’s actually okay to compromise a little bit on how you define these elements.

For example, like broadening the definition of the operating country to ‘emerging market’. Or the definition of your sector to ‘SaaS tech,’ considering similarities in cost components and their weights, while being mindful of selecting peers with similar pricing capabilities.

2. Data integrity

Now, would you rely more on:

(a) a private company peer that seems perfect from the POV of angle 1 above, but with limited disclosures, or

(b) a more distant, listed company peer with more detailed, well-vetted details?

While you should do both, I would recommend relying more on (b). Know the phrase “garbage in, garbage out”?

The problem with approach (a) is that you don’t know if it’s “the real numbers”. Poor-quality data can undermine your analysis. Your analysis may need to be on ‘rough estimates,’ and you’ll likely need listed data anyway for ‘validation.’

3. Be careful of the ‘lingo’

How you think of your ‘operating expense’ (for example) could well be very different from how your accounting manager, your investor, and your peer’s financials interpret it.

Always verify the definitions of such terms in your communication and research to avoid costly misunderstandings.

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As a person, it’s very unhealthy to compare yourself to other people. "Comparison is a thief of joy" - they say.

But, as a company? Peer comparisons are a very valuable tool to gauge your company’s performance, but they’re only as good as the data, definitions, and perspective you use. I’d love to learn your thoughts on your approach to peer benchmarking — share them below!