How many t-shirts will an Instagram influencer sell if they have two million followers? Surely more than a few? Yet when Arii launched a t-shirt line on her platform, only thirty-six of those two million people were “influenced” enough to make a purchase.
The common advice, as another Instagrammer put it, would have been to “focus on genuine engagement and not followers, cuz they ain’t gonna buy a thing.”
Vanity metrics are superficial indicators that may look impressive but offer little insight into true performance or value. Examples from the start-up world are app download numbers, followers, and website traffic. While such metrics might boost egos, the true performance of a company would be better measured in actual sales and consumer satisfaction.
Focusing on metrics that look good—rather than on the numbers that may reveal inconvenient truths—is a common problem in business. The pressure to maintain a facade of success is huge, and it’s amplified by social dynamics.
In a world where CEOs are often celebrated as celebrities, the temptation to curate a narrative of unassailable success becomes irresistible. This desire for validation can lead to what organizational psychologist Tomas Chamorro-Premuzic calls “confidence without competence,” the dangerous practice of prioritizing charisma over capability.
Adding more color
When deciding whether or not to invest in an early-stage company, investors often have to make decisions without hard evidence. Startups won’t have customer satisfaction numbers until they have customers, so at a stage when a company doesn’t even have their product ready, investors have to rely on estimates, hope, and vague hunches regarding the clout of founding team members.
One famous instance involved Color Labs, a photo-sharing app that launched in 2011. The founders raised an astounding $41 million from venture investors before the product had even hit the market. This valuation was justified partially by projections of rapid user acquisition and app downloads—a classic case of vanity metrics.
Color Labs initially garnered significant attention and subsequent downloads but then struggled to maintain user interest and failed to establish a viable business model. Despite a pivot to live video streaming, the company was acquired by Apple in late 2012 and shut down within a year.
In pursuit of prestige
Narcissistic CEOs often find themselves drawn to strategies that enhance their own image and reputation, even at the expense of their company’s long-term health. This tendency may also result in the pursuit of high-profile acquisitions and partnerships that increase market presence and visibility.
Dr. Arijit Chatterjee and Dr. Donald C. Hambrick, in their seminal study “It’s All About Me: Narcissistic CEOs and Their Effects on Company Strategy and Performance,” found that “narcissistic CEOs favor bold actions that attract attention, resulting in big wins or big losses.” This propensity for grand, attention-grabbing moves often leads to decisions driven by vanity metrics rather than by fundamental business value.
One common manifestation of this behavior is the acquisition of high-awareness brands. As noted by Dr. Wolf-Christian Gerstner and colleagues in their research at the University of Erlangen–Nuremberg, narcissistic CEOs are more likely to make acquisitions, and to make larger purchases, than their less narcissistic counterparts. These acquisitions are often justified by metrics such as brand visibility and social media following—which may impress stakeholders but don’t necessarily translate to improved business performance.
While vanity metrics can initially elevate a company’s market perception and valuation, the overvaluation of brand assets can lead to negative financial outcomes. This overvaluation often results in poor investment decisions, ultimately harming the company’s long-term returns.
Measure what matters
For genuine, sustainable growth and accurate company valuation, businesses must focus on actionable metrics that reflect true performance and strategic outcomes. Finding the single, most useful metric—the “North Star”—is one of the most important jobs of a successful CEO.
In his book Measure What Matters: How Google, Bono, and the Gates Foundation Rock the World with OKRs, John Doerr, a renowned venture capitalist and early investor in Google, outlines how setting clear, measurable goals can enhance performance, foster alignment, and inspire innovation at companies. Doerr writes, “if we try to focus on everything, we focus on nothing.”
Underscoring the importance of focus, transparency, and accountability, he introduces organizational objectives and key results as a framework for setting ambitious goals, then recommends tracking progress to achieve them. Doerr’s mantra, “Ideas are easy. Execution is everything,” encapsulates the essence of this methodology.
In one particularly successful example, Facebook, in its early days, prioritized user growth and engagement above all else, even when faced with high operational costs such as expensive server infrastructure. Their primary goal was to rapidly increase the number of monthly active users. This focus helped Facebook build a strong user base, which was crucial for attracting advertisers and investors.
Sense of success
Emphasizing vanity metrics can be useful at times. For instance, it can lead to short-term stock price increases or more successful funding rounds based on perceived growth. CEOs, especially those with narcissistic traits, might leverage these metrics to achieve immediate financial goals or to enhance their personal prestige and career prospects.
But while vanity metrics can initially boost a company’s market perception and valuation, the long-term consequences can be severe. Once hard data is available, sophisticated investors and analysts look beyond vanity metrics and scrutinize deeper ones, such as customer acquisition cost, average lifetime value, and churn rates. Overreliance on vanity metrics can prompt market corrections when the true health of a business is revealed.
As author and professor of finance Aswath Damodaran points out, the gap between perception and reality can persist for a long time, but it cannot last forever. When it closes, it can be painful for investors who are caught up in the storytelling.
