Jessica Mah, co-founder and chief executive of business finance startup InDinero, took the stage at the Web 2.0 Expo this afternoon to explain how she solved a problem that her company faced last year: It wasn’t making any money.

At the time, Mah was trying to court investors, and she said that most of them had a similar message: You can’t worry about making money until you have more users, so focus on user acquisition. But Mah said that was the wrong lesson. Instead, she looked at the advice given out by iconoclastic investor Dave McClure (who now manages the 500 Startups fund), and she decided to focus on metrics.

Mah said she learned three big lessons.

1. Marketing is not the problem. Mah said that even if InDinero had the money to buy “awesome SuperBowl advertisements” like GoDaddy, it wouldn’t have fixed the fundamental problem: “Nobody was coming back to our site.” When Mah studied InDinero’s “conversion funnel” (the process of convincing a website visitor sign up and then actually pay), she found that only 0.01 percent of visitors became paying customers. So instead of trying to bring more users to the site, she focused her efforts on how to convert the visitors she already had.
2. Metrics tell an inconvenient truth. Mah recalled that she and her co-founder Andy Su liked to brag about how poor and hard-working they were, putting in more than 70 hours a week and sleeping under their desks. But in the business world, she noted, “You don’t get an A for effort.” Without metrics, a lot of that work was wasted. Once she started measuring her funnel, Mah could see that for all its hard work, the team were still leaving $5.4 million in revenue “on the table.”
3. Metrics help marketing. Not all marketing is created equal, Mah said. Of course, everyone uses Google Analytics to measure whether news articles actually drive traffic to their website, but Mah said she started looking at a more important question: Whether those articles drove visitors who actually signed up for InDinero. The answer? Articles that focused on InDinero as a small business tool paid off, while those that profiled Mah as a young entrepreneur or as a woman in tech didn’t. Mah said that’s what she suspected, but the metrics gave her the courage to stop wasting time on fluffy profiles.

And now things are looking up. Mah said InDinero’s conversion funnel improved dramatically, so now 0.2 percent of website visitors are signing up. And McClure is now an investor.

[photo by Dean Takahashi]