Lagging vs. Leading Indicators

Mar 30, 2022

Blackberry sales peaked 3 years after the iPhone was launched. IBM's market capitalization peaked in 2011, nearly two decades after it was beaten by Microsoft.

Revenue is a lagging indicator. Unemployment (or employment) is a lagging indicator of a bad (or good) economy. IPOs are often a lagging indicator of startups 7-8 years out. Brand and growth are a lagging indicators of strategy.

Lagging indicators are important to track. They help us test existing hypotheses. They let us know we are on the right (or wrong) track. But leading indicators have much more predictive power.

Leading indicators are higher up in the causal chain of events. Engagement or NPS may be a leading indicator for retention (which itself may be a leading indicator for revenue). A strong pipeline might be a leading indicator to sales for enterprise startups. In the COVID-19 pandemic, positivity rate is a leading indicator of hospitalizations, and therefore, deaths.

Leading indicators can help us formulate a hypothesis about the future. They give us new ideas (versus validate older ones). They are often much tougher to find, but are essential to track.