Steering From Lagging Indicators

The Global Signal

In 2000, according to accounts recounted by Netflix co-founder Marc Randolph in his 2019 memoir "That Will Never Work," and corroborated across multiple business retrospectives including Gina Keating's 2012 book "Netflixed," Netflix's leadership approached Blockbuster with a proposal that would have brought Netflix's DVD-by-mail service under Blockbuster's larger retail footprint; Blockbuster's then chief executive John Antioco declined. At the time, Blockbuster's core reported metrics, same-store rental revenue and late-fee income, remained healthy, a lagging record of a video-rental model that had worked reliably for years. Blockbuster filed for Chapter 11 bankruptcy protection in September 2010, a fact of public record, with roughly $1 billion in debt, as the shift toward mail-order and, later, streaming rental models it had declined to pursue reshaped the industry around it.

Blockbuster's leadership was not looking at fabricated or dishonest numbers. Same-store revenue and late-fee income were real, accurate, and, at the time, favorable. Those numbers described a business model that had already begun losing relevance, because a lagging financial indicator can only report on demand as it existed in the recent past, not on the shift in customer behavior already underway.

The Hidden Signal

A financial or operational metric built from recently completed transactions, revenue, units sold, renewal rate, is, by its nature, a report on decisions customers already made under the conditions that existed when they made them, and it cannot show a shift in underlying preference until enough of that shift has already occurred to move the aggregate number. Consider a hypothetical scenario, smaller than Blockbuster's case but illustrative of the same mechanism: a specialty retailer's same-store sales remain flat and healthy for several consecutive quarters, even as a small but steadily growing share of its most engaged customers has begun researching products on the retailer's own website before buying the same items elsewhere. The lagging revenue number, technically accurate, has not yet moved, because enough of the shift has not yet accumulated to show up in that quarter's aggregate result. By the time it does move, the underlying behavior change will already be well established.

Why the Visible Metric Misleads

A revenue, retention, or same-store metric answers the question of what already happened, and answers it honestly, which is exactly why it cannot answer a different, more urgent question: what is beginning to happen now that has not yet accumulated enough to move the aggregate number. The more revealing practice is not distrusting lagging financial metrics, which remain necessary for planning and reporting, but deliberately naming a small number of leading indicators, specific, observable behaviors that tend to precede a shift, and committing in advance to act on those leading signals before the lagging numbers confirm the story. Blockbuster's own late-fee revenue, a specific irritant Netflix's mail-order model was explicitly designed to remove for customers, remained a healthy line item for years even as it was actively training some of Blockbuster's own most frequent customers to resent the model that produced it.

Implication for Operators

Any organization steering strategy primarily from revenue, retention, or same-store metrics should assume those numbers are, by construction, a report on conditions that have already begun changing, not a signal of what is changing now. The practical shift is naming a small, specific set of leading indicators in advance, and committing to act on them before the lagging metrics confirm the shift, rather than treating revenue's eventual movement as the required trigger for a strategic response.