I was in a board meeting yesterday at BigDoor where we were benchmarking our current numbers against a couple of recent studies on SaaS-based companies including the 2011 Pacific Crest Private SaaS Company Survey. Several of the things we looked at were averages; the Pacific Crest data was presented as medians. I subsequently had a short conversation in the evening where someone asked me about what I thought the mean was across our investments on a particular metric; I responded that the mean was meaningless – we should be using the median (which I then gave the person asking the question.)
I see people use average all the time when they should be using median. I also find people constantly confusing average, mean, and median. Most of the time when people say “mean”, they mean (oops – I couldn’t help myself) “arithmetic mean” which is the same as “average.”
The Accelerator Data presented on Seed-DB is a great example that entrepreneurs should be able to quickly relate to (unlike the image I included in this post, which I find completely impenetrable.) Seed-DB presents both Average and Median. If you sort by Average $ raised per company, you get one picture. If you sort by Median $ raised per company, you get a very different picture. Now, there’s a lot of missing or estimated data for many of the accelerators, so that impacts the validity / accuracy of the data set, but it’s a great example of how average vs. median changes what you see.
As an entrepreneur, I encourage you to think hard about whether the right thing to compare a particular metric to is median vs. average. While average can be useful, I generally find median to be a much more enlightening number.