Startup metrics are somewhat different from the Key Performance Indicator, abbreviated KPI. However, since most startup-related searches focus on startup metrics instead of KPIs, in this article, we assume the two terms synonym to use them interchangeably.
For information on the concept of Key Performance Indicator, refer to this link.
The Benefits of KPIs or Startup Metrics
The Key Performance Indicator, or startup metric, has an essential function in leading startups, measuring progress, and achieving business goals. Having appropriate startup metrics for each stage of the startup is a must. However, defining it is one of the most critical and challenging issues for startup managers. Key Performance Indicators allow for more flexible agreements with the investor when raising capital as well as helping managers monitor their portfolio success.
Here are the Most Important Features of Proper Startup Metrics
Important Features of Proper Startup Metrics
Key Success Parameters of Startup
Defining proper metrics are most related to determining the KSF or Key Success Parameters. So the first characteristic of a proper startup KPI is that it relates to a correct KSF and measures it accurately, with high accuracy and reliability.
KSF is defined at the strategic level. The strategic goals of the startup are usually described qualitatively, and achieving them means realizing the vision of the startup. “Attracting new users in all major cities”, for example, is an important KSF for online taxi startups. The number of KSF is usually not more than five and should be achieved in a 5 -10 year horizon.
However, the key performance indicators are the objective, quantitative and operational translation of KSFs. They are defined more flexibly for shorter periods of time. Unlike KSFs, which are qualitative values, startup metrics can be easily measured, and operating conditions can be changed based on their different values. In other words, KSFs only specify the absolute path and goals, while the metrics are tools to ensure they are moving in the right direction towards the goals.
Proper Startup Metrics Should Measure What Is Critical for a Startup.
Suppose your startup offers a SaaS accounting service. In this case, key performance indicators such as the number of daily or monthly active users are misleading. Although for other SaaS or startups that are not B2B in nature, this metric can perform well, for B2B startups, key performance metrics related to customer conversion rates are far more critical.
- What percentage of users who have visited the site are really targeting customers and need accounting software?
- What percentage of them crawl the site’s various pages and end up in the site’s primary CTA, which may be registration, demo request, or face-to-face meeting?
For a startup, one can define countless metrics. However, depending on the startup business model, the stage of growth, and KSFs, some of them are really critical.
The Key Performance Indicator Should Be Responsive.
Key performance indicators should be sensitive to changes caused by the startup deviating from the main path and reflecting them quickly. This feature is called Responsiveness. A metric that does not reflect a change or does so with a delay is misleading. In contrast, KPIs that can show deviations abruptly are of great value.
Suppose a startup that uses the average successful travel rate in the last nine months as a key performance indicator to evaluate the performance of an online taxi. The value of this metric may show a good profession due to the high rate in the first six months. While in the last three months, a solid competitor has shown up and changed the condition. The truth is the poor performance of the marketing team in attracting or retaining users in the last three months. However, the proper function of the startup in the first six months has hidden this critical situation.
The Key Performance Indicator Should be Easy to Understand.
It is essential that all members of the team easily understand the metrics. In addition, its calculation should not be complicated, and people’s first perception of its changes should be clear. Part of this easy understanding may come from the simplicity of the calculation and other parts from the maturity of the startup. The further away a startup is from the early stages, the more skilled its employees will be in applying key performance indicators. They understand the meaning of the different values of metrics and their changes.
For example, the average revenue per user index (ARPU) and its related calculation are simple and understandable. The revenue of a time period divided by the number of users of that time shows how much each customer has bought on average. In contrast, calculating an index such as user lifetime value (LTV) is more complicated. For this reason, it is a bit difficult for startups to calculate and understand this metric in the early stages. LTV, on the other hand, is easily calculated by startups in the middle and final stages of growth and is sometimes one of the most important metrics used to make decisions.
The Startup Metric Should be Easy to Calculate.
Data collection, processing and calculation of the metric value should be easy, understandable to all and at the same time possible. For example, if you want to measure user satisfaction using the NPS Key Performance Indicator, you need to make sure that users are equally inclined to participate in the survey. If for any reason, users are not willing to do this, you should not use NPS to measure customer satisfaction. In such a situation, it may be better to use the repurchase rate of users, which is an indirect method.
The Key Performance Indicator Should Be Comprehensive.
In choosing the set of key performance indicators, you should consider all aspects of the startup. Neglecting KSFs will have a long-term impact on the overall performance of the startup.
If your startup has a serious problem, the issue must be indicated by a key performance indicator. Consider a multi-faceted startup (for example, the two facets of online taxi: driver and passenger). If all the key performance indicators are related to one of the facets – for example, attracting passengers – it will improve and grow well after a while. In contrast, there is no guarantee that other facet, drivers, improve well.
In the early stages, The main challenge of a mobile app market is the growth of content (increasing mobile apps). Consequently, it makes sense to choose key performance indicators focusing on developers and the overall status of applications. However, if this trend continues, after a while, we will encounter a platform with a lot of applications but not enough users to install them. So we need to change the focus on the two sides so that all aspects of the startup grow evenly and together.
KPIs Should Be Operational.
Startup metrics should be measurable goals that are under the team control. In other words, the startup team should be able to improve KPIs by making changes and modifications to their operational model.
The Calculation Should Be Based on Accurate and Precise Data
A proper startup metric alone doesn’t necessarily mean you will successfully use it. Beyond the KPIs, The data gathering source and method must be reliable and accurate enough. Both in the definition and implementation phase, you need to make sure you have access to reliable data sources.
The Target Value of the Key Performance Index
After selecting the appropriate metrics and data sources, it is necessary to specify a target value for each KPI.
- What values should be considered as a goal that would be achievable but challenging enough to motivate the startup?
- What is the safe range of each indicator? In other words, what are the minimum and maximum acceptable values?
The final challenge after defining the proper KPIs and monitoring the data collection is to set the appropriate target value. However, if you set a disproportionate one, the motivation or energy of the startup team may be lost, or you may not achieve adequate productivity.
Balanced Fear and Hope: Appropriate Metric Target
As mentioned, if the key performance indicators are easy to achieve, team efficiency and startup growth will decrease. The team may even become completely unmotivated and disintegrate. On the other hand, very hard goals increase inter-team tension and stress, reduce efficiency, and ultimately lead to team failure and collapse.
Reviewing Startup Metrics
The important thing about key performance indicators is to review them and their target values at specific intervals. This is especially crucial for startups that are in the early stages of growth, and their business model is facing a lot of uncertainties.
On the other hand, any element of the startup model may change. The key performance indicator should also be reviewed by improving or major changing the customer segment, value proposition, revenue model, pricing, etc. The startup team changes the new target values according to the business model, the startup growth, as well as the target market and the competitive environment. The closer a startup is to the final stages of growth, the more confident it is in setting a business model. Furthermore, it can be more confident to set target values for more extended periods of time.
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