By Ajay Batra
Start-ups need a metrics-driven approach to build fundamentally-sound ventures
Can you imagine flying an aeroplane without the myriad gauges and controls in the cockpit or driving a car without the fuel and speed indicators? Obviously not. Similarly, founders also need a variety of measures and tools to ensure that their venture is on track. For start-ups, this task is slightly complex as the very nature of their venture is morphing continually – from a kernel of an idea to a new startup to a high-growth enterprise racing towards Unicorn-hood. While many founders consider KPIs as nice-to-have markers rather than a necessity, experts insist that dashboards are critical for navigating start-ups in the right direction.
Start-up founders find their workdays extending into the wee hours of the morning as they juggle many balls and put out fires. By selecting and tracking the right set of metrics and KPIs (Key Performance Indicators) that truly represent the health of the start-up at any point, they can prioritise their time and effort. Even for founders who understand the adage, ‘You get what you measure’, it is important to understand that the quantitative inputs need to be balanced with qualitative insights about the start-up’s customers, markets, etc.
Follow the following five steps to be able to define and use powerful start-up metrics:
Step 1: Who is this for?
With the public domain is teeming with hundreds of metrics, select or define the ones that work for your start-up. Choosing the right metrics aligns the team towards common goals and assists in making effective decisions. Always remember who you are doing this for. The logical answer has to be key stakeholders, particularly, your customers. Don’t create a measurement system full of vanity metrics like social media followers or likes that serve little or no strategic purpose.
Step 2: Why bother about KPIs?
Define key business goals that you are trying to achieve, and build a measurement system around them – and not the other way around. These could be at the overall organization-level or for each unit like marketing, finance.
Examples: For a pre-launch start-up, the goals are usually around the validation of problem, solution, and accuracy of business models. For recently-launched start-ups, the goals may be to have a stable product, positive customer experience, and predictable revenues. For a growing startup, its goals could be exponential customer acquisition and investor readiness.
Step 3: What to focus on?
For each goal, drill-down to 5-7 KPIs that make sense. This can be an iterative exercise combining a top-down and bottom-up approach between goals and KPIs.
For a pre-launch start-up, possible KPIs are: #potential customers with whom the problem has been validated, #potential customers who have engaged with the product prototype, overall satisfaction level of customers with the prototype, available cash runway, % of core team members in place, % compliances met.
For growth-stage start-ups, potential KPIs are: Customer NPS scores, Cost of Acquiring Customers, Customer Lifetime Value, Monthly cash burn, Month-on-month revenue growth, and revenue/customer.
Please note your industry and business model will influence your choice – for an e-commerce start-up, cart abandonment rate may be the top KPI, while retail ventures may focus on sales/sq. ft. To ensure effective implementation of the performance indicators, define each KPI in terms of its numeric ratios, the unit of measurements, etc. It also makes good business sense to allocate responsibility for collecting data, frequency of reporting, and sources (CRM database, Google Analytics, Operational scorecards) of the data; this provides credibility to the job of managing the same. In due time, tools like Tableau and Klipfolio can be explored to make the process of collecting and reporting metrics easier.
Step 4: Create a reliable baseline
With a reasonable set of goals and associated KPIs, the next step is to populate each KPI with the current data. Be careful about the reliability and currency of data – it is best to accept that you don’t have enough data than to showcase inaccurate data. Accurate data serves as an exceptional marker for knowing where you stand.
Step 5: Link metrics dashboards with operations
The last stage involves making KPI-based dashboards a regular part of the start-up’s culture and operations. This begins by setting absolute or relative goals for each KPI (for example: achieve 20 per cent MoM revenue growth, achieve customer NPS of 80 by next quarter), and defining a frequency at which the dashboard will be reviewed. It is quite beneficial for start-ups to have a weekly huddle around tactical KPIs such as product release dates; monthly one’s around areas such as cash-in-the-bank, #customer acquired; and quarterly/annual ones around strategic areas such as fund-raise, team size and profits.
Start-up founders need mechanisms for them to gain useful insights and perspectives regularly. Carefully chosen, objectively presented and smartly interpreted, metrics provide a powerful outside-in view of the venture. The key is to start with a small cockpit and keep adding instruments as the plane flies faster and higher.
Source: The Hindu BusinessLine