Episode 9: Episode 9: How to set KPIs

Akylles Talks

So, this is important because, obviously, you should know what state your business is in at all times. So, setting the right KPIs and goals will objectively tell you if you're doing well, just okay, or bad. So, nothing keeps you more grounded, humbled, and realistic about where you are than a bunch of numbers because if you interpret those numbers correctly, they don't lie. It'll also actually act as a feedback mechanism for whether your current strategy like user acquisition, launching new features, and so on and so forth, are actually working. So, if you do something and things go up, that's probably good. If you do some things, some things go down, that's probably bad. And it will not only help you prioritize your time but also course correct. So it follows if you do this incorrectly. If you set your KPIs and goals incorrectly, you can direct your startup into a bunch of circles. Or if you do it for too long on to the wrong path, it'll lead to its unnecessary demise. So, what are the right KPIs to set? I'm going to break this down into two pieces, primary metric, and secondary metrics. And most of this is going to be focused on the primary metric. One, so your primary metric should quantify how much value you're delivering to your customer. That is, you obviously want to build something that people want. Now, how much do they actually want it? And users often indicate the value through either training you through money or time. So, revenue is always the best metric. I pay you $100 to use your product, your software, I must at least value that $100. Active users using the product once a week or once a day, we call that weekly active user or daily active user, is a weaker, but another good decent indication of whether you're delivering value or not. The second one here is your primary metric must capture whether your product has recurring or enduring value to your user, or it should anyway. So, for example, in a SaaS tool, most SaaS tools use MRR, monthly recurring revenue as their primary metric. I commit to forking over 100 bucks a month, continuously every month, because your product demonstrates to me every month that it has value to me. Another example is if you're building an online digital daily newspaper, then obviously DAU, a daily active user is a good one because I expect to be delivering content to you that is valuable to you every single day. So, hopefully, you'll come back every day. The third one here is your primary metric should be a lagging indicator for its success. So, a common trap that founders do to trick themselves is by picking a primary metric, let's say, something like email signups. Because one, it's easy to move. But while it may eventually influence revenue or actual usage, it actually doesn't represent the real value the best. So, the best indication is when the value has already been delivered, it's already occurred. So, when someone has already forked over their time or money, to use it, then that is what a lagging...that's a definition of what a lagging indicator is. So, if revenue increases, it's because more customers have already paid for the product's value, versus a potential customer who came to your site, gave you an email, and maybe they'll sign up one day or maybe they'll use your product one day to buy something. And lastly, your primary metric should be usable as a feedback mechanism. That is it helps you prioritize strategies and make decisions quickly. In a start-up, one of the key things to be to being successful and getting past the product-market fit stage is to iterate very fast, right? So, while you want it to be a lagging indicator, you also don't want it to lag too much. So, for example, a lot of people pick MAU, the monthly active user. But this is usually not a great metric because it takes time to understand the impact of movement, especially in a startup this early as in your startup. And so, many things can happen within a month. And also, another reason why I don't like MAU, generally, is because if your user only comes back once a month, they only value something that you're building once a month, I really question actually, if you're solving a real problem. All right. So, you may have guessed from me talking about these four characteristics of a primary metric that there are really two primary metrics to pick from. So, one is either revenue or active users. Ideally, you're picking revenue because nothing tells you more about delivering real value than people forking over, handing over real hard-earned dollars to you. And even better, is picking revenue that people keep giving you over and over and over again, like monthly recurring revenue, MRR. It's the best test for whether people really want what you're making. So, that being said, some people do pick revenue, but a common trap they fall into is that they don't actually get paid. And usually, I hear something to the variant of, "Oh, I have these 1000 users not paying me anything. I just want to get their feedback and see how they're using the product and make it a little bit better and then eventually, I'll get them to pay, or the next 1000 users, I'll get them to pay." That's a trap because free users will give you different types of feedback than users who are actually paying you. Paid users are just more serious about the product, and hopefully, will be more serious about giving you feedback. So make sure you set your Goals, KPIs, and move forward Make sure to check the guide on www.startupkudos.com IG @ramialame