Setting KPIs and Goals | Startup School
KPIs and Prioritization for an Early-Stage Startup (00:00:00)
- Divya, a visiting group partner at YC and two-time YC founder, discusses KPIs and prioritization.
- Emphasizes the need for founders to spend their time wisely to achieve product-market fit quickly.
- Defines KPIs (Key Performance Indicators) as metrics to track progress and inform whether strategies are effective.
- Highlights the importance of prioritization in managing finite time and directing team efforts toward impactful tasks.
- Warns against vanity metrics that may lead to focusing on the wrong goals.
- Stresses moving quickly in the right direction to maintain competitive advantage and reduce dependency on external funding.
How to Prioritize Your Time in the Startup (00:04:48)
- Two types of prioritization: life versus startup time allocation and within startup work prioritization.
- Startups require the founder's time to be spent effectively and aligned with co-founders' expectations.
- Urges focus on impactful tasks in the allocated startup working hours.
Setting the Right KPI Goals for Prioritization (00:05:29)
- Primary KPI for launched startups should be revenue growth, with exceptions explained later.
- Pre-launch startups should track time to launch and user engagement; post-launch they should quickly shift to tracking revenue.
- Weekly goals are necessary to maintain a sense of urgency and encourage fast growth.
- Identifying bottlenecks is crucial to move top KPIs; example given of super daily optimizing their conversion by addressing a specific user need.
- Progress towards goals should be revisited weekly to troubleshoot issues and guide future efforts.
Simple Framework to Optimize KPI Goal (00:08:33)
- Suggests writing down ideas to hit KPI goals but not acting on them immediately.
- Ideas should be ranked by likelihood of success and complexity.
- Only a few tasks should be chosen to pursue at a time.
- If KPIs do not improve, deeply question why and be willing to accept difficult answers.
- Conduct retrospectives on weekly tasks to assess predictions and task completion.
- Learn quickly from unsuccessful tasks to pivot and make informed decisions without dwelling on indecision.
5 Things That Should & Should Not End Up on Your Task List (00:10:04)
- Tasks to include: Talking to users and iterating based on feedback, directly tied to revenue growth.
- Tasks to avoid: Passive fundraising activities when not actively raising funds, attending conferences (with few industry exceptions), pursuing arbitrary technical milestones without clear user demand.
- Avoid tasks that feel productive but don't contribute to reaching product-market fit, such as optimizing paperwork, pursuing slightly better insurance deals, or building features without knowing user interest.
- Guard against mental traps:
- Focusing on low leverage tasks for a sense of accomplishment.
- Fooling oneself into believing ineffective strategies are working.
- Letting perfectionism or indecision hinder progress; it's okay to correct mistakes later on.
- Prioritizing downside protection over chasing potentially higher-yield, innovative upside.
- Tackling small problems instead of addressing larger, more critical issues.
Choosing the Right KPIs for your Startup (00:15:55)
- Primary KPI should typically be growth, often revenue growth, to ensure the product is on a trajectory towards a successful business.
- Primary KPI exceptions include sign-ups or GMV for marketplace businesses, or letters of intent for enterprises with long sales cycles.
- Secondary KPIs should support the primary KPI and could include retention, churn, unit economics, and customer acquisition cost.
- Limit secondary KPIs to a small, manageable number—about three to five.
- Beware of vanity metrics that provide external validation but don't contribute to revenue growth.
- Decision to split focus on growth and unit economics can place startups in a precarious position, leading to stagnation.
How to Set Targets (00:18:58)
- Aim for significant early growth; 5-7% weekly is good, 10% is exceptional.
- Targets may be impacted by latent demand, the length of sales cycles, or organic versus paid user acquisition.
- Balance the focus between acquiring new users and retaining existing ones to sustain healthy revenue growth.
- Avoid acquiring new customers to a subpar product; ensure users stick around long enough to justify their acquisition cost and drive organic growth.
- Example: Super Daily shifted tracking from sign-ups to customers placing five or more orders to better align with revenue goals.
Setting Targets - Top Down & Bottom Up (00:22:14)
- Utilize a top-down approach to set long-term goals (e.g., $5,000 MRR by the end of Startup School) and calculate the weekly growth rate required.
- Use the bottom-up approach to determine what can realistically be achieved in a week, projecting forward.
- Consider what could be done with unlimited funding, then identify creative ways to achieve goals with limited funding.
- Goals should be a balance between top-down and bottom-up, realistic, achievable, and ambitious.
- Regularly check that the company is on track to grow significantly and avoid underwhelming growth.
Non-Revenue KPIs [No start time given]
- Focus initially on payback period rather than CAC to LTV ratio, striving for a payback period of zero where customers are profitable from day one.
- Early-stage companies should avoid the complexity of calculating LTV and ensure the payback period is reasonable and profitable per user.
- Be cautious with KPIs like free sign-ups or daily active users as they can provide misleading feedback if the intention is to charge for the product later.
- Free customers often have different expectations from paying customers.
- For marketplaces or products with strong network effects, volume may be necessary for utility, allowing sign-ups or GMV to sometimes suffice before revenue generation.
- Scribd's example highlights that focusing too much on sign-ups can delay the shift to revenue; they succeeded when they started charging even though they lost a majority of their customers.
Example from Scribd [No start time given]
- Scribd focused on growing a free product for four years and hesitated to charge due to the fear of losing their customer base.
- After beginning to charge in their fifth year, they lost over 90% of their customers but their revenue increased significantly.
- Real understanding of what paying customers want began only after Scribd started charging for their service.
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