Setting KPIs and Goals | Startup School

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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