Measuring Startup Success

The fundamental goal of a startup is to grow it's primary metric

  1. Don't worry about metrics pre-launch. Instead, focus on running an experiment with a single independent variable like a science experiment
  2. Find a primary Metric, and a few secondary metrics to track
    • Too many metrics and things become foggy, only 1 doesn't give the full story
    • These are sometime's called KPI's
    • Should give you a good understanding of the overall health of your business
    • This is usually either revenue/unit of time, or active users/unit of time, preferably revenue since wallets don't lie
      • If not revenue, base if off something with as few degrees of separation from revenue as possible
        • Ex: Facebook could use daily active users, since it's revenue is specifically dependent on active usage
    • If you have multiple primary user groups, pick a primary metric that factors in all parties getting value
      • Ex: AirBnB uses nights booked, since there is value being delivered to both the consumer and the host, and revenue can easily be derived from it
      • Ex: Uber uses weekly trips. Easily convertible to revenue, includes drivers and riders in formula
    • Signifiers of a good Metric:
      • It quantifies value being delivered
        • This is most often represented through either the money or time your audience invests in your product
        • Revenue is often the preferred metric
        • If not revenue, Daily/Weekly/Monthly active user count is a weaker, but solid alternative
      • It quantifies value that is recurring
        • SaaS startups often use Monthly Recurring Revenue as their Primary Metric
        • Sites that depend on advertisers for revenue often use Daily Active Users as their Primary Metric
      • It's a lagging indicator of success
        • It's harder to measure value when before it has been provably delivered i.e. email signup count, since it's pretty far removed from determining revenue or audience growth
      • It gives actionable feedback to help the team make course-correcting decisions quickly
        • If a metric takes too long to calculate, it can hinder making smart iterations. Monthly Active Users suffers from this problem since it measures change pretty slowly, especially in the early stages of a company
    • THEORY: Develop a "growth formula". This the the formula that the growth of your business is built off of
      • Ex: For facebook this could be: Growth = # of daily active users * length of usage session * likelyhood to click on ad per unit of time
      • A solid growth formula for early stage is:
        • Growth = New Organic visitor rate * Visitor Signup Rate * Core Feature Usage Rate * Retention Rate * Invited User Signup State
      • The components of your growth formula are your "levers", and you should be able to track and take action to change them
      • Ideally, your levers should also be organizable into a "funnel", a series of steps that connect your user to your primary metric
        • Most B2C/B2B business's have the following funnel: Acquire → Engage → Retain → Monetize
          • Ex Netflix: User Signed Up → Video Played → Video's Played once every week → Upgraded Subscription
        • Each step in the funnel is tracked as a KPI. Your primary metric is typically either the last or second to last step in your funnel
          • Ex with above funnel: How much did signup rate improve this week? → How many users are using our primary feature this week vs last? → How much did our revenue rate increase this week?
  3. Set a weekly % growth rate goal, as well as a small list of milestones
    • Growth rate is broken into weeks so that you have a goal that can work for each product iteration. Also helps to break down big goals into managable chunks
    • There is no "perfect" % goal to set for yourself, but you can look to other successful companies for inspiration
      • Most Y-Combinator companies sit around 5-10% wek-over-week growth %. Note this is the % that their primary metric improved each week. It translates to 22-46% growth month-over-month, and 12-142 times annual growth
    • Milestones can be anything and should be dependent on your larger goals as a team, broken into smaller chunks.
    • Once you have your major goal, PUT IT EVERYWHERE. USE IT AS MOTIVATION FOR THE ENTIRE TEAM