Startup School Reference Guide for Lecture #5 — How to Set KPIs and Goals with Adora Cheung

The lecture in its entirety. Recommend watching and then referring back to this afterwards!

While working to create the Snapchat for voice — wavechat.me — and attending Startup School 2019, I was inspired to create these “Cliffs Notes” for all the valuable content that YC provides to their attendees.

If you like it, please give Wavechat a try! https://apps.apple.com/app/apple-store/id1459456926?pt=690141&ct=mdm&mt=8

Setting KPIs and Goals is a necessary condition for building a successful startup.

Table of Contents:

1. Why do KPIs and Goals matter?

2. The what, why, and how of setting a Primary Metric

3. About Secondary Metrics

4. The what, why, and how of Goals (aka Startups=Growth)

5. Leveraging your Goals to Grow your Startup

Why do KPIs and Goals matter?

1. Setting the right KPIs and goals will objectively tell you how your company is doing.

• If you’re interpreting the numbers correctly, they won’t lie!
• These numbers are also a great feedback mechanism to tell you if the product strategies you are employing are actually working.

2. Setting the right KPIs and goals will not only help you prioritize your time, but also course correct.

• If you set your KPIs and goals incorrectly, you can go in circles, never making real progress.
• Even worse, if you go too long down the wrong path, your startup can die.

The what, why, and how of setting a Primary Metric

1. What is a primary metric?

• It’s the metric that you’d be willing to bet the whole company on.

2. Why just *one* metric?

• Startups are hard. If you can measure 90% of how successful your startup is with one number, that lowers the number of variables you have to think through.
• Instead of spending time thinking through multiple variables that measure how well your company is doing, you can think through other things that may actually deliver value to the user!

3. What are characteristics of a good primary metric?

• The primary metric must be representative of how much real value you are delivering to people. Usually you can measure how valuable people find your product through their spending of money or time.
• The primary metric must capture whether your product has recurring/enduring value to your user. Delivery of real value isn’t static- it changes over time. Adding a time-based element to your metric ensures a more accurate measurement of value you are delivering to people.
• The primary metric must measure value that has already occurred. Founders can easily trick themselves in to measuring something that doesn’t measure real value, only potential value. An example of this is an email sign up — the person might pay for your service or become a daily active in the future, but they might not! This is also known as a lagging indicator.
• The primary metric must be usable as a feedback mechanism for your company. If it’s too complicated, you can’t understand what products are improving your business, and then make decisions to course correct if they are not. The same is true if the measurement of value occurred too far in the past.

4. Based on the above characteristics, there are two primary metrics to choose from 😄

• Revenue. This is the preferred primary metric, used by 99% of companies - the best test of whether people actually want what you’re making. Even better is revenue that people give you over and over again 😊 (Common pitfall: Not charging users at first when your primary metric is revenue. These “free” users will give you much different feedback than paid users.)
• Active users. Used by 1% of companies. If your revenue model is advertising based, you need millions of users coming back to your site every day before you can actually get brands to buy ads. (Very rare exception: if you are a company that needs very strong and large network effects to be valuable — for example a marketplace like AirBnb — then you need to focus on growing users on both sides of the marketplace before you generate revenue.)

5. If you’re using Active users as a metric, make sure you define “Users” properly!

• For businesses with an advertising based revenue model, this is users that come back every day, and spend ~10 minutes/day using your product.

6. For Marketplace businesses with two sets of users, how do you pick one primary metric?

• For example, AirBnb — you have guests and hosts. For a primary metric, pick something that measures value delivered to both guests AND hosts. So a good metric would be “Nights Booked”.

7. I run a bio-tech or Hard tech business. What primary metric do I use?

• If there are no regulatory issues, choose revenue. But since it will take a while to build your solution, this should be in the form of contracts for future products created.
• If you need to go through a regulatory body, like the FDA, it’s a binary goal. You need to be proving “Does this solution work: yes or no?” For a deeper dive on this, watch these two talks: A Conversation on Hard Tech with Eric Migicovsky and A Conversation with Elizabeth Iorns — Advice for Biotech Founders

About Secondary Metrics

There’s no metric that actually tells 100% of the story. Maybe 90%, but not 100%.

1. Select a set of three to five secondary metrics to pair with your primary metric.

• This gives you a good 360 degree overview of the health of your company!

2. There are lots to choose from — only select a few.

• The key is to just pick a few — 5 at most! Probably closer to 3.

The what, why, and how of Goals (aka Startups=Growth)

The goal of your startup is to GROW your primary metric. By doing this, it does two things: it proves that you’re making something lots of people want, and second, it proves you’re making something that has a possibility of reaching and serving all those people.

1. Each week, your goal should actually be to set a weekly growth rate.

• Use weekly increments because startups need frequent feedback from their users.
• Another reason to use weekly growth rate because it helps to divide up the progress you need into doable chunks!
• For example: Your goal in 2 months is to get 10,000 users. This requires growing new users, let’s say, 10% week over week. To grow 10% this week may be 100 new users, which is a different problem than than a few months from now trying to get 10,000 new users!

2. How fast should you grow?

• Growth rates range from 20%-200% month/month.
• This equals 5%–10% week/week!

• If you are growing less than 5% week/week, it’s a sign you haven’t figured it out yet.

3. Other things to take in to consideration when defining your Goal

• Time to sale. Consider how long it takes to get a sale! Consumer apps generally have instant “sales” (or sign-ups.) Enterprise solutions can have longer lead times, so that take that in to account as well.
• Organic vs. Paid user acquisition — Organic only! Paid user acquisition is cheating.
• Only set exponential goals, not linear goals. Startups=Growth!

4. What are some tactics to pick Goals?

• Just pick a growth rate. Choose one you think you can hit, and if you hit it, make the next rate even higher 😉
• “Time box” an absolute goal. For example, at the end of Startup School, what is the total revenue or number of users you want to have? Then, back out and figure how you can hit the weekly goal that will take you there. This tactic may be better if you have close to 0 users right now, as compared with a 7% week/week growth rate.

Leveraging your Goals to Grow your Startup

Goals obviously don’t mean anything if you don’t leverage them. Use them as a motivational tool.

1. Make your Goals visible (literally)

• Get a piece of paper, draw a forward looking graph of the growth you want to hit in the next 10 weeks. Print it out and put it everywhere, put it in the top of your desk, put it in the bathroom mirror, put it on the fridge!
• This is what the AirBnb founders did!

2. Leverage your prior metric and goal to help you prioritize your time in the upcoming week.

• You should be stack ranking all the ideas you have of how to grow. Figure out what’s going to have the biggest impact for the next week, then work on that.

3. There will be times when you don’t hit your goal, and that’s ok.

• It’s okay if you don’t hit your goal one or even two weeks in a row — as long as you understand why.
• If you don’t understand why, go talk to more users!

As always, lmk if you have any questions or feedback!

Part 1 of this series is here: https://medium.com/@davegoldblatt/startup-school-notes-orientation-fbe4201b977c

Part 2 of this series is here: https://medium.com/@davegoldblatt/startup-school-reference-guide-for-lecture-2-how-to-evaluate-startup-ideas-6c6e61479cbf

Part 3 of this series is here: https://medium.com/@davegoldblatt/startup-school-reference-guide-for-lecture-3-how-to-talk-to-users-with-eric-migicovsky-f4afd41b8e9d

Part 4of this series is here: https://medium.com/@davegoldblatt/startup-school-reference-guide-for-lecture-3-how-to-plan-an-mvp-with-michael-seibel-578e672eae1