Why Founders Should Be Looking at Their Metrics From The Beginning
Guest Author: Ilia Markov, Content Marketing Manager at ChartMogul
For any type of company, metrics play an important role in understanding the direction in which the business is headed.
None more so than subscription companies where you have to spend money to acquire customers, only to make it up (and make a profit) at a later stage.
That’s why we advocate that early-stage companies develop a culture of tracking their metrics from the beginning.
What we really mean by that is that founders need to create an environment in which decisions are taken as the result of collecting data and deriving insights from it.
To understand how this can be useful to your business, here are 3 ways metrics can make you a better founder.
Metrics help you understand what’s going on with your business
Most SaaS metrics are a trailing indicator of the health of a startup.
When your MRR is growing, it’s due to decisions you’ve taken months (perhaps even years) ago. Maybe you’ve achieved net negative churn as a result of restructuring your pricing around a value metric. Or your average customer lifetime value (LTV) has been gradually going up because you’ve improved your onboarding flow and retention.
Even in these cases, your subscription metrics are usually where you should look for insight to understand the forces that drive your business.
Consider this example coming from Christoph Janz:
At first glance, this company doesn’t look in great shape — even though MRR is growing, the rate is not exactly explosive and the number of customers seems to be on the decline.
What you can’t see in this graphic, however, is that this particular company is serving two separate animals (or customer segments) — rabbits and deers.
And the company has been growing the deer segment at a very fast pace:
You wouldn’t be able to discover this kind of insight without using segmentation and looking at your metrics — and specifically in this case, at the average revenue per user (or ARPU) of this company.
Understanding your metrics and what they mean for your business on a deep level is essential to your success. To quote Janz from the same article:
“If you fail to segment your data you may […] end up underselling yourself to investors. Even more importantly, looking at aggregate numbers or averages across your entire customer base may lead to poor business decisions, e.g. when it comes to how you allocate marketing dollars or the precious time of your AEs.”
Metrics help align your team around a common goal
Starting a company is hard as it is and nearly impossible when the founding team is not united in its vision for how their business should develop.
A 2017 study found that experience alone is not enough to guarantee that teams thrive. Teams with lots of experience, but not united in a common goal, consistently perform on a lower level compared to their counterparts that are clear on alignment.
The most straightforward way to set a goal and unite your team around it is by using your metrics — both to set the goal in an objective way and to measure your progress towards attaining it.
Or to use Peter Drucker’s famous quote: “If you can’t measure it, you can’t improve it.”
However, it’s important to understand that telling your team to “grow MRR” is not a great way to set a goal. As we discussed in the beginning, MRR is a trailing metric that moves as a result of (un)successful initiatives.
You need a plan on how you’re going to grow and a set of metrics to track your progress towards attaining your goal(s).
For example, if you want to use sales as a growth engine, you have to figure out what customers you’ll be going after and start looking at the ACV (annual contract value) of your prospects.
On the other hand, if you plan to use content marketing as your main acquisition engine, you need to understand your customer acquisition cost (CAC) and the payback period (i.e. how long it takes you to recoup the money you spent on acquiring a specific customer through their payments).
Knowing your metrics means you’re always prepared to talk to investors
Unicorns, outsize returns, 10x. Whatever they choose to call it, investors are essentially after one thing — ROI.
Getting that return on their investment involves many risks — especially when a company is young and it’s hard to tell how it’s going to develop.
So VCs and other funds are constantly on the lookout for signs that a young team with a nascent product might turn into a multi-billion company.
Data — even at early stages — provides one of the few objective ways for VCs to assess the viability of a business idea.
That’s why investors love metrics so much — they use them as a shortcut to understand whether you’re on the right path towards building a sustainable business.
The earlier you start tracking, the earlier you’ll start learning
In the early days, founders have (literally) hundreds of things to do. Compiling data into metrics (beyond the most popular ones such as MRR and churn) often falls to the back-burner.
Let’s be honest: most founders imagine running a startup in more exciting terms than looking at spreadsheet cells.
That was back in the day, though.
Today, collecting and analyzing your data from the get-go is much easier thanks to subscription analytics platforms such as ChartMogul — and it could be done for free.
If you’re using a billing provider such as Stripe, Recurly, or similar, it would take just a few minutes to connect it to your analytics platform and import your data.
This is all it takes to open yourself to a world of new learning.
You can find other articles by Ilia (@markovunchained)on the ChartMogul Blog.