A typical startup founder is busy with products, customer development, marketing, and pitches to the investor. When it comes to tracking KPIs, the challenge is something confusing – there are many long lists of indicators, best-practices and metrics that VCs supposedly are looking for.
In this article, we’ll discuss two topics:
How is This “Startup KPIs” Article Different?
I argued above that searching KPIs for a startup is confusing, here is how this article is better:
- Teaching to fish. I’m sharing some KPIs, but I also try to “teach to fish” answering “why” questions, giving relevant links and guides.
- Personal experience. We were all a startup once, so for each KPI, I shared the approach that we used at BSC Designer to track that indicator.
- My background with KPIs. I’m doing the topic of performance measurement seriously – writing books, articles, and managing software product for KPIs/strategy scorecards.
What KPIs Should a Startup Company Track?
Before thinking about indicators/metrics/KPIs, I want founders to formulate the questions that matter for their company today.
If your startup survived the “idea” stage, then the questions will resonate with these ones:
- How good we are in attracting prospect clients?
- How good we are in engaging users?
- How much value do we create for our clients?
- How good are we in retaining clients?
- What is our economic sustainability?
Let’s see how we can quantify these questions.
1. Attraction KPIs
- At BSC Designer, we are doing content marketing actively, so our main traffic source was organic visitors.
One of the goals of our customer development strategy was to understand a better customer journey. We tracked the average time from the first touch to paid subscription, and this metric helped to adjust customer acquisition strategy.
2. Engagement KPIs
- Conversion rate into free trial accounts or their proxy
- % of clients who unlocked key functions of the product
- Feedback obtained, meaningful conversations
- Website metrics (bounce rate, time on site)
- Social engagement metrics (likes and shares)
- Mail list metrics (CTR, open rate)
- Returning users rate
- We track the percent of “engaged” accounts. In our case, an engaged account is one where the user created at least one scorecard and unlocked the potential of certain functions.
We did many interactions trying to understand the blocking points that prevent users from unlocking the value of the product. In our case, the response was:
- Creating very detailed video tutorials for all functions of the product and
- Creating a Strategy Wizard that increased onboarding effectiveness significantly.
3. Value KPIs
- Paid subscriptions and revenue are the best indicators of value created
Depending on the product and your monetization model, there might be some useful proxies:
- The time users spend daily interacting with your product
- Newsletter subscriptions
- The team is a leading factor of value that your company creates for the end-users. Once intuitive management is no longer working well, look at team-related metrics.
- We are looking at the number of paid subscriptions.
- The proxy (leading indicator) for paid subscription is “meaningful interactions.” In our case, these are “qualified pre-sale questions” and “live demo requests.”
4. Retention KPIs
- Churn rate. The percentage of customers who cancel their subscription in a period.
- We are tracking churn rate across different regions, business domains, and subscription types adjusting in this way our onboarding process and development roadmap. For example, one of the findings was related to the interface complexity (I shared the story in the complexity article) that we fixed successfully.
5. Economic Sustainability KPIs
- Burn rate (e.g., negative cash flow), cash flow
- CAC / LTV (Customer Acquisition Cost / Lifetime Value)
- Revenue, costs, profits
- We are profitable, so our main economic metric is annual revenue growth. Similar to retention KPIs, we are looking at revenue related to certain geographic regions to focus our growth strategy.
Beside obvious economic sustainability, many successful startups also look at other pillars of sustainability that help to build products for sustainability-aware clients.
Here are my favorite directions to move in terms of performance measurement:
Those who are ready to do performance measurement seriously will find this complete KPI guide useful.
Automation software for the KPIs/scorecard implies some costs, so here is my advice:
- If you are bootstrapping then you will survive with spreadsheet software or freeware BSC Designer Light
- If you have some budget upgrade to the professional tool to easier implement KPI/strategy routines in your daily tasks. In this case, BSC Designer is a great “out of the box” option.
Why Does a Startup Need a Balanced Scorecard?
Let’s start with the explanation of what Balanced Scorecard is and is not:
- It is: strategy execution framework; it helps to describe, explain, and execute strategy
- It is not: a set of four perspectives to arrange KPIs
So, why might a startup need the BSC framework? There are two reasons.
Reason 1. Getting a Clear Understanding of the Strategy
Balanced Scorecard puts on paper the strategy of the startup. Most likely, you won’t discover any secret shortcut to become a unicorn, but I’m sure there will be some “aha” moments. The Balanced Scorecard framework is about these four perspectives:
- The expected financial results ( Financial perspective)
- Customer value proposition ( Customer perspective)
- Business processes that a company needs to have ( Internal perspective
- Key learning and growth direction to focus on ( Learning and growth perspective)
Within each of the perspectives, we answer certain questions, and the answers are connected by cause-and-effect logic. In the case of a startup, these questions can be:
- Finance. How do we monetize the value created for customers? Our goal: achieve economic sustainability.
- Customers. What value do we create for the customers? What do our customers need? How do customers perceive the value that we create?
- Internal. How do we create value for customers? How do we attract, engage, and get feedback from customers? What business processes do we need to create value? How do we retain customers?
- Learning and growth. What knowledge/skill gaps do we need to fill in? What skills does our team need? Where does customer development need to be focused?
Don´t forget to put on the top some inspiring mission statement.
You can also download this template in PDF format.
Reason 2. Pitching Idea to the Investors
Balanced Scorecard framework comes from the corporate world, and by having a strategy map, you send to your potential investors a simple message:
- “We did our homework in terms of strategy… here is how we plan on executing it…”
That’s similar to what non-profit organizations do when they are looking for financial donors. That’s what top managers do when they pitch their ideas internally to the board members.
Will it Work for Daily Goal Management?
It will contribute to daily processes, but according to my experience, most startups perceive it as too heavy. A lightweight alternative is the OKR framework (Objectives and Key Results) framework used by Intel, Google, LinkedIn, etc. In OKR, your goals (Objectives) and KPIs (Key Results) will be more relevant for daily activities.
Final Word – Action Plan
Here is an action plan that I suggest for the startups:
- Formulate your “pains” (the questions we started with)
- Define a few KPIs to track or use the KPIs from this article
- Get your strategy map template (online version or PDF) and fill it in with your team