As a startup founder, it is common to get bogged in product development, marketing, and funding activities. Tracking and measuring KPIs are usually put in the backseat.
Most startups use a hyper simplistic KPI scorecard. The problem with this approach is that it gives a one-dimensional view of the company or product performance. It is tough to pinpoint the root cause if something were to go wrong or identify the leverage when things are performing unexpectedly.
The first challenge with measuring is knowing what to track. There are two many indicators and metrics and scorecard framework. The second challenge with measuring is on setting up the tracking.
This article will cover the first part that identifies the main metrics that tell the story of your current situation. To do this, we are going to use the top-down framework.
The Top-Down Framework
Since there are too many metrics that can be tracked, analysis-paralysis is common with startups, especially at the early stage. Most startup founders get overwhelmed and resort to hyper simplistic sales-based models.
The top-Down approach helps solve this problem by allowing the business to see the big picture before delving into tiny details. Secondly, it gives the freedom to choose the complexity you are comfortable with at any particular time.
Essentially, the top-down approach starts with the birds-eye view of your business to give you a broader perspective. The overall idea any startup founders should have is where the company is in terms of maturity lifecycle.
Generally speaking, we could have three sets of scorecards for any business. The first is for the startup stage, the second for the growth stage, and the third for the maturity stage.
The scorecards are different for each of the mentioned stages. A common mistake is to adopt the stabilized business scorecard and KPIs for the startups. For conciseness, we will only discuss the startup scorecard in this article.
Understanding the Startup Scorecard
The startup scorecard is comprised of four main dimensions: namely Audience, Lead, Customer & Economics. Each of the dimensions has its own sets of metrics and performance indicators.
This Dimension aims to understand key Customer segments and their corresponding problems, desires, and unmet needs. There is no specific KPI or metrics to measure for the audience.
Instead, you could tie back each customer segment to the next three scorecards: Lead, Customer, and Economics.
The key question that we answer with this scorecard is, “Who are we serving?”
Lead Dimension relates to the measurement of potential business in terms of customer acquisition and sales. It is a great early feedback channel.
There are three main areas we want to focus namely Traffic, Engagement, and Conversion.
Measuring traffic reveals the awareness and curiosity of potential customers.
Various traffic sources bring visitors to your business front. If it is a website, we are talking about channels such as organic search, paid search, social media traffic, and referral traffic.
Engagement means the interaction that the leads have with the platform that introduces your product, service, or offer. Measuring engagement will help to show the level of interest potential customers have in your product or service.
For Social media channels, you could monitor the likes, follow, shares that your posts get.
If you have a feedback channel, please monitor positive/negative feedback or reviews and group the feedback by topics for easy trend analysis. Feedback channels could be social media reviews, emails, forum discussions, and contact forms messages.
You could also study the behavior of visitors to your website or app. Any web analytics software should be able to tell the “time on site”, “number of pages visited”, and most popular content on your sites.
Conversion shows proof that your solution is wanted and has economic value. There are many ways you could measure conversion.
If you offer a free subscription or trial period, you could track the source campaign, traffic channel, the number of user interactions, and your software’s percentage of unlocked key future (for SAAS product).
The same applies to Paid subscription services.
Measuring Sales is the most common and laziest way to measure your business performance: product quantity sold, revenue, and average order value are the minimum metrics to be tracked.
When we say the laziest, we meant that any overly simplistic scorecard model suggests measuring the sales metrics and being happy.
Customer dimension is vital to gauge customer satisfaction, which is critical in the early startup phase. We want to understand what the early adopters think by studying their behavior, not what they say.
This scorecard is important because it will reveal whether or not the customer bought your product only due to the early excitement. You also want to make sure the product delivers what it promised and continues to provide customers value.
The following set of metrics measures the “stickiness” of your product or service.
Retention/renewal/churn rate represents the real numbers of how many customers willing to continue using your product.
Measuring cross-selling effectiveness using “average order value” indicates the brand trust and expansion potential.
Sales via customer referrals are a strong indicator that your brand has gained traction and leverage in the market.
The economic scorecard is the classic measurement approach that most startups will take by default to measure the cashflow & value of the business (current & forecast)
Commonly tracked metrics are
- Burn rate
- Revenue, costs, profits
- Customer Life Time Value
- Customer Acquisition Cost