Developing KPIs for startups

What makes startups different to mature businesses, and what the implications are for the role of KPI and the approach to their

development

KPIs have a different role in mature businesses versus startups. In a mature business, different teams should be responsible for different KPIs…

Team

Objective and approach

KPIs

Customer Acquisition team

Customer Retention team

Customer Monetisation team

• Optimise spend on each marketing channel

• Optimise spend across marketing channels

• Understand drivers of churn (price / competitor promotion / service levels / content) and act on them

• Optimise promotions, customer email / activation, loyalty schemes

• Drive down costs, increase margin

• Number of customers acquired in time period

• Cost per acquisition

• Rate of repeat purchase / repeat visits

• Customer lifetime value• ARPU• Basket size• Revenue per sale• Profit per sale

Illustrative

…whereas in a startup, the KPIs should focus on driving product-market fit, so that the startup gets into a “virtuous circle” as quickly as possible

KPIs are needed to drive product development decisions i.e. measure progress towards achieving product-market fit.

This means that startup KPIs focus on user behaviour more than traditional KPIs

Product meets customer need

Customers product♥

Churn ↓Retention ↑

Customers evangelise productCost of customer

acquisition↓# new customers ↑

↑ # customers↑ customer data

↑ customer insight↑ product development

+ +

+ +

The larger the userbase, the more customer data the startup collects, and the better able they are to

develop customer insight and use that to drive

product development. Customer data becomes a

key asset

If product-market fit is not achieved, it does not matter how good

the individual departmental teams

are: the startup will not grow into a viable commercial entity

Identify the combination of success factors which drive product-market fit and thus build the virtuous circle:

Example: Social network

• Stickiness – what proportion of users continue to use the service once being introduced to it

• Viral coefficient – how many ‘friends’ does each customer refer the product to

• Profit per user – how much revenue is made per user, relative to the cost per user

Example: Retailer

• Customer lifetime value – how much revenue a customer generates over their lifetime

• Acquisition cost – how much it costs to acquire a new customer

Designing and implementing KPIs at a startup is a two stage process

1. Identify the success factors 2. Develop corresponding KPI

For each success factor, identify the set of metrics that capture to what extent that is happening:

Use the distribution of each metric to identify which are both robust (reliable) and sensitive (move with changes):

Settle on ideally one KPI per success factor, or if necessary a handful.

Establish the baseline and measure improvements from there

Success factor KPI

‘Stickiness’ • # of logins per month• Actions per month• Minutes logged in per

month

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+++ + + + ++

++

Identifying the key success factors for Shopcade is not-

trivial given its unique business model

The set of KPIs should be...

Good KPIs meet a number of requirements, most of which are relatively straightforward to deliver

• Relevant: measure something that matters to the business success – Each KPI should be associated with one of the

identified ‘success factors’

• Responsive: when things ‘go wrong’, the KPI value should change in a noticeable way, fast. Similarly, when things ‘go right’, the KPI value should quickly improve:– This makes cumulative metrics e.g. total user numbers

dangerous ‘vanity metrics’– This makes time-based metrics (number of actions per

month, number of signups per month) attractive

• Easy to understand: minimise ambiguity– It should be clear what a ‘good’ result is versus a ‘bad’

result– It should be clear how it is calculated, with no doubt

about the data collection methodology or accuracy of the measure

• Comprehensive: if something is wrong with the business, it needs to be ‘picked up’ by at least one of the KPIs– There needs to be a KPI for each key success factor

identified

• Actionable: it needs to be possible to make product development decisions based on the combination of KPIs. This is not easy and is discussed on the following slide…

Each KPI should be... The set of KPIs should be...The set of KPIs should be...

To ensure KPIs are actionable, they need to be part of a broader analytics effort at the heart of the formal product development process

KPIs are at the centre of a broader analytics effort that also includes:

KPIs provide an important ‘rearview’ check on the product development process...

1. Qualitative research with

customers

2. More in-depth

quantitative analysis

• Talking to customers is necessary to understand why their behaviours are changing, which needs are and are not being met, and to get new ideas for product development• This can take the form of surveys,

customer interviews (telephone or in person), focus groups, watching customers use the service

• Deep quantitative analysis helps to understand how customers are actually using the product• This can be used to identify e.g. where

they are getting stuck, or whether they are using the product in a different way than is intended

4. Ongoing review of customer

intelligence to inform product development

3. Formal analysis of impact of product

developments on the KPIs

• Cohort analysis and/or split testing to robustly measure what impact a given product development is having on the KPI• Formal review of these results as part

of the agile development process

• The product team should use findings from the qualitative research (box 1) and the in-depth quantitative analysis (box 2) to propose, specify and prioritise new product features as part of the agile planning process

... and the broader analytics effort should drive product development going forwards