Top 5 Tips on Coming Up with #Startup Metrics

Startup milestones both internal and external help you understand and explain how your company works, grows and scales. While most entrepreneurs will continue to tweak their milestones and keep setting new ones as they scale, the metrics that underlie tend to change as well.

The way to think about metrics is that it should answer the question:

If we align all the resources at our disposal to optimize and improve this metric, will my startup do better the next time we measure this?

Most entrepreneurs initially measure everything or nothing at all. Operating from gut (measuring nothing) is as bad as operating with lots of useless data (measuring everything). When you measure everything (or as much as you can), you tend to get overwhelmed and try to optimize everything.

Which is why most every accelerator program I know of, advises entrepreneurs to pick one metric and focus on them.

Without trying to give you a list of metrics that you should consider, I thought I should outline the thinking process you should follow to come up with the metric you should care about, measure and track.

1. Leading vs. Lagging metrics: Metrics fall into multiple segments, but the are usually leading vs. lagging. A leading indicator tells you what’s going to happen to your business, while a lagging metric tells you what happened. For example, usage of your product with customers is a leading indicator, but revenue is a lagging indicator.

2. Financial vs. Operational metrics: A financial metric, as it implies, affect your top or bottom line. An operational metric is useful to track and improve your efficiency. For example, Customer Acquisition Cost (CAC) is a financial metric, but Conversion Rate is an operational metric.

3.  Actionable vs. Reporting metrics: An actionable metric is useful to change behavior. A reporting metric is useful to disseminate among key stakeholders. For example, % of candidates who applied for any position is  a reporting metric, % of those who you interviewed is actionable. You can change an actionable metric and it will affect quality. Change a reporting metric and it will look good, but not affect the way you operate much.

4. Primary vs. Derived metrics: Primary metrics are measured directly, derived are determined by a formula or combination of 2 or more primary metrics. For example, number of visitors to your website is a primary metric, visitor engagement, i.e. # of visitors and time spent on site is a derived metric.

5. Absolute vs. Relative. Measuring absolute numbers for a metric tell you where you are at a point in time, but a relative metric give you a sense of the metric over time. For example, # of open bugs is absolute, Growth in # of  blocking bugs is relative.

Given the segmentation and type of metrics, and that they serve different purposes, if I had to choose one metric, I’d choose:

A metric that’s leading, operational, actionable, derived and relative until I raise my series A funding.

You need to choose only one metric and it will be hard to pick one without others, but I’d highly recommend you do this exercise and paste the metric everywhere and communicate it constantly, so you can have everyone align around it.

One of my companies had a bell that they rigged up that would constantly ring when the metric turned south. The pain of listening to that bell was so bad that the entire company would rally around it to “switch the bell off”.