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As an entrepreneur, you have probably heard the disheartening statistic that most startups fail. While there are many reasons for startup failure, a common factor is a lack of understanding of metrics to track and what questions to ask when conducting market research. This article will explore the key questions to ask and metrics for startup success. By identifying and monitoring the right metrics and making data-driven decisions, Startups can increase their chances of success and achieve sustainable growth.
5 Reasons Why Most Startups Fail
The harsh reality is that the vast majority of startups fail. According to CB Insights, 70% of upstart tech companies fail, while Harvard Business School found that 75% of venture-backed startups never return cash to investors. There are several reasons why startups fail at such a high rate:
1) Lack of Product-market Fit
Founders build a product that doesn’t adequately meet customer needs or solve a fundamental problem. With product-market fit, startups can gain traction, and growth stalls.
2) Not Having Enough Cash
Many startups burn through funding too quickly before achieving key milestones and fail to raise additional capital. They spend too much on the wrong priorities and run out of runway.
3) Need to Track the Right Metrics
Startups often need help identifying key performance indicators (KPIs) that matter to their business. They focus on vanity metrics that don’t provide actionable insights. By measuring what counts, startups can optimize.
4) Failure to Pivot
Some startups must be stubborn to shift when their original strategy needs to be fixed. They continue pouring resources into a losing proposition.
5) Lack of passion or vision
In some cases, startup founders simply lose interest or motivation. Without a clear vision and passion to persevere, a startup has little chance of success.
The good news is that startups can address many of these failure points by identifying the right KPIs to track and setting data-driven targets. Metrics provide insight into whether a startup has product-market fit, is spending cash efficiently, needs to pivot, and is realizing its vision. Startups that make decisions based on data and facts have a much higher chance of survival and growth. The key is determining which metrics matter most for your unique startup.
Determine Your Startup’s True North
As a startup founder, one of the most important things you can do is determine your company’s core mission and vision. This helps identify the key problems you aim to solve and target customers you want to serve. With a clear sense of purpose, you can determine the metrics that matter for your business.
How to Define a Startups Mission
Start by defining the specific problems your product or service is trying to solve. Who are the customers facing these problems, and how are you uniquely positioned to help them? Your answers should reflect your passion for the work and desire to make a difference. They will serve as your North Star, guiding strategic decisions and motivating your team through challenges.
Determining a Startups Vision
Next, determine your vision for how the world will differ if you achieve your goals. For example, an idea for an education technology startup might be “to empower every student to learn in their way.” A vision for a healthcare startup could be “to enable people to live longer, healthier lives.” Your vision should be ambitious yet achievable and help determine long-term KPIs.
Finding Your Target Audience
Identify your target customers and their needs with your mission and vision in place. For example, if your idea is to empower students, your target customers would be schools, students, and parents. If you aim to enable healthier lives, your customers could be healthcare providers, patients, and insurance companies. Learn about your target customers through research, interviews, surveys, and more.
Identifying the Key Progress Indicators (KPIs)
Your startup’s mission, vision, and target customers are the foundation for determining the KPIs that matter. The metrics you track should align with your core purpose and goals, providing actionable insights into how well you’re solving your target customers’ critical problems. While revenue and growth are essential, remember the specific impact you aim to make. You can set a course for sustainable success with a clear understanding of your startup’s true north.
Leading Indicators: How to Identify the KPIs That Really Matter
For startups, lagging indicators like revenue are sometimes the best metrics to focus on, especially in the early days. Revenue can take a long time to grow, and startups must measure progress to ensure they are on the right track. Leading indicators, like key performance indicators or KPIs, can predict future performance and help startups adjust their strategy and product.
What are the Most Valuable KPIs for Startups?
The key is identifying which KPIs matter for your specific startup. The KPIs you track should align with your core mission and goals. For example, to build an engaged social network, you should focus on KPIs like daily active users, time spent on the platform, and viral coefficient. If your goal is to build a subscription software business, you should track KPIs like free trial signups, activation rates, and churn.
Some of the most valuable KPIs for startups include:
- Active or daily active users: For social networks and platforms, a key measure of engagement and growth.
- Churn or retention rate: For subscription businesses, tracks how many customers stay engaged over time. Low churn means higher lifetime value.
- Conversion rate: Measures how many people who visit your site sign up or make a purchase. High conversion means a compelling product and messaging.
- Viral coefficient: For networks and social platforms, how many new users are brought in by existing users—a coefficient over one means exponential growth.
- Net Promoter Score: Measures how likely your customers are to recommend your product. High NPS means you have a product that people love.
Your specific KPIs will depend on your startup’s goals and business model. Track 3 to 5 KPIs with the most significant impact rather than trying to analyze too many metrics at once. With the right KPIs identified, you’ll have a data-driven way to measure progress and optimize your startup for growth.
Setting Targets: How to Set the Right KPI Goals and Evolve Them
Once you have identified your key KPIs, setting initial targets is next. Your targets should be ambitious yet achievable based on your startup’s goals and current position. Some good ways to determine your initial KPI targets include:
- Industry benchmarks: Look at what other startups in your industry are achieving for the same KPIs. For example, if the average monthly active user growth for social apps is 3-5%, you may target the higher end of that range. However, don’t just copy what competitors are doing – your targets should be based on your startup’s potential.
- Historical data: If you already have some data and traction, look at your historical trends. For example, if your monthly recurring revenue has grown by 10% each month, you should target 12-15% to push for faster growth. But don’t assume historical patterns will continue – you need to account for changes in your strategy and market.
- Startup goals: Your KPI targets should ladder up to key milestones and goals. For example, if you want to raise your Series A round in 12 months, set targets to make your startup an attractive candidate, e.g., 100% user growth and 10-15% month-over-month revenue growth. Build top-down targets from your key objectives.
Why Adapt Startup KPI Targets
Once you set your initial KPI targets, track your progress regularly and be ready to evolve them. Adjust targets up or down based on your actual performance and new insights. Some reasons to develop your KPI targets include the following:
- You are achieving targets faster than expected: You may want to increase your targets to push for more aggressive growth. But stay focused – only increase based on evidence that you can sustain the new targets.
- There are changes in your product, market, or strategy: When you make significant changes, your KPIs and targets may also need to change. For example, if you pivot into a new product, you will likely need to identify new KPIs and set new baseline targets.
- New opportunities emerge: Sometimes startups stumble onto new growth opportunities that call for updated KPIs and targets. For example, if a new marketing channel drives many high-quality users, you may want to target higher growth from that channel.
Setting and evolving the right KPI targets is key to startup success. Targets should be ambitious yet grounded in data and your startup’s position. Track progress, analyze trends, and optimize targets based on insights and changes. You can build a roadmap to sustainable growth with the right targets in place.
Tracking Your Progress: How to Monitor and Optimize Your KPIs
Once you have identified your key KPIs and set initial targets, the real work begins – diligently monitoring your metrics and optimizing based on insights. Your tools and processes to track KPIs are critical to your success.
Use a dashboard to get an at-a-glance view of your KPIs. A dashboard displays key metrics in one place, with data visualization like charts to spot trends. Review your dashboard regularly, ideally daily or weekly. Look for metrics exceeding or falling short of targets and those trending up or down.
How Data Can Help Improve and Change KPIs
Dig into your KPIs. Don’t look at dashboards – analyze raw data to understand what’s driving your metrics. Look for patterns based on factors like customer segments, marketing campaigns, product features, etc. This analysis will reveal opportunities for optimization.
Act on Results and Insights
Make a plan to act on insights. Meet your team to discuss what you’re learning from your KPIs and data analysis. Determine experiments you can run and changes you can make to improve your key metrics.
Run A/B Tests
Continuously test and optimize. Run A/B tests on your website and mobile app, make incremental improvements to your product, refine your marketing messaging, and rebalance your budget based on ROI. See how your KPIs respond, and scale up what’s working.
Review and Revise
Review and revise your KPIs and targets over time. Your key metrics and goals should evolve as your startup evolves. KPIs that were critical at an early stage may become less relevant as you grow. Be willing to add new KPIs, change targets, or drop metrics that are no longer meaningful. The startups seeing the most success are constantly optimizing their KPIs.
With diligent tracking, data-driven analysis, and continuous optimization, you can gain valuable insights from your KPIs and make progress toward critical goals and targets. But remember, metrics don’t drive growth – people and actions do. Use KPIs as a guide to help your startup make the right moves at the right time.
The Results: How Startups Have Achieved Growth Through KPIs
Some of the most successful startups today built their businesses by identifying key metrics early on, setting ambitious targets, and optimizing based on data. Here are a few examples:
Facebook focused on daily active users (DAUs) and monthly active users (MAUs) as their north star metrics. They set a target of 1 billion DAUs, which they achieved in 2012. Today Facebook has 2.4 billion MAUs and 1.88 billion DAUs. By optimizing their product, marketing, and algorithms to keep people engaged, they could scale to billions of users.
Netflix initially focused on subscriber numbers and retention rates. Their goal was to reach 1 million subscribers, which they hit in 2002. They evolved to focus more on engagement metrics like hours of content watched to determine what content to produce and license. Today Netflix has over 167 million subscribers and is creating award-winning original content.
By focusing on engagement and retention, Slack grew from 0 to over 10 million daily active users in 5 years. Their key metrics were daily messages sent, daily operational teams, and daily active users. They set targets to increase these metrics by 10-20% quarter over quarter. By building features to keep teams collaborating and coming back, like integrations, bots, and threads, they were able to meet and exceed their ambitious growth targets.
KPIs Help Startups Grow
The key lesson from these startups is that growth is not an accident. By identifying the key drivers of their business, setting specific and evolving targets, and optimizing to hit those targets, they were able to scale and succeed. For your startup, determine your key metrics, set your targets, track your progress, and optimize to meet them. Learn from your wins and losses, then put new targets to work toward. By taking a metrics-driven approach to growth, you’ll have the best chance of achieving startup success.
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