Adora Cheung - How to Set KPIs and Goals
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all right so i am going to be talking
about setting your kpis and goals
for early stage startups so i'm going to
be pretty pedantic in this lecture and
the reason why is
doing this correctly is a necessary
condition for
starting as successful or building a
successful startup
so the acronym kpi stands for key
performance indicator
if you google around for it there are
actually many definitions of what this
actually means but for the purpose of
today for this context i'm going to
define it
as a set of quantitative metrics that
indicate how healthy your business is
doing so
this is important because obviously you
should know what state your business
is in at all times so setting the right
kpis and goals will objectively tell you
if you're doing well just okay or bad
so nothing keeps you more grounded
humbled and realistic about where you
are than a bunch of numbers because if
you interpret those numbers correctly
they don't lie
it'll also act as a feedback mechanism
for whether your current strategy like
user acquisition
building new features launching new
features and so on and so forth
are actually working so if you do
something and things go up that's
probably good
if you do something some things go down
that's probably bad
and it will and it will not only help
you prioritize your time but also
uh course correct so it follows if you
do this incorrectly if you set
your kpis and goals incorrectly you can
direct your startup
into a bunch of circles or if you do it
for too long
on to the wrong path it will lead to its
unnecessary demise
so what are the right kpis to set i'm
going to break this down into
two pieces primary metric and secondary
metrics
and most of today is going to be focused
on the primary metric
so every week in startup school we've
asked you in the software
to fill out to define your primary
metric
and then update its current value by
definition you can only pick one
um one primary metric and as the metric
if you if you had to you'd
be willing to bet the whole company on
so why just
one metric uh it's a way to focus and
keep things very simple if there's a way
to get 90 of the job done
with just one variable that's better
than having a bunch of variables that
gets
let's say 91 of the job done um in this
case the job to get done is quickly
determining
how well your startup is doing so what
are the characteristics of a good
primary metric there are four of them
uh one so your primary metrics should
quantify how much value you're
delivering to your customer
that is you obviously want to build
something that people want
now how much do they actually want it
and users often indicate the value
through either training
uh you through money or time
so revenue is always the best metric i
pay you a hundred dollars to use your
product your software i must at least
value that
a hundred dollars um active users uh
using the product once a week
or uh once a day we call that weekly
active user daily active user
is a weaker but another good decent
indication of whether you're delivering
value or not
the second one here is it your primary
metric must capture
whether your product is recurring or
enduring value to your user
or it should anyway so for example in
assassto most sas tools use
mrr monthly recurring revenue
as their primary metric i commit to
forking over 100 bucks a month
continuously every month because your
product demonstrates to me every month
um that has value to me another example
is if you're building an online digital
daily newspaper then obviously dau daily
active user is a good one because i
expect you
i expect to be delivering content to you
that is valuable to you every single day
so hopefully you'll come back every day
the third one here is your primary
metric should be a lagging indicator for
success
so a common trap that founders do to
trick themselves is by picking a primary
metric
let's say something like email signups
because one it's easy to move
but while it may eventually influence
revenue
or actual usage it actually doesn't
represent
real value the best so the best
indication is when
the value has already been delivered
it's already occurred
so when someone has already forked over
their time or money then to use it then
that is what a ladder
that's a definition of what a lagging
indicator is
so if revenue increases it's because
more customers
have already paid for the product's
value versus a potential customer who
came to your site
gave you an email and maybe they'll sign
up one day or maybe they'll use your
product one day
to buy something and lastly your primary
metric should be usable as a feedback
mechanism
that is it helps you prioritize
strategies and make decisions quickly
in a startup one of the key things to be
to being successful in getting past
product market fit stages to iterate
very fast right
so while you want it to be a lagging
indicator you also don't want it to lag
too much so for example a lot of people
pick mau monthly active user
but this is but but uh this is usually
not a great metric because it takes time
to understand the impact of movement
um especially in a startup this early as
in your startup
and so many things can happen within a
month
and also another reason why i don't like
mau generally is because
if your user only comes back once a
month they only value something that
you're building once a month i really
question actually if you're solving a
real problem
all right so you may have guessed from
me talking about these four characters
characteristics of a primary metric that
there are really
two primary metrics to pick from so one
is either revenue
or active users ideally you're picking
revenue because nothing tells you more
about delivering real value than people
forking over handing over
real hard earned dollars to you um
and even better is picking revenue that
people keep giving you over and over and
over again like monthly recurring review
mrr
it's the best test for whether people
really want what you're making
so that being said some people do pick
revenue but a common trap they fall into
is that they don't actually get paid and
usually i hear something to the variant
of
oh i'm going to get these i have these
1000 users not paying me anything
i just want to get their feedback and
see how they're using the product and
make a little bit better and then
eventually
i'll get them to pay or the next 1000
users i'll get them to pay
that's a trap because free users will
give you different types of feedback
than users who are actually paying you
um paid users are just more serious
about the product and hopefully will be
more serious about giving you feedback
so i urge you to just get paid
[Music]
all right so what are reasons why
so kevin in an early lecture said 99 of
you
should actually use revenue as your
primary metric so what are reasons why
you should
um consider active users so one main one
is because
you because building a large audience is
actually a prerequisites to
modernization
so an example of this is if your
business model is advertising based like
a facebook or google
then yeah you need millions and millions
of users coming back to your site every
day
before you can actually get brands and
people to buy ads
and so in this case active users is
actually a reasonable proxy for revenue
because eventually when your startup
starts making money it's usually
just revenue is just a multiple of your
active users
another reason is also but much much
more
much more rare is if you have very
strong network effects that is if you're
like a marketplace that requires
tons of users to just get the flywheel
going and grow
then maybe that's a reason for you to
focus on active users today
versus uh revenue and then just do
revenue later down the road
now that being said if you're using
active users as a metric
it's important that you define user
appropriately
i hear often i ask okay how many users
do or
what's your primary metric uh active
users how many users have i have 100
users
what does users mean in that situation
sometimes to people it means
100 users that just signed up and gave
you an email sometimes it means
100 users that signed up and start using
a product and come back every day for
about 10 minutes a day
which is by far much better than just
people just
like little dabbling on your site right
so you really need to get that
definition correctly and don't trick
yourself by just saying users and get
having a really
easy definition of users
another another example of users where
it's not exactly users is if you're in a
marketplace
and there are two types of customers or
two types of users so a good example is
airbnb
who are your two users you have not just
the guests
but you also have the hosts so what are
you to do how do you
how do you pick just one well you pick a
value that actually represents
um them both getting value so in thermis
case it would be knights booked
right another example is uber so who are
your two users there you have
riders and you have drivers and so an
example of a primary metric you could
pick there is
weekly trips okay all right
so uh there are always exceptions to the
rules
and there are there is one exception in
which
your primary metric is neither revenue
or active users
and that is if you run a biotech a hard
tech business
and you're still trying to figure out
whether the science or tech
is actually going to work can you
actually build a product
um and another definition of this is uh
for our biotech card documents
businesses it it often takes a lot of
time and money to get
your first product to market so what's a
founder to do especially you have little
little funding
so there's two answers to this one is if
there are no regulatory issues to doing
sales pre-product
you should actually do the same as
everyone else it should be most likely
revenue your primary metrics should be
revenue in the form of paid contracts
lois
poc's proof of contracts proof that if
you build it they will actually come
now if you are in a space with
regulatory issues meaning you can't sell
it at all
um without having to go through like fda
or some kind of body like that
then your product primary metric is
actually less quantitative per se
and more of a binary thing so it's about
figuring out the technical milestones
that you that you need to demonstrate to
mitigate the risk
of whether the drug or tech is working
so if you have to think about experience
to prove this out you can ask a question
like what are what minimal things i need
to do to truly answer
the question of whether this works or
not so if
you fall into this category i urge you
to actually just go watch
these two lectures uh they're actually
firesat chat chats i did
last startup school with elizabeth and
eric
elizabeth is an expert in biotech and
eric is an expert in hard tech and they
actually go through
deep deep dive into how do you think
about your goals and how do you think
about your milestones
and what metrics to actually track all
right
so people have referred
to the primary metric as a north star
metric and i actually don't like the
term north star because it kind of
people have interpreted as something you
just focus on this one metric and then
ignore
everything else um but like i said
earlier there's
no metric that actually tells the story
that tells 100 of the story maybe 90
but not 100 and so sometimes founders
fool themselves
by literally only tracking their primary
metric and nothing else
um so a common example is just looking
at user growth and just ignoring
retention completely
but retention is obviously just as
important to user growth as it is
as is a new user acquisition
so one suggestion i have is to
select a set of three to five other
metrics secondary metrics to pair with
your primary metric
this gives you a good 360 degree
overview
of the health of your company so there
are a ton to choose from so many choose
from
what you choose is actually very
dependent on your business
next week we're going to have two
lectures on these sorts of metrics
for consumer i'll be giving one on
consumer startups and
another yc partner i knew will be giving
one on b2b companies
and so we'll deep dive into metrics
these metrics
next week uh the key here though
is just picking a few right uh at most
fives
three to five close to probably the
three um you don't want to boil the
ocean and pick everything
it's totally fine to track all this kind
of stuff but it's really not a good idea
to optimize too many at once to really
just suffer from analysis paralysis
all right so a common question i have
when i say you should
what is your primary metric you should
set one is well what if i haven't
launched yet
well obviously metrics don't matter if
you don't know what the problem you're
solving is you don't even know who your
customer is yet you should really just
focus on that first
um you'd be really putting the cart
before the horse by
worrying too much about this kind of
stuff that said
once you get to the point where you're
building the product it's really a good
idea to get this down even if you
haven't launched yet
by at least defining your primary metric
you'll be able to think about who your
user really is
uh you get everyone on the same page on
who you're targeting and even you can
hypoth
use the metrics and goals to hypothesize
on how you might get your first few
users
and trust me nothing is more motivating
than staring down the barrel
of zero users and zero dollars of
revenue
for weeks on end you're going to get
very antsy about launching
um very quickly and that's that's
actually the effect you want
all right so i'm going to go into how do
you set goals
for your primary metric for for your
kpis
so paul graham actually wrote a great
essay a few years ago
called startup equals growth and
explains why startups should focus on
growth and i really urge you to go read
it
and this section of this lecture draws a
lot of insights from it
the goal of your startup is to grow your
primary metric by doing this it does two
things
it proves that you're making something
lots of people want
and second it proves you're making
something that has a possibility of
reaching and serving
all those people each week your goal
should actually be to set a weekly uh
growth rate
now we use weekly increments because
startups early on
need frequent feedback from their users
to tweak what they're doing
but also we use weekly growth right
because it helps to divide
up the progress you need into doable
chunks so
say your goal in a couple months is to
get 10 000 daily active users
which requires growing new users let's
say 10 week over week
to grow 10 this week may amount to
actually just getting a hundred new
users
which is a different problem to solve
than trying to get
10 000 new users right
you should be focusing on what's
directly ahead of you in that week
do things that don't scale today if
that's actually the best way to get
those hundred users
and don't worry about the eventual goal
of ten thousand
too soon so naturally the next question
is how fast should i grow
what should this rate actually be
well there's no good formula there's no
right formula for this
but one angle that we could tackle it
from is
looking at good startups and seeing how
fast they were growing in the beginning
stages
of their life so i actually went back
and i looked at
the good startups who pitched in recent
yc demo days uh so these if you think
about these startups they were
three months prior they were all in the
phase that you are probably in today
and it turns out the growth rates range
anywhere from
twenty to two hundred percent month over
month but clustered more closely to
twenty to fifty percent month over month
which you could back up
back it out it amounts to about five to
ten percent week over week
um and so this chart uh just to explain
it real quickly
uh the left-hand column is the weekly
growth rate and then
these are the equivalents that you need
to grow by month and then what the
multiple is by year
so this is actually in line if you read
that essay pg wrote a few years ago
which he said a good growth rate during
yc is five to ten
five to seven percent a week if you can
hit 10 a week you're doing exceptionally
well
and so this is the green area which
we've seen consistently actually
um in the recent batches of yc
so growth is a little hard to grok but
if you look at this chart you'll see
that how small variations
in weekly growth rates can make a huge
difference on the monthly and yearly
time horizon you also get the sense that
to get big
fast it actually seems doable if you
have something people want
on the flip side if you only manage one
percent uh weekly growth
it's a sign you haven't figured out
things yet it doesn't mean that you have
a horrible business you can run a great
small profitable business growing one
percent
week over week but it's not a good sign
that you have a startup with a billion
dollar potential
so you should think about that trade off
there and what you really want out of
your business
uh if you're growing uh at that rate
um that said the main thing uh in terms
of setting
your goals is is to think for yourself
uh is to define your own goal based on
not what others are doing but what you
think is ambitious
and achievable based on the product
you're building
so you knew your users and business
better than everyone else
what does success look like like for you
and what does being on track look
like to you so here are some general
guidelines
uh when defining a goal all right
first um if you're solving a real
problem in a large market
then that means there's a ton of latent
demand out there uh
people will use of just about anything
to use your product even if it's half
broken half baked or just solves a bit
of their problem
which means that startups usually have
fast initial growth
that said where you are today matters so
if you have a ton of users and a ton of
revenue
you will probably know that at that
volume as a volume increases
what you need every week to grow gets
harder over time
so again most startups they grow very
quickly and then over some time they
kind of
the growth rate kind of slows down a
little bit the second one is time to
sale so
when you try to set your goal you need
to consider how long it takes to acquire
user and make a sale
so for a consumer startup generally you
have an app or a website
i show up to it i look at it i see if i
want it
and then if i do bam i buy it or i sign
up for it
and so it's instantaneous for an
enterprise startup where
you're actually probably going through
some red tape um you have a bunch of
stakeholders you have to deal with
um and it just like you you can show up
to the company and they're not going to
even buy it right away because you're
maybe not even talking to the right
person
so it might take some months to actually
get your first sale so you'll have to
take that in account
over time this time to sale
should actually decrease over time like
good enterprise startups
that time sale goes from months to
hopefully days um
uh if not hours and so it shouldn't
impact your growth rate
in the future but in the near term it
actually might
uh third is you really want to focus on
organic
versus paid users or paid growth in the
beginning organic means they discover it
through word of mouth
basically you're not paying for the user
they kind of just
may be searching for it and using it
themselves i think in the early days
using paid users is actually cheating
growth
and you should avoid it as much as
possible and finally
because your startup startups equals
growth you should focus on exponential
goals and not
linear goals all right
so in terms of picking the goals i think
there's two ways to do it
one you can just pick a growth rate
and then pick up growth rate that you
can you think you can hit and if you hit
it great you probably should change it
if you're hitting it consistently
to something higher if you don't if
you're not hitting it then you should be
a little bit alarmed and you should
figure out
why another way to do it is time box an
absolute goal
so what i mean by for that is say for
for the purpose of startup school
at the end of startup school how many
active users or how much revenue do you
want to have
how what what would it look like what
would something meaningful look like at
the end of
10 weeks then go back out your weekly
growth rate
and then go week to week figure out the
obstacles and how you should
hit that hit that weekly goal in the
beginning
if you're somewhere close to zero users
today uh often you'll get something
higher if you
higher if you do this method than five
to seven percent week over week
tracking progress so metrics and goals
obviously don't mean anything if you
don't leverage them use these as a
motivational tool so one way to do this
is get a piece of paper draw a
forward-looking graph
of what the growth you want to hit in
the next 10 weeks print it out and put
it everywhere put on top of your desk
put on the bathroom mirror put on the
fridge
and update once and once once a week
this is in fact what airbnb founders did
in the beginning
and if they hit the numbers great if
they did not and that's all they would
talk about and so i would follow
something to
like this now you want to leverage your
parametric and goal
to help you prioritize your time week
over week so week to week you should be
stack ranking all the ideas you have of
how to grow it
and make a good guess on what's going to
have the biggest impact for the next
week to meeting your goal
and then choose accordingly occasionally
you won't hit your goal for the week
we can dream that our growth will be
flawless and look like this
but in reality in the beginning it
always looks something like this
it's okay if you don't hit your goal one
or even two weeks in a row
as long as you understand why you should
be always asking yourself what is the
biggest obstacle in my way
of hitting my weekly target how do i
overcome this and be obsessive of this
uh if you don't know the answer then the
answer is go
talk to more users and
don't spin in circles i'm trying to
figure it out yourself
a good startup idea will keep growing at
some point
so not hitting uh your weekly targets
week on end
uh will maybe just help inform you
you're not working on the right thing or
even the right idea finally to end as
you already know our startup school
software asks you to set your primary
metric and goals
uh it is important to be honest about
where you are
and one of the best ways to do that is
to fill this out every week
we've given you the software to do this
very easily it is
not for us i promise you it is for you
to use and get in the habit of doing it
we hope you fill us out throughout the
course and moving forward even after the
course you keep doing it it's a good
habit to have
i guarantee you if you're not already
doing this just adding this one simple
thing to your workflow
is going to help you and change things
dramatically
all right that's it we'll next have ilya
from segment thanks
you
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