Find Your Metrics That Matter Masterclass

startupcorestrengths.com
Matt Lerner FEB 2021
METRICS
THAT MATTER
–
You Get What You Measure...Choose Carefully

You’ll need
a pen and
paper for
this one...

Matt Lerner Startup Core Strengths
16 years in Silicon Valley
Growth team @ PayPal
Partner @ 500 Startups VC
Lectures at Stanford, Imperial College
Founder of Startup Core Strengths
StartupCoreStrengths.com/subscribe

Metrics You get what you measure.
Align and focus the team.
A double-edged sword.
If you measure the wrong thing.

INTRODUCTIONS

Good
Metrics
How Do Targets Cause Success?

The
Critical
Insight
90% of your results will come
from 10% of your work

Good
Metrics
Help people make better
decisions about which work
to do...

The Power
To Focus

The
One Inch
Punch

Good
Metrics
Help people make better
decisions about which work
to do...AND align your entire
company around growth.

Good
Metrics
Measure customer value in the first
instance, not revenue.

Poor/Lagging
Indicators
of Value
Delivery
Revenue
X
X
X
X
Valuation
Funding Stage
Awards

Do NOT
Chase
Revenue
In The First
Instance
Product
+
Marketing
Revenue

Product
+
Marketing
Revenue
Product
+
Marketing
Revenue
Customer
Value

How Do You Measure
Value Delivered?

What Is Customer Value Delivery?
You deliver value when you help
customers make progress in their lives.
What measurable customer behavior is
the closest proxy for that “value delivery”?
If customers absolutely loved your product or service,
how would they naturally behave?
How many of them are behaving like this?
(Track in cohorts, improve over time.)

“To give people the power to build
community and bring the world
closer together.”
“Provide simple, affordable, secure
and reliable digital payments
to…millions of people around
the world.”
“To offer our customers the lowest
possible prices, the best available
selection, and the
utmost convenience”
Mission
Example Customer Value Metrics
Total Payment Volume Repeat Purchases Daily Active Users
Ubiquity
(be available at every transaction
point)
Preference
(be every consumer’s preferred
payment method)
Price
Selection
Convenience
DAUs by product, number
of products
Registered users, user frequency
Invites, follows, post count,
post engagement, etc.
Key Drivers
North Star

Your Metrics...

Three Types Of Key Metrics
North Star Metric Customer behavior that
encompasses the whole funnel or marketplace, and
increments when value is delivered to both customer
and the company.
Key Drivers 1-3 Measured first-order impacts of the
work you do each day to maximise the NSM.
(One of these is your “rate limiting step”)
Nuance Metrics Important numbers to watch, maintain
in a range, but not maximise.

What Is Your North Star Metric…?
North Star Metric Increments when we deliver value to
both customer and company in a natural way where
customers and company behave as expected.
Simple & memorable for the whole company
Represents the full funnel including new, engaged and
churned users.
Does not change often (e.g. every few years max)
Everyone can connect their work to this number

A
Simple
Example

Your
North
Star
Subscribers * Avg Plan Cost
Qualified Traffic
Convert to Paid Plan
WAUs (Retained + New Actives) + Lapsed
↑
↑
↑
☆
Monthly Recurring Revenue (MRR)
Trial Account
Try the product
Use the product a bit more

B2C
AirBnB – Nights booked
Facebook – DAUs
Quora – Number of answered
Medium – Minutes Read
B2B
Slack – Daily Active Users (DAUs)
Amplitude – Weekly querying users
PayPal – Total Payment Volume (TPV)
Hubspot - # of weekly active teams
If customers absolutely loved your product or service, how would they naturally behave?
Example North Star Metrics
MARKETPLACES
Your NSM is typically a transaction where two sides come together.

Your North Star is a transaction, where two sides
come together (transactions or GMV).
Your Rate Limiter But at any time, one side is the ”rate
limiter,” for the whole system, and you need to know
which side.
Your Balance Metric So you need a “balance metric”
to understand if, at a given time, in a given geography
or category, you should focus on supply or demand.
Example Balance Metrics:
Auction Close Rate –
What % of auctions result in a sale?
Match rate –
What % of searches result in enough suitable matches?
Marketplace
Metrics

Key Drivers
Key Drivers are the customer behavior “levers”
you pull each day to maximize the North Star.
They:
Are controllable customer behaviours.
Select only a few (1-3)
Can be a ratio (e.g. activation rate, signup rate).
Revisit every 3 months.
Each one should have an owner and target.

Your
Key
Drivers
Qualified Traffic
↑
↑
↑
Trial Account
Try the product

What Are Your Key Drivers
Which main levers cause your “value
delivery metric” to go up?
Which customer behavior best tracks
those levers?

Your
Rate Limiting
Step

Your
Rate Limiting
Step
Which of these metrics,
if improved, makes the
whole system run faster?
Find it. Focus on it.

What Is Your Rate Limiting Step
RLS – The one metric that, if improved, makes
the whole system run better.
Look over your key drivers and circle the one
you think is your rate-limiting step.

What Are Your Key Drivers
Which main levers cause your “value
delivery metric” to go up?
Which customer behavior best tracks
those levers?
Which one is your rate limiting step?
Who “owns” each of these key metrics?

What Are Your Nuance Metrics?
Nuance Metrics are important “read only” numbers (watch but
not maximise). Make sure they stay within an acceptable
range.
Many are drivers, but not “key” drivers
Sometimes they are not directly controllable
Helpful if they explain variations in the North Star
Often a “check” number that should stay in a certain range

QUIZ
TIME

X Focusing on revenue, not value delivery
X Chasing too many metrics
X Analysis paralysis (e.g. attribution, retention)
X Obsessed with a local maximum
Common
Pitfalls
Data should help us focus, make good
decisions quickly and keep executing.

RECAP:
North Star Metric of Value Delivery, endures over time
Focus on 1-3 Key Drivers, including your rate limiting step,
revisit focus every 3 months.
If pre-PMF, key drivers focus you on fast learning
and fit-deepening.
For retention, figure out your habituation threshold
& work backwards.
Each key driver gets a single accountable person.
Questions for each employee:
Do they understand how their work affects the NSM?
Do they understand their key driver?
Can they make good tradeoffs re. investments of time
and budget, and focus them on the most impactful work?

Your Homework:
A conversation with your CEO, Head of Product, Head of
Marketing, Finance + Analytics. Figure out:
1. What’s your North Star Metric?
2. What are your 1-3 biggest drivers of that metric,
company-wide?
3. What’s your “rate-limiting step”?
Fill them into your KPI Sheet, add some historical data & bring
them to our session next week.
Ask each employee: “How does your work each day impact
our North Star?” (Check for alignment & comprehension)
Regularly ask each employee or team: “What’s the most
important work, and how’s it going?”

The KPI Sheet

Retention

Cumulative
WAUs
Monthly Cohorts
Cumulative
WAUs
Monthly Cohorts
Retention

Researching
solutions
Comparing
solutions
Enjoying
solution
Joy is
Fading
visit visit retarget visit first
action
try use use churn
“Maybe this could help”
“Tell me
more”
“Might
Work”
“Yay, it works!”
“doesn’t
work
anymore”
Thinking:
Doing:
Inferring Actions To Mental State
Acquisition Retention
Hopeful Addicted
Joy
H
abituation
Activation

Retention Key Drivers
Key Driver:
How would people naturally behave if they loved your
product?
What early life behavior pattern predicts retention?
That’s the habituation threshold
What % of new signups cross that line?
Starts with finding your habituation threshold
How much of your revenue is coming from habituated
customers? (Happy MRR) vs. New customers vs. At-
Risk ones?
Cumulative
WAUs
Monthly Cohorts
Cumulative
WAUs
Monthly Cohorts

Your Habituation Threshold Key Driver?
Key Driver:
How would people naturally behave if they loved your
product?
What early life behavior pattern predicts retention? That’s
the habituation threshold
What % of new signups cross that line?
Starts with finding your habituation threshold
How much of your revenue is coming from habituated
customers? (Happy MRR) vs. New customers vs. At-Risk
ones?

Your
Habituation
Threshold
Qualified Traffic
↑
↑
↑
Trial Account
Try the product

What If You Do Not
Have Product-Market
Fit?

If your product is
broken and people
are still using it, if you
have high retention
with a broken product,
that’s a clear sign you
have PMF.
Elad Gil
”

100%
Find Product-Market Fit
60%
Maximise
Proven Vectors
40%
Seek Adjacent
Vectors
80%
Optimise
Core Business
20%
Find New Business Lines
Post-PMF Post-PMF
Super
Important
Decision
Your
time,
energy
and
resources
Pre-PMF
“The Hunt” “The Sprint” “The Marathon”
Be Honest With Yourself

Key Drivers
Deepen fit through iterative learning loops.
Key Drivers incent deepening fit + validated customer
learning:
1. Strength of fit – e.g. conversion rates, activation
rates, easy to sell, referral rates, retention
2. Pace of learning – experiments run per week
Tips: First validate the need. Look for “language-
market fit”

THANK YOU!
Measure Twice
Cut Once

Find Your Metrics That Matter Masterclass

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