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Developing KPIs for startupsWhat 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…Illustrative Customer Acquisition Customer Retention Customer Monetisation Team team team team • Optimise spend on each • Understand drivers of • Optimise promotions, marketing channel churn (price / competitor customer email / • Optimise spend across promotion / service activation, loyalty Objective and marketing channels levels / content) and act schemes approach on them • Drive down costs, increase margin • Number of customers • Rate of repeat purchase / • Customer lifetime value acquired in time period repeat visits • ARPU • Cost per acquisition • Basket size KPIs • Revenue per sale • Profit per sale
…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 + Product meets customer need + ↑ # customers Customers ♥ product ↑ customer data Churn ↓ ↑ customer insight Retention ↑ ↑ product developmentThe larger the userbase, the more customer data the startup collects, and the Customers evangelise product better able they are to Cost of customer If product-market fit is develop customer insight and use that to drive + acquisition↓ + not achieved, it does not matter how good product development. # new customers ↑ the individual Customer data becomes a departmental teams key asset are: the startup will not grow into a viable commercial entity 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
Designing and implementing KPIs at a startup is atwo stage process 1. Identify the success factors 2. Develop corresponding KPIIdentify the combination of success factors which drive For each success factor, identify the set of metrics thatproduct-market fit and thus build the virtuous circle: capture to what extent that is happening: Success factor KPIExample: Social network ‘Stickiness’ • # of logins per month • Actions per month• Stickiness – what proportion of users continue to use the • Minutes logged in per service once being introduced to it month• Viral coefficient – how many ‘friends’ does each customer refer the product to Use the distribution of each metric to identify which are• Profit per user – how much revenue is made per user, both robust (reliable) and sensitive (move with changes): relative to the cost per user + + +++ + ++ + + + + ++Example: Retailer Settle on ideally one KPI per success factor, or if necessary a• Customer lifetime value – how much revenue a customer handful. generates over their lifetime• Acquisition cost – how much it costs to acquire a new Establish the baseline and measure improvements from customer there Identifying the key success factors for Shopcade is not- trivial given its unique business model
Good KPIs meet a number of requirements, most ofwhich are relatively straightforward to deliver The set of KPIs should be... Each KPI should be... The set of KPIs shouldbe... The set of KPIs should be...• Relevant: measure something that matters to the • Comprehensive: if something is wrong with the business success business, it needs to be ‘picked up’ by at least one of the – Each KPI should be associated with one of the KPIs identified ‘success factors’ – There needs to be a KPI for each key success factor identified• Responsive: when things ‘go wrong’, the KPI value should change in a noticeable way, fast. Similarly, when • Actionable: it needs to be possible to make product things ‘go right’, the KPI value should quickly improve: development decisions based on the combination of – This makes cumulative metrics e.g. total user numbers KPIs. This is not easy and is discussed on the following dangerous ‘vanity metrics’ slide… – 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
To ensure KPIs are actionable, they need to be part of abroader analytics effort at the heart of the formalproduct development processKPIs are at the centre of a broader analytics effort KPIs provide an important ‘rearview’ check on the that also includes: product development process... • Talking to customers is necessary to • Cohort analysis and/or split testing to understand why their behaviours are 3. Formal robustly measure what impact a given changing, which needs are and are analysis of product development is having on the1. Qualitative not being met, and to get new ideas impact of KPIresearch with for product development product • Formal review of these results as part customers developments • This can take the form of surveys, of the agile development process on the KPIs customer interviews (telephone or in person), focus groups, watching customers use the service ... and the broader analytics effort should drive • Deep quantitative analysis helps to product development going forwards understand how customers are actually using the product 2. More in- • The product team should use findings depth • This can be used to identify e.g. where they are getting stuck, or whether 4. Ongoing from the qualitative research (box 1) quantitative review of and the in-depth quantitative analysis analysis they are using the product in a different way than is intended customer (box 2) to propose, specify and intelligence to prioritise new product features as part inform product of the agile planning process development