Setting KPIs and Goals | Startup School

KPIs and Prioritization for an Early-Stage Startup (0s)

• Divya, a visiting group partner at YC and two-time YC founder, discusses KPIs and prioritization.
• Emphasizes the need for founders to spend their time wisely to achieve product-market fit quickly.
• Defines KPIs (Key Performance Indicators) as metrics to track progress and inform whether strategies are effective.
• Highlights the importance of prioritization in managing finite time and directing team efforts toward impactful tasks.
• Warns against vanity metrics that may lead to focusing on the wrong goals.
• Stresses moving quickly in the right direction to maintain competitive advantage and reduce dependency on external funding.

How to Prioritize Your Time in the Startup (4m48s)

• Two types of prioritization: life versus startup time allocation and within startup work prioritization.
• Startups require the founder's time to be spent effectively and aligned with co-founders' expectations.
• Urges focus on impactful tasks in the allocated startup working hours.

Setting the Right KPI Goals for Prioritization (5m29s)

• Primary KPI for launched startups should be revenue growth, with exceptions explained later.
• Pre-launch startups should track time to launch and user engagement; post-launch they should quickly shift to tracking revenue.
• Weekly goals are necessary to maintain a sense of urgency and encourage fast growth.
• Identifying bottlenecks is crucial to move top KPIs; example given of super daily optimizing their conversion by addressing a specific user need.
• Progress towards goals should be revisited weekly to troubleshoot issues and guide future efforts.

Simple Framework to Optimize KPI Goal (8m33s)

• Suggests writing down ideas to hit KPI goals but not acting on them immediately.
• Ideas should be ranked by likelihood of success and complexity.
• Only a few tasks should be chosen to pursue at a time.
• If KPIs do not improve, deeply question why and be willing to accept difficult answers.
• Conduct retrospectives on weekly tasks to assess predictions and task completion.
• Learn quickly from unsuccessful tasks to pivot and make informed decisions without dwelling on indecision.

5 Things That Should & Should Not End Up on Your Task List (10m4s)

• Tasks to include: Talking to users and iterating based on feedback, directly tied to revenue growth.
• Tasks to avoid: Passive fundraising activities when not actively raising funds, attending conferences (with few industry exceptions), pursuing arbitrary technical milestones without clear user demand.
• Avoid tasks that feel productive but don't contribute to reaching product-market fit, such as optimizing paperwork, pursuing slightly better insurance deals, or building features without knowing user interest.
• Guard against mental traps:
  • Focusing on low leverage tasks for a sense of accomplishment.
  • Fooling oneself into believing ineffective strategies are working.
  • Letting perfectionism or indecision hinder progress; it's okay to correct mistakes later on.
  • Prioritizing downside protection over chasing potentially higher-yield, innovative upside.
  • Tackling small problems instead of addressing larger, more critical issues.

Choosing the Right KPIs for your Startup (15m55s)

• Primary KPI should typically be growth, often revenue growth, to ensure the product is on a trajectory towards a successful business.
• Primary KPI exceptions include sign-ups or GMV for marketplace businesses, or letters of intent for enterprises with long sales cycles.
• Secondary KPIs should support the primary KPI and could include retention, churn, unit economics, and customer acquisition cost.
• Limit secondary KPIs to a small, manageable number—about three to five.
• Beware of vanity metrics that provide external validation but don't contribute to revenue growth.
• Decision to split focus on growth and unit economics can place startups in a precarious position, leading to stagnation.

How to Set Targets (18m58s)

• Aim for significant early growth; 5-7% weekly is good, 10% is exceptional.
• Targets may be impacted by latent demand, the length of sales cycles, or organic versus paid user acquisition.
• Balance the focus between acquiring new users and retaining existing ones to sustain healthy revenue growth.
• Avoid acquiring new customers to a subpar product; ensure users stick around long enough to justify their acquisition cost and drive organic growth.
• Example: Super Daily shifted tracking from sign-ups to customers placing five or more orders to better align with revenue goals.

Setting Targets - Top Down & Bottom Up (22m14s)

• Utilize a top-down approach to set long-term goals (e.g., $5,000 MRR by the end of Startup School) and calculate the weekly growth rate required.
• Use the bottom-up approach to determine what can realistically be achieved in a week, projecting forward.
• Consider what could be done with unlimited funding, then identify creative ways to achieve goals with limited funding.
• Goals should be a balance between top-down and bottom-up, realistic, achievable, and ambitious.
• Regularly check that the company is on track to grow significantly and avoid underwhelming growth.

Non-Revenue KPIs [No start time given]

• Focus initially on payback period rather than CAC to LTV ratio, striving for a payback period of zero where customers are profitable from day one.
• Early-stage companies should avoid the complexity of calculating LTV and ensure the payback period is reasonable and profitable per user.
• Be cautious with KPIs like free sign-ups or daily active users as they can provide misleading feedback if the intention is to charge for the product later.
• Free customers often have different expectations from paying customers.
• For marketplaces or products with strong network effects, volume may be necessary for utility, allowing sign-ups or GMV to sometimes suffice before revenue generation.
• Scribd's example highlights that focusing too much on sign-ups can delay the shift to revenue; they succeeded when they started charging even though they lost a majority of their customers.

Example from Scribd [No start time given]

• Scribd focused on growing a free product for four years and hesitated to charge due to the fear of losing their customer base.
• After beginning to charge in their fifth year, they lost over 90% of their customers but their revenue increased significantly.
• Real understanding of what paying customers want began only after Scribd started charging for their service.