A wise person once said ‘you can’t improve what you don’t measure’. And this is true for all facets of life, including your business. It is not just adequate to do the ads, campaigns, sponsorships, etc without measuring the effectiveness of everything done and how it impacts your startup. Metrics are for specific reasons and it will be detrimental to your organization if you do not track certain metrics and make room for improvement.
In the words of Ash Maurya, building and scaling a successful business starts with knowing what to measure and how. Looking at the lean startup methodology, the process is like this; build-measure-learn. This proves that you cannot uncover lessons and insights that’ll help your business progress if you do not measure what works and doesn’t. I once read that data-driven learning is the cornerstone of success in startups.
So, this blog post will show you why it is important to measure, what to keep in mind when choosing what to track and subsequently, some metrics every startup should track and how. Ready? Let’s get started!
While it is important to build something you love that actually provides solutions to the problems people have, it is even more necessary to ascertain if your customers perceive your business as a must-have or nice-to-have. Is it something they’re willing to pay for? How do you measure if they will be quick to part with their money in exchange for the value you’re offering? If yes, how much should you spend on acquiring a customer? What is the worth of a thousand customers on your business? How much should you make from a customer within a given time frame? What will your revenue look like when you compare your customer acquisition cost to their spending? What is the revenue source of the business? How many customers do you actually have? What is the effectiveness of your user acquisition strategies?
For early-stage startups, progress is measured based on these criteria - how much stuff they are building and how much money made. Founders want to ensure that they meet the listed criteria and that they are making a profit even as they make some expenditure to acquire more customers. But, how will you know how much your startup is making vs how much is being spent if you do not track these things?
Refraining from measuring what is working or not is a disaster waiting to happen. Keep this in mind; the metric you’re measuring must be tied to a goal which in turn informs you about behaviour and the action to take and they often come in pairs. Take, for example, a conversion metric (the percentage of people who buy something or take a particular action). This metric should be tied to your time-to-purchase goal (how long it takes a user to buy something). Then this goal informs you about your cash flow and helps you make decisions on the action to take to increase cash flow.
There are so many metrics to measure, so what should a founder keep in mind when choosing the right ones?
- The need to understand qualitative and quantitative metrics:
Qualitative metrics are largely unstructured, revealing and hard to aggregate while qualitative metrics are more of statistics and numbers and provide hard numbers but less insight. So you need to determine if you will focus more on quantitative or qualitative or combine results from both to get insight. Examples of qualitative metrics include interviews, questionnaires, etc. Quantitative metrics involve scores, ratings, etc.
- Vanity vs actionable metrics:
Vanity metrics are feel-good metrics that are of little or no impact on the business. It is data that cannot be acted on. Actionable metrics help the business by giving you insights that will enable you to pick a course of action. So when choosing what to measure it is expedient to measure what actually matters and what will help you make better decisions.
Actionable metrics propel you to ask the question- ‘what will I do differently based on this data I have?’. Most times, signup is a vanity metric. It only shows the number of people who register or subscribe to a service. It does not, however, reveal the actions users are taking and whether or not those actions are valuable to your business. An actionable metric like the percentage of active users reveals the level of engagement users have with your product. With this, you can take measures to improve engagement and even, give insight on a product improvement step to take to increase engagement. Another example will be to measure the number of users acquired over a period of time. This will help you to measure varying marketing approaches- maybe a Facebook campaign for the first, a sponsorship etc. You will uncover which works best for your customers and then, invest your money in the best method.
- Exploratory vs reporting metrics:
Exploratory metrics are typically speculative and try to find unknown insights that will give a business a competitive advantage, while reporting metrics just keep you informed of normal day-to-day operations. One can measure both but there is a need to prioritize the metric to focus on at each phase of the business. Are you trying to offer a solution that will give you the upper hand, one that your competitors aren’t aware of yet? Focusing on exploratory metrics will help you achieve this. However if at a given phase you are just concerned with stabilizing the day-to-day operations of the organization, then focusing on reporting metrics will help you do this.
With this in mind, the next part of this article will dig into some of the metrics a startup should track and measure.