What to measure as a startup (and beyond)
Metrics for startups (and beyond)
Data matters a lot for every company, but at each stage of a company’s lifecycle, different numbers matter more.
I’ve gone through each stage as a founder of a company that grew, expanded, and was ultimately acquired. At my company, Notion, we spend a remarkable amount of time thinking about what the right metrics are both for ourselves and for our customers. But when you track your key metrics matters as much as what you track, so I’m going to cover the difference between how early and later stage companies can leverage the right information at the right time.
What to track at an early stage company
This is what you track as you search for your destiny.
We’re an early stage company right now, and before I scaled up my last company, we were bootstrapping out of my apartment (almost uncomfortably too long). At this point, it doesn’t make a lot of sense to focus on Monthly Recurring Revenue (MRR), Churn, and Customer Acquisition Costs (CAC). You don’t have many customers. And even if you do have customers, you don’t have enough of the right ones – the kind of customers you are going to build a repeatable business with – yet. You’re currently searching for the elusive product-market fit and the whole focus should be around validating core business assumptions. You’re preparing your systems for liftoff, and to support the One Metric that Matters (OMtM) – growth – you need to measure what’s going to get you there first.
First, you need to build awareness.
For product development, for each feature, rank an awareness metric and trade off costs (like effort) to arrive at what to build next. I used to call this “Reach” when I was starting up before, but at Notion, we score this as “Growth Opportunity”. How much awareness can you generate with each individual feature? That could mean anything from growth in your existing customer base to product-as-marketing that generates more awareness of your product in your target market.
We use the ProductPlan Planning Board to build our roadmap by factoring in Costs (Estimated Sprints, Unknowns, Risk) and Benefits (Customer Signal, Quarter Strategic Value, and Growth Opportunity).
Beyond the development of new features, you’re running a ton of experiments to figure out who your product is resonating with and how to acquire them into your preliminary funnels. You’ll have targets for New Leads and targets for Lead-to-Trial Conversion percentages, but it’s all in service of having enough potential customers to learn from. At this early stage you’re building a learning machine, and I wish I had thought about it in those terms at my first company – it would have accelerated our path.
So, metrics for startups are defined as:
- Feature ranking with Growth Opportunity scores factored in along with other costs and benefits.
- Number of New Leads – you need someone to learn from and you need to measure acquisition.
- Lead-to-Trial Conversion rates – to understand if your acquisition funnel is working.
- Custom activation metrics – to learn if your product is delivering value and to begin to accelerate new leads to that aha! moment. You’re measuring just how active your users are.
- Net Promoter Score (NPS) – this is less about referrals at your early stage and more about product market fit. Combined with your activation metrics, you’re looking for signal that a portion of your user base (40% or so), don’t want to live without what you’re offering.
And you’ll be tracking your cash, of course. Not GAAP revenue or anything complicated, but, simply, how much runway do you have, so you can run your experiments and realize your vision.
If you’ve nailed all that, then you’re on your way.
What to track at a growth company
You’re beginning to scale (so hang on and don’t break everything at once)!
At this point, you’re picking up momentum, and the faster you can put some systems in place, the less pain you’re going to experience. At Notion, we already put into place a playbook to cover company culture, how we build, and some just-in-time documentation to reduce other siloed or tribal knowledge, so we can accelerate getting new team members up to speed. Documenting what you’re measuring and your goals – and the analysis behind each significant event – is a big part of that, as well.
You’re now focusing on consistency and building repeatable models. That means consistently growing Monthly Recurring Revenue (MRR) while controlling Churn. The weaknesses of your still-fledgling business will show in areas previously solid, so your Churn is likely to be higher than you want it to be. But if you really commit to wrestling with retention, you’ll pave the way for much stronger growth downstream, and it will force you to prioritize the right systems building.
I learned this the hard way, and, previously, I endured roller coaster sales months, pulse quickening payrolls, and customer fires that kept the team up all night.
This time around, I have a focus on:
- MRR – drive consistent revenue and understand the underlying factors like annual plans, upgrades, and cancellations.
- Churn – we’ve done double takes on Churn and could talk about it all day long, but when your numbers drift above roughly 5%, it’s time to address it. You’re scaling, so there are likely fires in customer success, product, and operations, but your gauge will be Churn. Put out the fires one at a time, so everything isn’t broken at once.
- Customer service first touch time and ticket cycle times – you did things that didn’t scale to achieve enough growth to scale, so if you didn’t start building customer success systems, then you’ll see these numbers suffer.
- NPS – a potential leading indicator for churn trends, now you’re also tracking NPS in an effort to build systems around referrals
- Service uptime – maybe a little too much tech-debt was incurred to deliver all those features customers wanted. If that’s a case, and your service is interrupted too frequently, a drop in uptime will definitely contribute to a drop in NPS and an increase in Churn.
Now, armed with a stable, repeatable business backed by systems that scale, you can tackle expanding upon your success.
Metrics for later growth stage companies
I call this the Expansion phase with a focus on how to drive more revenue in new ways.
By now, you’re mastery of your product and market is apparent, because you’re statistically significant both in revenue and the number of customers you’ve acquired. You’ve done some systems building, and the wheels didn’t come completely off during the process. It’s time now to focus on expansion and adding other dimensions of growth.
Looking back, for me, this was the point at which we replicated our acquisition strategy and mined new customer segments while at the same time rolling out revenue strategies (like multi-year deals). For your business, it could be a push into enterprise customers or even a new product offering to fit into your platform.
I learned later on (yeah, the hard way) that this is an ideal time to tier your customers. The primary goals now are to understand the Lifetime Value (LTV) of those customers and the Customer Acquisition Costs (CAC). Understanding your tiers is critical to leveraging that data to invest in the right areas of expansion.
To meet the new opportunities that expansion bring, you’re probably hiring internally, so visibility into a couple of HR key metrics will make sure you have the team to deliver on your roadmap.
I think about this stage in terms of:
- Customer Lifetime Value (LTV or often CLTV ) – how much revenue do we earn from a customer before they stop using our product and cancel. Your tiers play a big role in making decisions with this information, because not all customers are created equal.
- Customer Acquisition Costs – the cost to acquire a customer. It’s helpful to break this information down by channel and by tier, so underperforming areas can be improved or abandoned.
- Hiring: Number of Open Positions – how many people do you need on the team in order to realize success? Staffing is a critical area at all time, but especially as you spread out to focus on new areas.
- Hiring: Time to Fill – are you meeting your hiring plan? You can sanity check your product roadmap with this information, because if you can’t close the gap on hiring the right talent, then you aren’t going to be able to deliver on promises made to the market.
You’re still tracking the other metrics like MRR, but understanding the efficiencies of your business will dramatically influence choices on pricing and new product launches. Each new product launch kicks off the cycle again with the search for product-market fit, scaling, and expansion in those new lines of business. The upside is that you get to apply all that you’ve learned so far.
As you continue to grow, the metrics of success and the focus areas will continue to evolve. Greater expansion puts an emphasis on capital-efficient growth, and you’ll be on a path to cash flow positive, profitable operations. Your growth has compounded along the way, and by driving your decisions with the right information at the right time – you’re an efficient force to be reckoned with.
I hope that helps. So much of the art of being successful with your data and metrics strategy is knowing when to say “no” or “not now” and focusing on the metrics that matter right now vs the metrics that will matter one day in the future. Best of luck with your growth!
Resources
Dave McClure’s metrics across the entire buyer/customer lifecycle is helpful when digging in to what you should track. Whatever you align your Objectives and Key Results (OKRs), or more generally, your metrics with – make sure it aligns with your strategic focus.