Why Are Metrics Important as a Startup Founder?

I recently joined Seed Sprint: a 2 month sprint for startups who are about to start their fundraising journey or are actively raising pre-seed/seed investment run by SeedLegals and Spice Startups. The aim: to pair fundraising efforts with generating and demonstrating growth investors want to see.

Why Are Metrics Important as a Startup Founder?

Earlier this year I read Measure What Matters by American investor and venture capitalist, John Doer. I thought I'd cracked the code for measuring progress, creating action-oriented objectives with numerical results attached to them. Otherwise known as OKRs. But really, I'd only scratched the surface. It was only six months later that the importance of metrics truly began to make sense to me.

I'd joined Seed Sprint on a whim. A two month sprint for startups who are about to start their fundraising journey or are actively raising pre-seed or seed investment run by SeedLegals and Spice Startups. The aim: to solidify fundraising efforts by demonstrating growth in a format investors to see.

The sprint caught me at the perfect time. We'd just launched our app to public beta and in the first session, I was alerted to the mental gear shift required from fixating on building to selling and pitching your product. Something I'd already felt was underway, as we'd begun to consider how and when our business would one day become profitable. Metrics are the tool that allows you to measure what's working and what's not.

There are two reasons for having metrics as a startup:

  1. To show growth through user engagement or revenue growth
  2. To impress investors and convince them you can be trusted with their money

Common Mistakes

There are many common mistakes:

  1. Focusing on vanity metrics (e.g site views, website traffic)
  2. Tracking the wrong aspects of the business (e.g tracking outputs such as revenue, which is only a function of the work that has gone before it)
  3. Too many KPIs (makes it very difficult to do any analysis)
  4. Inconsistent usage of definitions, which can result in contrasting interpretations of KPIs (by team, by region or at different levels)

Investors use a wide-range of terminology like customer acquisition cost (CAC) and life-time value (LTV), but the key is demonstrating to investors that your business has a route to profitability. There is one key question to ask when deciding on metrics: what are the key drivers of my business?

Creating a KPI / Data-driven Culture

Daily usage, weekly usage or number of app downloads are a good place to start. This the first step in creating a data-driven culture. B2C or B2B businesses will have slightly different metrics to track.

It's the role of founder to ensure this is a key facet of the company's culture. If founders are not driven by metrics and data, then it is their duty to find someone to join them who is. The founder decides on the cadence for sharing metrics with the wider team, but weekly or monthly meetings tend to work best, as it needs to be a key part of the business' culture. It needs to come from the top and founders must ensure team members understand the "why."

Product-Market Fit

Market is the single most important ingredient contributing to a startup's success. Pre-product investors tend to look at team and market, pre-revenue investors look at community, team, market, downloads, monthy active users (MAU), daily active users (DAU) and pipeline. Post-revenue investors focus on monthly recurring revenue (MRR), annual recurring revenue (ARR), NPS, growth rate and churn.

The first eighteen months are all about reaching product-market fit. To do this, you need to speak to customers and iterate over and over again. Make it clear to early-adopters how special they are.

The only thing that matters 

Customer Acquisition

Startups need to think create a framework to build and evolve go-to-market (GTM) around sales and customer acquisition. Founder-led sales scale to a point, but beyond Series A need a predictable, scalable sales cycle.

There's a fine line between customer segmentations helping and hurting your startup. For consistency, there must be one definition across different market, used by all teams, that is externally measurable and taken from the market's perspective.

In the early-stages of startup it's crucial that  there is a clear feedback loop from the sales team to engineering, so that it is all fed into product roadmap. It's helpful to have hypotheses about customer segments, but not to get too granular with metrics. Engagement data is the main indicator investors will be looking for. Granular metrics can be off-putting and even reducing investors case for investing. Number of signups, onboarding figures, high levels of retention and any revenue data must be collected. Founders should be able to qualify engagement data with qualitative insights.

Growth Signals

For pre-seed and seed stage businesses, investors are looking for some level of monitisation such as early revenue or pre-revenue. Founders must have a balanced understanding of a clear path to revenue. B2B businesses have potential to have MRR even at seed stage, whereas B2C businesses may only have A/B testing or product ambassadors to show.

Founders need to show they have a holistic view of their market and route to profitability. If your product costs a lot to sell right now, then be prepared to show how this is this going to get lower over time. It's fine to have competitors, but it's important to acknowledge how you differentiate yourself as a business. Show investors you've thought this through with different scenarios including: best case, mostly likely case and worst case scenarios.

Pitching for investment

Do not spend much time going to VCs unless you have users, growth and potentially revenue, as it's easy to waste a lot of time. Instead either crowdfund or go to angels. They typically don't have websites, so all you can do is make as much noise as possible. When an investor is deciding whether to invest or not they will hear of you. Want to be a little signal that pops up above the noise.

Typical pitch format:

  1. What is the problem?
  2. How do you solve this problem?
  3. Technical details of product
  4. What's the market size?
  5. Competitors
  6. Business Plan
  7. Team & Traction
  8. How much are you looking to raise?

In most cases you will need a teaser deck and a confidential follow up deck if investors are interested.

Most importantly, investors want to see a story. How did you fall in love with this problem? Why are you the best team to deliver this solution? If your business has a lot of traction, then lead with that, but if it doesn't the team should be front and centre.  

Final Takeaways

After one month of seed sprint, I'm realising that the real work starts now. It's time to reconfigure our thinking from building an app to building a business. This next stage is make or break adn we will need to show how our startup is growing.

Though we might not have considerable revenue for a while, by honing in on the right metrics, we can work towards an engaged set of users. The next few months will involve getting our first cohort of early adopters and listening to their concerns and issues as we go.

Watch this space.