Setting KPIs and Goals | Startup School

Introduction

The speaker introduces herself and the topic of KPIs and prioritization for early-stage startups. She highlights the importance of prioritization in achieving product-market fit.

Key Points:

• The speaker is Divya, a visiting group partner at YC who has worked with many founders on hitting their demo day goals.

• Prioritization is crucial for startup founders to reach product-market fit quickly.

• KPIs (Key Performance Indicators) are metrics that track and measure what matters in a startup.

• Prioritization helps decide how time is spent each day and which important tasks should be focused on.

Importance of Prioritization

The speaker explains why prioritization is important for startup founders and how it helps them make progress towards their goals.

Key Points:

• As a startup founder, there is no one telling you how to spend your time.

• It's easy to feel busy and productive without actually moving the business forward.

• Common examples of tasks that may make you feel busy but don't impact KPIs include optimizing paperwork tasks, premature optimization, or choosing intellectually challenging problems over building what users want.

• Running fast in the wrong direction can waste time, money, and allow competitors to catch up.

Task Prioritization

The speaker discusses the importance of prioritizing tasks that will move the business towards its KPIs faster.

Key Points:

• A task list may contain many items, but only a few will truly move the business forward towards product-market fit.

• Choosing the right KPIs and being honest about which tasks are most likely to impact those KPIs is crucial.

• Vanity metrics should be avoided as primary KPIs, as they may make you feel good but don't contribute to real progress.

• Prioritization helps ensure that time and resources are focused on tasks that matter.

Prioritizing Startup vs. Personal Life

The speaker briefly touches on the topic of prioritizing between startup work and personal life.

Key Points:

• How to prioritize between startup work and personal life is a personal decision.

• It depends on individual circumstances and preferences.

• This topic will not be extensively covered in this talk.

Conclusion

The speaker emphasizes the importance of prioritization for startup founders in achieving product-market fit quickly. She encourages founders to choose the right KPIs, be honest about task prioritization, and avoid wasting time on tasks that don't contribute to real progress.

Setting KPIs for Prioritization

In this section, the speaker discusses the importance of setting Key Performance Indicators (KPIs) for prioritization.

Identifying Top KPIs

• Primary KPI should be Revenue growth.

• Non-revenue KPIs are rarely the right ones.

• Exceptions can be discussed later.

Shifting KPIs

• Pre-launch KPIs may include weeks until launch or number of conversations with users.

• Once launched, quickly shift focus to revenue growth as the primary KPI.

Setting KPI Goals

• Determine specific goals for each week that align with longer-term objectives.

• Example: 10 more paying customers by next week.

• Setting the right KPI goals is critical to maintain urgency and drive fast growth.

Identifying Bottlenecks

• Identify the biggest bottleneck or problem in achieving the top KPI.

• Example: Super Daily, a grocery subscription service, identified user conversion as their bottleneck.

Prioritizing Tasks

• Focus on tasks that address the identified bottleneck.

• Example: Super Daily prioritized conversations and experiments to understand why high-intent users were not converting.

Optimizing for Growth

• Solve bottlenecks one by one to optimize conversion rates.

• Example: Super Daily onboarded a specific milk brand desired by high-intent users, leading to a 50% increase in conversion rate.

Prioritization Framework

This section provides a framework for prioritizing tasks to achieve KPI goals.

Aggressive Prioritization

1. Write down ideas to hit your goals without starting work immediately.

2. Rank ideas based on probability of success and complexity.

3. Select only a couple of tasks to try at a time.

Analyzing KPI Performance

• If the KPI is not moving, ask why several times to understand the real reason.

• Example: Super Daily analyzed their conversion bottleneck and identified the milk brand as a simple solution.

Retrospective Analysis

• Conduct retrospectives on weekly initiatives to evaluate impact and complexity.

• Break tasks down further if necessary.

• Reduce context switching by allocating dedicated time blocks.

• Avoid working on tasks that do not contribute to progress.

Adaptation and Learning

• Move fast, learn from failures, and make adjustments for future iterations.

• Avoid indecision and keep moving forward.

• Focus on growth by quickly iterating through ideas and discarding ineffective ones.

Task Prioritization Guidelines

This section provides guidelines for determining which tasks should be included or excluded from your task list.

Recommended Tasks

• Talking to users and building based on user feedback directly contributes to revenue growth.

• Understanding customer needs through continuous communication is crucial in early-stage startups.

Excluded Tasks (Fake Progress)

• Passive fundraising conversations or activities that do not directly contribute to revenue growth should be avoided.

The above guidelines are applicable in most cases for early-stage startups.

The Trap of Fake Progress

This section discusses the trap of fake progress and how it can hinder a startup's journey towards product-market fit.

Fake Progress and Low Leverage Tasks

• Many tasks on a to-do list may provide a sense of accomplishment but do not necessarily contribute to product-market fit.

• Examples include spending excessive time on paperwork, optimizing minor details, or focusing on cheaper workers' compensation insurance.

• Taking meetings with potential investors or building features without knowing if there is demand for them also falls into this trap.

The Illusion of Working Solutions

• It is easy to fool oneself into thinking that something is working when it is not.

• Being honest with oneself and diagnosing problems early and often is crucial for progress.

• Slow growth can be deceptive, as it may be mistaken for product-market fit when it is not.

Perfectionism and Indecision

• Perfectionism and indecision can block progress when every decision feels critical.

• Most decisions do not have a significant impact, so it is better to make pretty good decisions quickly and adjust if needed.

• Startups face numerous decisions daily, so focusing on those that contribute to product-market fit is essential.

Chasing Upside vs. Downside Protection

• Spending too much time on downside protection (fixing small problems) instead of chasing upside (innovation) hinders progress.

• Upside requires risk-taking, creativity, and iterations based on user needs.

• Prioritize finding out what users need daily rather than solving small problems that are overshadowed by bigger existential challenges.

Choosing the Right KPIs

This section focuses on selecting the right Key Performance Indicators (KPIs) for startups to measure their progress accurately.

Primary KPI: Growth and Revenue Growth

• For most startups, the primary KPI should be growth, specifically revenue growth.

• Revenue growth indicates that the startup has built something people want and is on track to building a successful business.

Exceptions to Primary KPI

• There are a few exceptions where other metrics may be more relevant as the primary KPI.

• For example, in a marketplace model, metrics like user engagement or transaction volume might be more critical.

Secondary KPIs

• Secondary KPIs support the primary metric and provide additional insights into specific aspects of the business.

• Examples include customer acquisition cost (CAC), lifetime value (LTV), churn rate, or user retention.

Conclusion: Prioritization and Honest Evaluation

This section concludes by emphasizing the importance of prioritization based on meaningful KPIs and being honest with oneself about progress.

Prioritizing Based on Meaningful KPIs

• Startups cannot accomplish everything on their task list; therefore, prioritization is crucial.

• Using meaningful KPIs helps identify the biggest blockers to achieving product-market fit.

Fail Fast and Learn

• Being honest with oneself and failing fast when things are not working is essential for progress.

• Learning from failures allows startups to adjust quickly and focus on what works.

The transcript provided does not cover all sections mentioned in the initial instructions.

New Section

The importance of tracking secondary KPIs such as retention and churn for revenue growth, unit economics, and customer acquisition.

Tracking Secondary KPIs

• Retention and churn are important secondary KPIs that contribute to revenue growth.

• Unit economics should be considered to ensure profitability on each user.

• Avoid prioritizing vanity metrics that provide external validation but may not directly contribute to revenue growth.

• Examples of companies with a laser focus on growth include Doordash and Rickshaw.

New Section

Optimizing costs, setting goals for primary KPIs, and avoiding the optimization of multiple hard things simultaneously.

Optimizing Costs

• Depending on the stage of your business, optimizing costs may not be necessary initially.

• Have a sense of your payback period and whether you'll make or lose money per customer acquired.

• Keep the list of secondary KPIs small and relevant (3 to 5 is reasonable).

• Be cautious about falling into the trap of prioritizing vanity metrics over revenue-focused metrics.

New Section

Comparing the paths of Doordash and Rickshaw in terms of their focus on top-line growth.

Laser Focus on Growth

• Both Doordash and Rickshaw had a laser focus on order volume as a top-line metric during their early stages.

• Rickshaw faced fundraising challenges despite comparable early traction to Doordash.

• Attempting to optimize for both growth and unit economics can lead to slow growth or failure.

New Section

Choosing primary KPIs, avoiding split focus, and understanding the balance between profitability and growth.

Choosing Primary KPIs

• Choose primary KPI(s) that align with your business goals.

• Avoid trying to optimize for multiple hard things simultaneously.

• There is a nuanced balance between profitability and growth.

New Section

Setting growth targets and the impact of early growth on long-term success.

Setting Growth Targets

• The amount of growth needed depends on the business and stage.

• Aim for 5-7% week-over-week growth as good, and 10% week-over-week as exceptional.

• Small changes in growth rate can compound over time, so early growth is preferable.

New Section

Factors that may impact your growth rate and considerations for goal setting.

Factors Affecting Growth Rate

• Latent demand may boost early growth but could be harder to sustain later.

• For enterprise businesses, the length of the sales cycle may impact early KPIs and goal setting.

• Organic user acquisition is ideal in the early stages, followed by paid acquisition once organic growth is established.

New Section

Balancing focus on acquiring new users versus retaining existing users.

Retention and Engagement

• Both acquiring new users and retaining existing users are important for revenue growth.

• Ensure there are no issues with churn and that users stick around long enough to pay back their acquisition cost.

• Focus on bringing in new users while also ensuring strong retention metrics.

New Section

Examples of companies adjusting their tracking metrics to reflect a healthy growing business.

Adjusting Tracking Metrics

• Super Daily switched from tracking sign-ups to tracking customers who placed five or more orders as a leading indicator of long-term revenue generation.

• Align marketing efforts with overall revenue goals when setting targets.

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New Section

In this section, the speaker discusses goal setting strategies and emphasizes the importance of starting early and considering both top-down and bottom-up approaches.

Goal Setting Strategies

• Target and obsess over goals to compound progress. Starting early is beneficial.

• Consider a Bottoms Up approach by setting realistic goals for the next week and projecting from there.

• Remove funding as a bottleneck in thought exercises to explore what could be achieved with unlimited resources.

• Find creative ways to achieve goals even with limited funding.

• Periodically assess whether your goals are realistic, achievable, and ambitious. Check if you're on track to build a successful business.

New Section

This section focuses on non-revenue Key Performance Indicators (KPIs) that may be tempting but not always appropriate for early-stage companies.

Non-Revenue KPIs

• CAC to LTV ratio is a concern later in the business journey, post product-market fit. For now, focus on payback period where ideally it should be zero dollars spent on customer acquisition cost (CAC).

• Assess how quickly users pay back their CAC and ensure reliable hitting of targets. Retention rate plays a crucial role in this assessment.

• Free sign-ups or daily active users can be misleading KPIs if you plan to charge for your product eventually. Feedback from free customers may not align with paying customers' expectations.

• Exceptions include marketplaces or products with strong network effects that require volume for utility purposes. In such cases, sign-ups or GMV (Gross Merchandise Volume) can be relevant metrics.

• Avoid spending too much time on sign-ups without shifting focus to revenue generation. Scribd's example demonstrates the importance of transitioning to a revenue model after initially growing a free product.

• Exceptions to revenue KPIs include hardware companies, biotech companies, and enterprise businesses with long sales cycles. In these cases, other metrics like letters of intent, contracts, or technical milestones may be more appropriate indicators of progress and growth.

New Section

The speaker concludes by encouraging the audience to set ambitious goals, share them with their community for feedback and accountability, and strive for product-market fit.

Final Thoughts

• Write down primary and secondary KPIs and set ambitious targets. Audit your task list for the week to ensure laser focus on achieving those goals.

• Share your KPIs and goals with your startup community for feedback and accountability.

• Strive to achieve product-market fit faster by implementing the strategies discussed in this talk.