Tracking growth matters, but how do I start?
Think about how much you have to believe in something to invest your time and money on it. Most startup founders are so set on their business idea that they begin operating their company out of their own personal savings in a practice known as bootstrapping.
It’s precisely during this very early stage of a company’s development that founders are mostly concerned with revenue and profits to gain back all the money they’ve invested. However, as the startup evolves, so does the type of things team-leads should really start taking a closer look at. With business growth comes metrics, that being the first sign that you ought to start tracking them. But… why?
Well, essentially because this data is the key to understanding how your business is performing. It gives you a deeper look at what’s working and what’s not and, in turn, it can help you spot potential pitfalls before they occur. Furthermore, keeping track of what the company has been up to, in terms of sales or other types of metrics, is beneficial when it comes to optimizing processes. Think of it like this: knowing what’s going on, makes it easier to know what has to change because it’s not working, and what has to stay the same because it is.
Founders are often aware of the importance of tracking growth, as they’ve been told by mentors, investors and fellow entrepreneurs. The question really comes down to which type of metrics should they be documenting ― in accordance to their specific business or industry ― and when should they really start monitoring them. Then, the hardest part of the process may be knowing how to analyze it or act upon it.
Here are some fun resources that cover the subject:
PODCAST: The Content Marketing Show, 3 Essential KPIs to Track Today, hosted by Laura Tyson.
BOOK: Scaling Lean: Mastering the Key Metrics for Startup Growth, a book by Ash Maurya
That’s when the KPIs come in. The term is short for “key performance indicators”, which happens to be a set of quantifiable metrics that a company uses to gauge its performance over time. These metrics are used to determine a company’s progress in achieving its strategic and operational goals, and also to compare a company’s finances and performance against other businesses within its industry.
Also referred to as “key success indicators”, KPIs are basically a measurable pieces of data that collect, gather, and interpret certain information which can be converted into useful metrics. Here’s a video that’s sums it up in 5 minutes.
“These can be easily reported in charts or dashboards. The purpose of this is to set goals or levels of production by observing the quantitative statistics. Perhaps, to establish new processes or alter existing ones for further optimization and growth. Generally just to be aware of how the company is really doing and why,” explains our Operations Manager, Eduardo Padial who also happens to be the team’s expert on KPIs.
How to establish KPIs
If your company is not generating sales yet, it can be difficult to understand which data will let you know how your company is performing. However, what you CAN do is establish a sort of checklist of things that you ought to do in order to launch. Let’s see what Eduardo recommends for this:
Traction is your cue. When your startup has generated enough, then that’s when you know you’ll have something to actually measure growth. But what exactly counts as traction? It doesn’t necessarily limit itself to sales. Traction can go from profitability, to engagement, to signed partnerships. Once that’s out of the way, the next step is defining your growth expectations. Meaning, what is it that you want to achieve by when.
“Startups, because of their nature, are expected to grow 10% every week. It’s aggressive, but having this notion can also be helpful when it comes to making sure they’re giving their best to achieve the expected growth tendency,” added Eduardo.
Of course, it all depends on the industry that you’re at. There are slower sales cycles depending on which type of business you’re working on and who you’re selling to. As long as you’re conscious about the amount of cash that you’re burning and that impact to further grow. That’s what you see as something sustainable.
Here are 3 questions that can really help you put into perspective what is it that you want to measure. Try to think about the answer on a very specific, detailed and descriptive matter.
What do you want to measure?
You want to make sure you can measure something attainable. Meaning something that you can actually achieve by the time you want to see the results. Example: The number of new customers this month
What is the metric you want to track and what is the number you want to achieve by when?
Example: 100 new customers by the end of the month
How often do you want to report on this KPI?
Example: Weekly strategy reviews
On that last question, it should depend on the KPI. As Eduardo sees it, if it’s not something that’s going to move the needle day by day, then this is something you’d want to check every once in a while. Like monthly.
“Now, if it’s something where you can see change very quickly, then you should be on top of it every week. It all really depends on the stage that you’re at and what the sales cycle is”, he says.
Checking in on your KPIs regularly is essential to maintain that habit and the process structure. Tracking your progress against the KPI is the whole point of setting them in the first place. Now, something that it’s equally essential is tracking your progress so you can assess how successful you were in developing the KPI in the first place.
There are countless tools on the cloud that can help you keep track of your indicators. Here are just a few:
And, so the final step in defining KPIs is identifying where you want that information from. This will save a lot of time. Knowing your sources can help you track back the data at its core, segment it and avoid having any errors.
If you really reflect upon it, it’s all about being SMART with your KPI plan and knowing exactly what is it that you want to achieve with it. This means having a SPECIFIC objective that can be MEASURABLE and, in turn, ATTAINABLE. It also has to be something that’s RELEVANT to you company’s long term growth goals. And, of course, keep in mind how the whole process needs to go hand-hand with your TIME frame.
If you want to start executing a well-thought KPI plan, you can download this spreadsheet designed by Klipfolio here.
Understanding which KPI is right for you
An important thing to note, and the reason why this business exercise is so useful, is the fact that KPIs are not industry-specific. Literally every portion of life can have KPIs attached to it, and in a way, it does.
From consumer trends to business growth and even school activities. Meaning that for you to really dive in into this practice and make it work, first you need to understand which KPI you should be tracking in order to find the best growth hack solution for your startup.
Let’s take a look at some types of performance indicators:
Project Management KPIs
These types of metrics can help a startup identify the actual cost of activities or the estimated cost to complete the activity’s remaining work. This can be useful for events or the launching of a new product, for example.
Financial Performance
Under this category you’ll find the infamous EV/EBITDA. This specific metric is used as a valuation tool to compare the value of a company, debt included, to the company’s cash earnings less non-cash expenses. It’s ideal for analysts and investors looking to compare companies within the same industry.
Also within financial performance KPIs you can measure the proportion of share of shareholders equity to the debt used to finance the startup’s assets or the company’s pricing strategy and its operating efficiency. Read more about Financial Performance KPIs here.
Human Resources Performance
Its name says it all, we’re talking about revenue per employee. This is an indicator of the productivity of the company’s workforce. It measures the amount of sales per employee and also measures the efficiency of utilization of human resources.
This type of KPI works well when it comes to having an index of your employees satisfaction and your sales competitiveness ratio, which helps to gather data on competitor pay or industry average pay and allows you to compare this with your company’s own salary levels.
Supply chain and operational performance
This is where you’ll find metrics to improve customer experience and responsiveness. Earned values on this category can also measure performance and can be used to schedule costs and control systems.
These indicators determine the time taken from ordering a product to manufacturing and finally delivering it to your customers, as well as to schedule costs and control systems.
Consumer insights and marketing
Remember when we talked about how social media likes aren’t really a KPI? These are. Here you work with metrics such as market growth rate, customer satisfaction index and brand equity.
With these, you can essentially analyze how products and services meet or surpass customer expectations and identify the extent to which a company is present on social media and how that’s impacting the brand. This can also be done by measuring loyalty, awareness, retention, etc.
parallel18’s KPI dynamic
The program has a very structured way to deal with KPIs as soon as a new generation kicks off. Most of the startups that come in have an idea of how much they’ve sold and whatnot, but they don’t have any type of data that gathers up their progress week over week.
That’s when P18 comes in. We help them set that standard and create a habit. They say this takes 21 days. Well, companies are with us for 5 months, so that’s plenty of time to establish a steady KPI strategy.
Once you get accepted, we deep dive on our new cohort. Obviously with each new generation comes a new variety of startups, so we group them according to the things they have in common.
We call these “corillos”, a Puerto Rican slang for “group”. These corillos are set up a month before the program starts, so that the founders know who they’re going to be engaging with and collaborating. The whole point of placing the companies in groups is that they can exchange ideas and see how each is doing in terms of industry.
After they’re grouped, every Monday we have a Sales KPI Meeting. That doesn’t mean we solely discuss revenue, or price, or how many ― in terms of dollars ― have you sold, these can all change anytime. It can rather be, for example, the number of demos that you’ve done, or the number of discovery meetings that you’ve done. Things that let you know you’re one step closer of finishing that sale.
During the meeting Startup Executives, along with founders, talk about what went on the week before and what is their goal for the following week. From that assessment, the P18 team can have a better understanding of how we can help the company and which is the best way to address particular needs, so that the startup can continue growing week over week.
There’s also this thing we call “ weekly peñones”, which is the word we use in Puerto Rico to describe a really big rock or a challenge. These are three weekly goals that by the next week, you should’ve accomplished.
However, before determining which are going to be the peñones of a certain week, we discuss if the goal is too aggressive or, on the contrary, if the goal is too vague. The ultimate achievement is to make a significant change on the company’s weekly growth.
The team and the rest of startups on the “corillo” help you along every step of the way to make sure you’re following your KPIs and providing you with the connections necessary to make them happen.
We’ve experienced that, if one of the companies in the group hits a wall, since we’ve all collectively been following up on their growth, we can give them the correct feedback as to how to move forward because we already have an understanding of what their KPIs have been. What has worked for them and what hasn’t. Ultimately is up to a discussion and the startup itself decides where to go from there.
Still having doubts as to whether you should start doing KPIs? Here’s a formula suggested by our very own Eduardo:
You can have all the data in the world, but if you don’t combine it with the insights that you have from your measurements ― which help you have a clear vision of what does your company do, how does it do it and whether it’s working ― then it’s harder for the startup to communicate to potential clients, investors and even your own team members. Tracking grows demonstrates how well you understand your business, but also how well you can explain how you’re doing as a startup.
