“Good KPIs lead to good revenues” But it all boils down to how to set them and how investors see them?
Goals vs KPIs
Generally, goals are the destination. And KPI is the route to that destination. So your main concern, as a founder, should be to make that map as accurately as you can.
As most founders don’t have a background in cartography, we thought of writing about how these maps can help you in your journey of growth as well as how VCs view these KPIs.
Goals are long-term plans that are laid out for a venture’s growth. These have to be set in tangible forms. The most common way of setting goals is following the SMART method. Where the goals have to be:
Specific: Generic goals are easier to achieve but harder to comprehend, which is why all goals should be specific in nature with real parameters.
Measurable: Quantification of goals help set realistic KPIs that can help you achieve growth. Define what these goals are in a manner that can be measured.
Attainable: Being realistic with your goals is probably the best way you can achieve them. Setting too easy goals may lead to complacency and setting too hard goals may lead to a demoralized team. This is something that even Elon Musk struggles with!
Relevant: Not a brainer, but these goals have to be in line with your vision for the company. They need to be relevant for your industry and your business.
Time-Bound: If a goal isn’t time-bound, then it is as good as a ‘no-goal’. Time-bound goals help founders stay on track with their growth and their vision.
On the basis of the goals, real KPIs are then set. Key-Performance-Indicators are usually short, measurable and action-driven. But the problem lies in how you set them.
It is tough to figure out whether your KPIs are aligned with the goals you’re after. And tracking a wrong set of KPIs is even more counterproductive than having no set of KPI. Being measurable in setting your goals and knowing what to track is difficult, but when all is said and done, it becomes a powerful tool.
KPIs might differ for every team of your company, but all the KPIs must be set on the basis of the company’s goals. These indicators should be realistic but challenging. That thin line of balance can help motivate the teams and also accomplish great results.
A very healthy early-stage startup culture would focus on getting all departments’ KPIs to be public so that every team knows what everyone’s measuring and how they’re working to achieve them. This then helps everybody see the bigger picture clearly.
For an investor to evaluate your startup, goals and KPIs go hand-in-hand.
Setting Goals and Setting KPIs
We recommend breaking down your vision into tranches with the help of clear goals for every 3 years. And then setting the KPIs that can help you in achieving those goals. These KPIs can be monitored on a daily, weekly, or even monthly basis. But set specific action-oriented KPIs for every year.
Precision is important in both- setting goals and setting KPIs.
Vaguely defined goals and KPIs lead every member to have their own definitions of these thereby creating confusion and no results. If the goal is to create No. 1 company in D2C space then make sure it’s time-bound (eg: by 2022) and there is a set plan (goals) with action points (KPIs) that are achieved along the way within set deadlines. Unless a KPI can be quantified or measured, and then monitored, it’s deemed to be useless. Or simply too vague to generate any meaningful insight.
It is completely normal for early-stage startups to keep pivoting or to keep changing their priorities until they find the right PMF. But then their KPIs also need to keep changing and be tracked accordingly. A good practice is to continuously monitor your KPIs but also monitor what you’re monitoring. Change the KPIs if you feel something is not aligning with your business goals. After all, setting KPIs is also an art.
Focusing on constantly tracking a few KPIs is always better than tracking every piece of data. That just leads to immense confusion and no clear insight. Qualitative feedback from your customers may always feel nice, but try quantifying them because that’d actually help your business make tough decisions.
In general, KPIs should be quantified and you should be able to present their progress on a graph.
It is a common act in almost all industries, to benchmark your KPIs with your competitors. If history has taught us anything, it is that sometimes, great ideas can come from knowing what your competitor is doing!
To know more about how to set KPIs accurately, you can also read more here.
Different KPIs to monitor
There is no hard and fast rule on what to measure and how to measure. Every industry requires a different set of benchmarks. For example, if your company is a social platform, customer engagement and customer retention might prove to be a better indicator of your performance. On the other hand, SaaS might have sales cycle and sales conversion as a better indicator.
Some generic KPIs you can continuously monitor are:
No. of registered user/ no of paid users
Customer Retention Rates
Here’s a read on a few KPIs that you can adopt.
How Your KPIs Help investors?
Don’t monitor KPIs just for flashing it to investors, they are far more beneficial for a founder than an investor. Meaningful insights can also help provide context for business pivots and customer needs. However, KPI and its data can be an interesting tool to narrate your journey to an investor while fundraising (just avoid these 5 red flags to pitching, though)
KPIs help an investor in three perspectives:
When they initially analyze the startup: As an early-stage VC, we constantly look at companies that have achieved PMF (or FMF, if that works for you), and so knowing your KPIs help us accurately place you in a map on how long it will take you to reach your goals. KPIs will also help us accurately place you with the entire market.
When they negotiate a deal with the startup: The position that your company is in (on the basis of your Goals/KPIs) will help us set accurate milestones for the company’s growth, and portray it to other investors. Many investors usually invest in tranches, and KPIs will help us set realistic milestones, that will in turn help you grow.
When the company becomes a part of our portfolio: Continuous assessment of how you’re doing to achieve the said milestones helps the company become target-oriented.
For an investor KPIs and goals go hand-in-hand. Goals are where you want to be, and KPIs is how you get there. Quantification of your journey so far, and what you’re achieving right now leads us to believe that you have a clearly laid out plan for your growth.
It isn’t just enough to be able to set SMART goals and KPIs, what’s even more important is how you communicate these goals to VCs. Under-promise and overdeliver is a universal favourite, but sometimes the ability to communicate a clear set of goals/KPIs and having data to prove you’re accomplishing them is also well-rewarded.
To know more about how KPIs can be used and what you can track, you can also read here!