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Know your metric


If you reached that point when looking for the most relevant metric for your startup, I should save you the effort. There’s no general answer, a number 42 hiding the meaning of life, the universe, and everything. No big, sophisticated computer to compile a one size fits all approach. If you’re on your way to building it, then you don’t need any advice regarding success metrics. But for the rest of us, there’s no easy way out.

The relevant indicators regarding the actual and potential value of a startup differ greatly. The most pervasive challenge for investors is to truly understand each business coming their way and decide on befitting metrics. Personally, I am not a fan of templates in assessing innovation – because they can lead to the failure of overlooking many disruptive projects. And while the investors need to keep an open mind, founders are also responsible for putting into a functional perspective their ideas, based on how well they know the market, the targeted audience and the reason behind choosing that particular segment. As for strategy and numbers, a GoToMarket plan accompanied by a funnel to ensure maximum reach in the designated community and a realistic estimate of the sales cycle is always extra steps towards success.

No recipe, same ingredients

In the end, it’s the same success everyone strives for, and on the road to achieving it, here’s a shortlist of 10 indicators to work through, regardless of how unusual your business model might be.

  1. Traffic/Unique visitors – useful mostly in early development stages; afterwards, it shifts into more important indicators such as Number of returning users or Number of sessions per user. Another important aspect is to always look at the Traffic related indicators, in correlation with the Bounce rate, the time spent in site, or even both.
  2. CAC – a measure of the viability and attractiveness of the USP, with direct financial implications, it needs to be calculated together with the income or transaction generators. As an example, it would be wrong to calculate CAC against the number of 1 week free trials conversions. Instead it should be calculated cumulating all costs for reaching the 1 year paying subscription that comes after the trial. Don’t worry, CAC improves over time as awareness grows.
  3. Conversion Rate – which shows the real interest in the product or service offered. Similarly, for relevance, it’s important to relate conversion rate with financial income. Ask yourself: where do I generate the adhesion? Where do we generate revenue?
  4. Customer Lifetime Value – difficult, but important to be estimated and weighed against initial expectations, due to the high dynamics of tech innovations. In correlation with CAC it really shows how economically viable the business model is.
  5. Retention/Churn Rate – with a direct impact on lifetime value, it is also a measure of the perceived utility. Among the millions of existing solutions and applications, it’s impossible to survive if the perceived added value is not relevant enough.
  6. Margin – equals profitability. Even the most promising of businesses might fail without a positive value here, irrespective of any other favorable indicators.
  7. Marketplaces – for a solid growth, it’s critical to always balance the two sides of supply and demand making your product/platform relevant. In order to do that you should calculate the relevant dimensions of your transactions (duration, geographical distribution etc) to identify how many requests can be fulfilled by one supplier while also understanding the dimensions of the demand (frequency of transaction, triggers etc) to make sure that the demand generated by the company advertising efforts can be met in good quality and customer experience and the suppliers perceive the added value of being on your platform.
  8. Sales cycle duration – another critical indicator mandatory for a proper planning of your expansion. Depending on the type of product or service you’re developing, the value of this indicator can vary between a few minutes between the moment when your ad is displayed and the actual adoption/transaction, as it is mostly for B2C solutions, to more than one year between first awareness and consideration till the done deal, in complex B2B solutions. While you can build successful startups in both categories, it is important to calculate it especially if you belong to the latter, as lack of proper resources along the way might jeopardize the takeoff of your business.
  9. Engagement – not the same as your received likes & comments in social media. Engagement sums up the frequency and ways in which your customers are interacting with your product. If you made the sale, but the product is seldom used, the perceived low value will prompt your customer towards the competition. A more frequent usage increases both customer loyalty and the chances for purchase decision renewal.
  10. User experience – directly impacts adoption and user loyalty. When the product reached a certain critical mass you can call upon multiple ways of measuring UX: from the ratings on the various environments such as Google Play or Apple Store, to more complex indicators such as Net Promoter Score. However, in the beginning you should focus on measuring the UX with a more actionable and holistic solution such as Single Usability Metric.

Print it out and score each item.

Congratulations, now you have the first draft of a proper guideline to navigate through the indecisive, fast-paced transformations on your way to becoming a unicorn.

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