- The video discusses the importance of setting Key Performance Indicators (KPIs) and goals for early stage startups.
- KPIs are quantitative metrics that indicate the health of a business.
- Setting the right KPIs and goals helps determine if the startup is doing well or not.
- The primary metric should quantify the value delivered to customers and capture recurring or enduring value.
- A good primary metric should be a lagging indicator for success and usable as a feedback mechanism.
- Revenue and active users are the two main primary metrics to consider, with revenue being the preferred choice.
- Exceptions to using revenue or active users as the primary metric include biotech or hard tech businesses still in the early stages of product development.

- The primary metric for startups should be revenue, unless there are regulatory issues.
- If there are regulatory issues, the primary metric should be technical milestones to prove the effectiveness of the product.
- It is important to select a few secondary metrics to track alongside the primary metric for a comprehensive overview of the company's health.
- Startups should focus on growth and set weekly growth rate goals.
- Good startups typically have growth rates of 20-50% month over month, equivalent to 5-10% week over week.
- The goal should be defined based on the product and market, considering factors such as latent demand and time to acquire users.
- Startups should focus on organic growth and set exponential goals rather than linear goals.

- Choose a growth rate that you think you can hit and adjust it if necessary
- Set time-based goals and break them down into weekly targets
- Use metrics and goals as motivation by visualizing them and tracking progress
- Prioritize your time and focus on ideas that will have the biggest impact on meeting your goals
- If you don't hit your goals, understand why and overcome obstacles by talking to users
- Not hitting goals consistently may indicate the need to reevaluate your idea or approach
- Fill out the Startup School software to set and track your primary metric and goals
- Make it a habit to regularly fill out the software to improve your workflow and success.

The video emphasizes the importance of setting Key Performance Indicators (KPIs) and goals for early stage startups. The primary metric for startups should be revenue, unless there are regulatory issues, in which case technical milestones should be the primary metric. Startups should focus on growth and set weekly growth rate goals. It is important to select secondary metrics to track alongside the primary metric. Startups should prioritize their time and focus on ideas that will have the biggest impact on meeting their goals. Regularly tracking progress and adjusting goals if necessary is crucial for success.

YC Partner Adora Cheung covers the importance of defining and tracking KPIs to understand how effectively your startup is reaching your goals.  

Transcript and lecture slides here: https://www.ycombinator.com/library/6j-how-to-set-kpis-and-goals-sus-2019

This lecture is part of YC's Startup School, a free online program and global community of founders. Register and join the community at https://www.startupschool.org/

Timestamps
00:00 What is a Key Performance Indicator (KPI)?
00:39 Why do KPIs matter?
1:33 What are the right KPIs to set?
1:46 Setting your primary metric
2:22 What are the characteristics of a good primary metric?
5:32 The two best primary metrics
6:50 When should you consider active users as a metric?
9:20 KPIs for bio and hardtech businesses
11:15 Secondary metrics
12:56 The best KPI for an unlaunched company
13:55 Setting metric-based goals
15:20 How fast should I grow?
17:15 What does success look like for you?
17:40 Guidelines for defining a goal
19:45 How to pick a goal
20:44 Tracking Progress
21:18 Leveraging your primary goal
22:27 Using the Startup School weekly update

All right, so I am going to be talking about setting your KPIs and goals for early stage startups.

So I'm going to be pretty pedantic in this lecture, and the reason why is doing this correctly is a necessary condition for starting a successful or building a successful startup.

So the acronym KPI stands for Key Performance Indicator.

If you Google around for it, there are actually many definitions of what this actually means.

But for the purpose of today, for this context, I'm going to define it as a set of quantitative metrics that indicate how healthy your business is doing.

So this is important because obviously you should know what state your business is in at all times.

So setting the right KPIs and goals will objectively tell you if you're doing well, just okay, or bad.

So nothing keeps you more grounded, humbled, and realistic about where you are than a bunch of numbers.

Because if you interpret those numbers correctly, they don't lie.

It'll also act as a feedback mechanism for whether your current strategy like user acquisition, launching new features, and so on and so forth are actually working.

So if you do something and things go up, that's probably good.

If you do something and some things go down, that's probably bad.

And it will not only help you prioritize your time, but also course correct.

So it follows if you do this incorrectly, if you set your KPIs and goals incorrectly, you can direct your startup into a bunch of circles, or if you do it for too long, it will go onto the wrong path, it will lead to its unnecessary demise.

I'm gonna break this down into 2 pieces, primary metric and secondary metrics.

And most of today is gonna be focused on the primary metric.

So every week in startup school we've asked you in the software to fill out, to define your primary metric and then update its current value.

By definition you can only pick 1, 1 primary metric and as the metric if you if you had to you'd be willing to bet the whole company on.

It's a way to focus and keep things very simple.

If there's a way to get 90% of the job done with just 1 variable, that's better than having a bunch of variables that gets, let's say, 91% of the job done.

In this case, the job to get done is quickly determining how well your startup is doing.

So what are the characteristics of a good primary metric?

1, so your primary metric should quantify how much value you're delivering to your customer.

That is, you obviously want to build something that people want.

And users often indicate the value through either training you through money or time.

I pay you $100 to use your product, your software.

Active users using the product once a week or once a day, we call that weekly active user or daily active user, is a weaker but another good, decent indication of whether you're delivering value or not.

The second 1 here is your primary metric must capture whether your product has recurring or enduring value to your user, or it should anyway.

So for example, in a SaaS tool, most SaaS tools use MRR, monthly recurring revenue, as their primary metric.

I commit to forking over 100 bucks a month, continuously every month, because your product demonstrates to me every month that it has value to me.

Another example is if you're building an online digital daily newspaper, then obviously DAU, daily active user, is a good 1 because I expect to be delivering content to you that is valuable to you every single day.

The third 1 here is your primary metric should be a lagging indicator for success.

So a common trap that founders do to trick themselves is by picking a primary metric, let's say something like email signups, because 1, it's easy to move, but while it may eventually influence revenue or actual usage, it actually doesn't represent real value the best.

So the best indication is when the value has already been delivered, has already occurred.

So when someone has already forked over their time or money then to use it, then that is what a lagging, that's a definition of what a lagging indicator is.

So if revenue increases, it's because more customers have already paid for the product's value versus a potential customer who came to your site, gave you an email, and maybe they'll sign up 1 day or maybe they'll use your product 1 day to buy something.

And lastly, your primary metric should be usable as a feedback mechanism.

That is, it helps you prioritize strategies and make decisions quickly.

In a startup, 1 of the key things to being successful and getting past product market fit stage is to iterate very fast.

So while you want it to be a lagging indicator, You also don't want it to lag too much.

So for example, a lot of people pick MAU, monthly active user, but this is usually not a great metric because it takes time to understand the impact of movement, especially in a startup this early as in your startup.

And so many things can happen within a month.

And also, another reason why I don't like MAU generally is because if your user only comes back once a month, they only value something that you're building once a month, I really question actually if you're solving a real problem.

All right, so you may have guessed from me talking about these 4 characteristics of a primary metric that there are really 2 primary metrics to pick from.

Ideally, you're picking revenue because nothing tells you more about delivering real value than people forking over, handing over real hard earned dollars to you.

And even better is picking revenue that people keep giving you over and over and over again, like monthly recurring revenue, MRR.

It's the best test for whether people really want what you're making.

So, that being said, some people do pick revenue, but a common trap they fall into is that they don't actually get paid.

And usually I hear something to the variant of, oh, I'm gonna get these, I have these 1,000 users not paying me anything.

I just want to get their feedback and see how they're using the product and make it a little bit better.

And then eventually, I'll get them to pay.

Or the next 1,000 users, I'll get them to pay.

That's a trap because free users will give you different types of feedback than users who are actually paying you.

Paid users are just more serious about the product and hopefully will be more serious about giving you feedback.

All right, so what are reasons why, so Kevin in an early lecture said 99% of you should actually use revenue as your primary metric.

So what are reasons why you should consider active users?

So 1 main 1 is because building a large audience is actually a prerequisite to modernization.

So an example of this is if your business model is advertising based like a Facebook or Google, then yeah, you need millions and millions of users coming back to your site every day before you can actually get brands and people to buy ads.

And so in this case, active users is actually a reasonable proxy for revenue because eventually when your startup starts making money, it's usually just, revenue is just a multiple of your active users.

Another reason is also, but much, much more rare, is if you have very strong network effects.

That is, if you're like a marketplace that requires tons of users to just get the flywheel going and grow, then maybe that's a reason for you to focus on active users today versus revenue and then just do revenue later down the road.

Now, that being said, if you're using active users as a metric, it's important that you define user appropriately.

I hear often, I ask, OK, how many users do you have?

Sometimes to people, it means 100 users that just signed up and gave you an email.

Sometimes it means 100 users that signed up and started using your product and come back every day for about 10 minutes a day, which is by far much better than just people just like diddle-daddling on your site, right?

So You really need to get that definition correctly and don't trick yourself by just saying users and having a really easy definition of users.

Another example of users where it's not exactly users is if you're in a marketplace and There are 2 types of customers, there are 2 types of users.

You have not just the guests, but you also have the hosts.

Well, you pick a value that actually represents them both getting value.

So in Airbnb's case, it would be nights booked, right?

And so an example of a primary metric you could pick there is weekly trips, Okay?

All right, so there are always exceptions to the rules and there is 1 exception in which your primary metric is neither revenue or active users.

And that is if you run a biotech, a hard tech business, and you're still trying to figure out whether the science or tech is actually going to work.

And another definition of this is, for a biotech, hard tech business, is it often takes a lot of time and money to get your first product to market.

So what's a founder to do, especially if you have little funding?

1 is if there are no regulatory issues to doing sales pre-product, you should actually do the same as everyone else.

Your primary metric should be revenue in the form of paid contracts, LOIs, POCs, proof of contracts, proof that if you build it, they will actually come.

Now, if you are in a space with regulatory issues, meaning you can't sell it at all, without having to go through like FDA or some kind of body like that, then your primary metric is actually less quantitative per se, and more of a binary thing.

So it's about figuring out the technical milestones that you need to demonstrate to mitigate the risk of whether the drug or tech is working.

So if you have to think about experience to prove this out, you can ask a question Like, what are the minimal things I need to do to truly answer the question of whether this works or not?

So if you fall into this category, I urge you to actually just go watch these 2 lectures.

They're actually fireside chats I did last startup school with Elizabeth and Eric.

Elizabeth is an expert in biotech and Eric is an expert in hard tech and they actually go through deep, deep, deep dive into how do you think about your goals and how do you think about your milestones and what metrics to actually track.

All right, so people have referred to the primary metric as a North Star metric, and I actually don't like the term North Star because it kind of, people have interpreted it as something you just focus on this 1 metric and then ignore everything else.

But like I said earlier, there's no metric that actually tells 100% of the story.

And so sometimes founders fool themselves by literally only tracking their primary metric and nothing else.

So a common example is just looking at user growth and just ignoring retention completely.

But retention is obviously just as important to user growth as is new user acquisition.

So 1 suggestion I have is to select a set of 3 to 5 other metrics, secondary metrics to pair with your primary metric.

This gives you a good 360 degree overview of the health of your company.

So there are a ton to choose from, so many to choose from.

What you choose is actually very dependent on your business.

Next week we're going to have 2 lectures on these sorts of metrics for consumer.

I'll be giving 1 on consumer startups and another YC partner I knew will be giving 1 on B2B companies.

And so we'll deep dive into these metrics next week.

The key here though is just picking a few, right?

You don't wanna boil the ocean and pick everything.

It's totally fine to track all this kind of stuff, but it's really not a good idea to optimize too many at once.

You'll really just suffer from analysis paralysis.

All right, so a common question I have when I say, you should, what is your primary metric that you should set 1 is, well, what if I haven't launched yet?

Well, obviously metrics don't matter if you don't know what the problem you're solving is, you don't even know who your customer is yet, you should really just focus on that first.

You'd be really putting the cart before the horse by worrying too much about this kind of stuff.

That said, once you get to the point where you're building the product, it's really a good idea to get this down, even if you haven't launched yet.

By at least defining your primary metric, you'll be able to think about who your user really is.

You get everyone on the same page on who you're targeting, and even you can use the metrics and goals to hypothesize on how you might get your first few users.

And trust me, nothing is more motivating than staring down the barrel of 0 users and 0 dollars of revenue for weeks on end.

You're gonna get very antsy about launching very quickly and that's actually the effect you want.

All right, so I'm gonna go into how do you set goals for your primary metric for your KPIs.

So, Paul Graham actually wrote a great essay a few years ago called Startup Equals Growth, and it explains why startups should focus on growth, and I really urge you to go read it.

And this section of this lecture draws a lot of insights from it.

The goal of your startup is to grow your primary metric.

It proves that you're making something lots of people want.

And second, it proves you're making something that has a possibility of reaching and serving all those people.

Each week, your goal should actually be to set a weekly growth rate.

Now we use weekly increments because startups early on need frequent feedback from their users to tweak what they're doing.

But also we use weekly growth rate because it helps to divide up the progress you need into doable chunks.

So say your goal in a couple of months is to get 10,000 daily active users, which requires growing new users, let's say, 10% week over week.

To grow 10% this week may amount to actually just getting 100 new users, which is a different problem to solve than trying to get 10,000 new users, right?

You should be focusing on what's directly ahead of you in that week, do things that don't scale today if that's actually the best way to get those 100 users and don't worry about the eventual goal of 10,000 too soon.

So naturally the next question is, how fast should a bank grow?

Well, there's no good formula, there's no right formula for this, but 1 angle that we could tackle it from is looking at good startups and seeing how fast they were growing in the beginning stages of their life.

So I actually went back and I looked at the good startups who pitched in recent YC demo days.

So these, if you think about these startups, they were 3 months prior, they were all in the phase that you are probably in today.

And it turns out the growth rates ranged anywhere from 20 to 200% month over month, but clustered more closely to 20 to 50% month over month.

Once you back up, back it out, it amounts to about 5 to 10% week over week.

And so this chart, just to explain it real quickly, the left-hand column is the weekly growth rate, and then these are the equivalents that you need to grow by month, and then what the multiple is by year.

So this is actually in line, if you read that essay, PG wrote a few years ago, which he said, a good growth rate during YC is 5 to 7% a week.

If you can hit 10% a week, you're doing exceptionally well.

And so this is the green area which we've seen consistently actually in the recent batches of YC.

So growth is a little hard to grok, but if you look at this chart, you'll see that how small variations in weekly growth rates can make a huge difference on the monthly and yearly time horizon.

You also get the sense that to get big fast, it actually seems doable if you have something people want.

On the flip side, if you only manage 1% weekly growth, it's a sign you haven't figured out things yet.

It doesn't mean that you have a horrible business.

You can run a great small profitable business growing 1% week over week, but it's not a good sign that you have a startup with a billion dollar potential.

So you should think about that trade off there and what you really want out of your business if you're growing at that rate.

That said, the main thing in terms of setting your goals is to think for yourself.

Is to define your own goal based on not what others are doing, but what you think is ambitious and achievable based on the product you're building.

So you know your users and business better than everyone else.

And what does being on track look like to you?

So here are some general guidelines when defining a goal.

All right, First, if you're solving a real problem in a large market, then that means there's a ton of latent demand out there.

People would use just about anything to use your product, even if it's half broken, half baked, or just solves a bit of their problem, which means that Startups usually have fast initial growth.

So if you have a ton of users and a ton of revenue, you will probably know that at that volume, as a volume increases, what you need every week to grow gets harder over time.

So again, most startups, they grow very quickly, and then over some time, the growth rate kind of slows down a little bit.

So when you're trying to set your goal, you need to consider how long it takes to acquire a user and make a sale.

So For a consumer startup, generally you have an app or a website.

I show up to it, I look at it, I see if I want it, and then if I do, bam, I buy it or I sign up for it.

For an enterprise startup, you're actually probably going through some red tape.

You have a bunch of stakeholders you have to deal with, you can show up to the company and they're not going to be able to buy it right away because you're maybe not even talking to the right person.

It might take some months to actually get your first sale.

Over time, this time to sale should actually decrease over time.

Like good enterprise startups, that time to sale goes from months to hopefully days, if not hours.

And so it shouldn't impact your growth rate in the future, but in the near term it actually might.

Third is you really want to focus on organic versus paid users, or paid growth in the beginning.

Organic means they discover it through word of mouth.

Basically you're not paying for the user, they kind of just may be searching for it and using it themselves.

I think in the early days, using paid users is actually cheating growth, and you should avoid it as much as possible.

And finally, because your startup, startups equals growth, you should focus on exponential goals and not linear goals.

All right, so in terms of picking the goals, I think there's 2 ways to do it.

1, you can just pick a growth rate, and then pick a growth rate that you think you can hit, and if you hit it, great, you probably should change it if you're hitting it consistently to something higher.

If you're not hitting it, then you should be a little bit alarmed and you should figure out why.

Another way to do it is time box an absolute goal.

So what I mean by for that is, say for the purpose of startup school, at the end of startup school, how many active users or how much revenue do you want to have?

What would something meaningful look like at the end of 10 weeks?

Then go back out your weekly growth rate and then go week to week, figuring out the obstacles and how you should hit that weekly goal.

In the beginning, if you're somewhere close to 0 users today, often you'll get something higher if you do this method than 5 to 7% week over week.

So metrics and goals obviously don't mean anything if you don't leverage them.

So 1 way to do this is get a piece of paper, draw a forward-looking graph of what the growth you want to hit in the next 10 weeks, print it out, and put it everywhere.

Put it on top of your desk, put it on the bathroom mirror, put it on the fridge, and update once a week.

This is in fact what the Airbnb founders did in the beginning.

If they did not, then that's all they would talk about.

And so I would follow something like this.

Now you want to leverage your prior metric and goal to help you prioritize your time week over week.

So week to week you should be stack ranking all the ideas you have of how to grow it and make a good guess on what's going to have the biggest impact for the next week to meeting your goal and then choose accordingly.

Occasionally you won't hit your goal for the week.

We can dream that our growth will be flawless and look like this, but in reality in the beginning it always looks something like this.

It's okay if you don't hit your goal 1 or even 2 weeks in a row, as long as you understand why.

You should be always asking yourself, what is the biggest obstacle in my way of hitting my weekly target?

How do I overcome this and be obsessive of this?

If you don't know the answer, then the answer is go talk to more users and don't spin in circles trying to figure it out yourself.

A good startup idea will keep growing at some point.

So not hitting your weekly targets week on end will maybe just help inform you you're not working on the right thing or even the right idea.

Finally, to end, as you already know, our Startup School software asks you to set your primary metric and goals.

It is important to be honest about where you are.

And 1 of the best ways to do that is to fill this out every week.

We've given you the software to do this very easily.

It is for you to use and get in the habit of doing it.

We hope you fill this out throughout the course and moving forward, even after the course, you keep doing it.

I guarantee you if you're not already doing this, just adding this 1 simple thing to your workflow is going to help you

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Adora Cheung - How to Set KPIs and Goals