What are the best types of primary metrics for a startup?

The best primary metrics are revenue or active users. Revenue is ideal as it directly shows customers valuing your product with their money. If revenue isn't immediately feasible (e.g., ad-based models), then well-defined active users, indicating repeat engagement, can be used.

When should a biotech or hard tech startup use a different primary metric?

For biotech or hard tech startups still proving the core science or technology, metrics might focus on binary technical milestones and demonstrating feasibility rather than immediate revenue or active users, especially if regulatory issues prevent sales.

How important are secondary metrics alongside a primary metric?

Secondary metrics are crucial for a 360-degree view of company health. While the primary metric offers focus, 3-5 secondary metrics help you avoid misinterpreting data or overlooking other critical areas like retention if you only track growth.

What is a good weekly growth rate for an early-stage startup?

Good startups often grow between 5-10% week-over-week. Hitting 10% weekly growth is exceptional. Below 1% weekly growth might indicate that the startup hasn't yet found product-market fit or is not addressing a significant problem.

How should startups set their growth goals?

Set goals based on what's ambitious yet achievable for your specific product and market. You can either set a target growth rate (e.g., 5-10% weekly) and adjust as you hit it, or set an absolute target (e.g., X users by Y date) and work backward to determine your weekly growth rate.

What if my startup hasn't launched yet? Should I worry about KPIs?

Before launching, focus on identifying your problem and customer. Once you're building the product, defining a primary metric helps align your team, hypothesize on user acquisition, and creates urgency to launch.

How can I effectively track my startup's progress towards goals?

Make your goals visible by drawing and updating a forward-looking graph weekly, placing it where you'll see it often. Use this visual progress to prioritize your time each week by focusing on the ideas with the biggest anticipated impact.

Key Moments

Adora Cheung - How to Set KPIs and Goals

Y Combinator

Science & Technology4 min read24 min video

Aug 1, 2019|199,616 views|3,503|58

YC Y Combinator startup school

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Key Moments

TL;DR

Set one primary metric (revenue or active users) that quantifies customer value and use secondary metrics for a holistic view.

Key Insights

Define a single primary metric that objectively indicates business health and guides strategic decisions.

A good primary metric quantifies customer value, has recurring value, is a lagging indicator, and acts as a feedback mechanism.

Revenue, especially Monthly Recurring Revenue (MRR), is generally the best primary metric, but active users can be appropriate in specific cases.

Use 3-5 secondary metrics to provide a comprehensive understanding of business performance beyond the primary metric.

Set weekly growth rate goals for your primary metric, aiming for 5-10% week-over-week, and adjust based on performance.

Regularly track progress against goals, analyze why targets are missed, and use this data to prioritize actions and iterate.

UNDERSTANDING KEY PERFORMANCE INDICATORS

Key Performance Indicators (KPIs) are crucial quantitative metrics that objectively measure a startup's health and progress. They serve as a grounded reality check, preventing founders from operating under false assumptions. By correctly interpreting these numbers, businesses gain a clear understanding of their performance, enabling strategic adjustments and prioritizing efforts. Incorrectly set KPIs can lead a startup astray, causing wasted time and an eventual demise. Therefore, meticulous attention to defining and tracking the right metrics is paramount for startup success.

THE SINGULAR FOCUS OF A PRIMARY METRIC

Every startup should identify a single primary metric, defining it as the metric on which the entire company's success hinges. This singular focus simplifies decision-making and maximizes efficiency, ensuring that efforts are concentrated on the most critical indicator of business health. The goal is to achieve 90% of the necessary insight with one variable, rather than diluting focus across multiple less impactful metrics. This approach is vital for quickly and accurately assessing the company's standing and overall trajectory.

CHARACTERISTICS OF AN EFFECTIVE PRIMARY METRIC

A strong primary metric must possess four key characteristics. Firstly, it should quantify the value delivered to customers, often indicated by their willingness to spend money or time. Secondly, it needs to reflect recurring or enduring value, demonstrating that customers continuously find benefit in the product or service over time. Thirdly, it should act as a lagging indicator, confirming that value has already been delivered, rather than a leading indicator like sign-ups which are speculative. Finally, the metric must be usable as a feedback mechanism, allowing for rapid iteration and decision-making.

REVENUE VS. ACTIVE USERS AS PRIMARY METRICS

Ideally, revenue serves as the best primary metric, as customer willingness to pay directly signifies delivered value. Monthly Recurring Revenue (MRR) is particularly strong, indicating sustained customer commitment. However, active users can be a viable primary metric when building a large audience is a prerequisite for monetization, such as in ad-based models, or when strong network effects are critical. In these cases, active users serve as a proxy for potential revenue. It's crucial to clearly define 'active user' to avoid self-deception.

NAVIGATING EXCEPTIONS AND SECONDARY METRICS

While revenue and active users are standard, exceptions exist, particularly for biotech or hard-tech businesses in early R&D stages. For these, metrics might focus on technical milestones if sales are impossible due to regulations. Beyond the primary metric, a set of 3-5 secondary metrics is essential for a comprehensive 360-degree view of business health. These 'North Star' supporting metrics offer additional context and prevent over-focus on a single indicator, providing a more holistic understanding of performance.

SETTING AMBITIOUS AND ACHIEVABLE GOALS

The fundamental goal of a startup is growth, measured by its primary metric. This growth not only validates demand but also capacity to serve a large market. Weekly growth rate goals, typically 5-10% week-over-week, are recommended for frequent feedback and manageable progress. Setting goals requires considering market size, sales cycle length (which should decrease over time), and prioritizing organic growth over paid in early stages. Goals should be ambitious yet achievable, reflecting confidence in the product and market.

TRACKING PROGRESS AND ITERATING EFFECTIVELY

Leveraging metrics and goals requires diligent tracking and analysis. Visualizing desired growth and updating progress weekly acts as a powerful motivational tool, as seen in Airbnb's early strategy. Weekly targets help prioritize efforts, focusing on initiatives with the greatest potential impact. It is normal to occasionally miss targets; the key is to understand why, identify obstacles, and seek user feedback for course correction. Persistent failure to meet goals may indicate a need to re-evaluate the core idea or strategy.

INSTILLING THE HABIT OF METRIC TRACKING

Consistent tracking and honest reporting of primary metrics and goals are critical. Utilizing platforms like Startup School's software can simplify this process. Developing a regular habit of updating these metrics, even after formal programs conclude, is invaluable. This practice provides continuous feedback, drives focus, and dramatically improves a startup's ability to navigate challenges and achieve sustained growth. It shifts the focus from abstract ideas to concrete, measurable progress.

Mentioned in This Episode

●Software & Apps

●Companies

●Organizations

●Books

●People Referenced

Startup KPI and Goal Setting Cheat Sheet

Practical takeaways from this episode

Do This

Define ONE primary metric that quantifies customer value, recurring value, is a lagging indicator, and usable as a feedback mechanism.

Prioritize revenue as your primary metric if possible.

If using active users, clearly define what constitutes an 'active user'.

For marketplaces, pick a metric representing value for both sides (e.g., nights booked, weekly trips).

For biotech/hard tech, focus on technical milestones if regulatory hurdles exist.

Select 3-5 secondary metrics to provide a 360-degree view of company health.

Set weekly growth rate goals, focusing on achievable chunks (e.g., 5-10% week-over-week).

Consider time to sell (consumer vs. enterprise) when setting goals.

Focus on organic growth initially; avoid paid growth if possible.

Set exponential goals, not linear ones.

Use time-boxed absolute goals to work backward to weekly growth rates.

Make progress visible: track and update graphs weekly.

Stack-rank ideas weekly based on potential impact on your goal.

Regularly analyze obstacles to hitting weekly targets and talk to users if stuck.

Be honest about your metrics and fill out reporting software weekly.

Avoid This

Do not pick more than one primary metric.

Avoid metrics like email signups that are leading indicators and easy to manipulate.

Do not use MAU (Monthly Active User) as a primary metric if users only engage once a month.

Do not fall into the trap of offering free services expecting later payment; get paid upfront.

Do not define 'users' too loosely (e.g., just email signups).

Don't 'North Star' a single metric to the exclusion of all else.

Do not track too many metrics (avoid analysis paralysis).

Don't worry about KPIs before identifying your problem and customer.

Do not focus on the long-term goal (e.g., 10,000 users) too early; focus on the immediate weekly goal.

Do not rely solely on paid users in the early stages; it can 'cheat' growth.

Do not set linear goals; aim for exponential growth.

Do not ignore missed goals; understand the 'why' and the biggest obstacle.

Do not spin your wheels if you don't know the answer; talk to users.

Weekly Growth Rate Equivalents

Data extracted from this episode

Weekly Growth Rate	Monthly Growth Rate	Yearly Growth Multiple
1%	4.7%	3.7x
5%	21.4%	12.7x
7%	31.0%	24.0x
10%	47.0%	59.0x
20%	100%	1,170x
50%	340%	57,000x
100%	900%	1,000,000x

Common Questions

A KPI is a quantitative metric that indicates how healthy your business is. For startups, the primary KPI is a single, crucial metric that you'd bet the company on, indicating how much value you're delivering to customers.

Topics

Goal Setting Business & Entrepreneurship Product-market Fit Startup Strategy Startup Growth Career & Skills Key Performance Indicators Metric Selection Business Metrics

Mentioned in this video

Companies

Uber

Mentioned as a marketplace example with two user types (riders and drivers), suggesting 'weekly trips' as a potential primary metric.

Google

Mentioned as an example of an advertising-based business that requires a large user base for monetization, making 'active users' a relevant primary metric.

Airbnb

A company mentioned as an example of a marketplace with two user types (guests and hosts), where 'nights booked' is a good primary metric. Also cited for its founders tracking progress on a graph and discussing it when goals were missed.

Facebook

Used as an example of a business model that is advertising-based, requiring a large user base before monetization can occur, thus justifying 'active users' as a primary metric in such cases.

Software & Apps

Startup School

A platform or program where founders are asked to define and update their primary metric and goals weekly. The speaker emphasizes its importance for founders' tracking and habit formation.

Books

Startup Equals Growth

An essay by Paul Graham that explains the fundamental importance of growth for startups, arguing that it is the primary indicator of making something many people want and can reach.

Organizations

FDA

The Food and Drug Administration, mentioned in the context of regulatory issues for biotech and hard tech businesses, which can prevent selling products without approval.

People

Paul Graham

Author of the essay 'Startup Equals Growth', which advocates for startups focusing on growth. His insights are used to explain why startups should prioritize growing their primary metric.

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