The metrics that matter for baby stage companies

You don’t ask a school kid “how much money you are making”. If you did, that would gui­de them to skip school and get the odd job they are qua­li­fied for wit­hout educa­tion. And that would be the end of their deve­lop­ment – they would be stuck with that for the rest of their lives.

What people nor­mal­ly do is ask about how kids are doing at school and what new did you learn today. If they keep lear­ning eve­ry day, by the time they are adults they are rea­dy to be wor­king and then “how much you are making” will be a rea­so­nable ques­tion to ask.

For grown up com­pa­nies, reve­nue growth, EBIT­DA, quick ratio etc KPIs the tra­di­tio­nal (and domi­nant) busi­ness lite­ra­tu­re (not to men­tion for­mer cor­po­ra­te execu­ti­ves) is full of, are per­fect­ly valid met­rics. But what about com­pa­nies who are still at school, i.e. startups?

By defi­ni­tion, a star­tup enters unc­har­ted ter­ri­to­ries and its job is to do explo­ra­tion so that it can draw a map. The success cri­te­ria for explo­ra­tion is – lear­ning. Fin­ding the answers to the unknown.

The results of lear­ning do not trans­la­te to reve­nue, pro­fit, growth etc then and the­re. So what hap­pens if success is mea­su­red as reve­nue growth, pro­fit etc? You get what you mea­su­re. Star­tups skip lear­ning and are trying to get the odd jobs they can, to get the ins­tant results. For­get­ting what their rea­son to exist is. Even­tual­ly, this may result in pre­ma­tu­re sca­ling – the #1 rea­son star­tups die. Pre­ten­ding to be an adult when one is not.

In star­tup world eve­ryt­hing is ext­re­me­ly con­text depen­dant. The con­text being your posi­tion on the lear­ning cur­ve – the “Star­tup J Cur­ve”. Like a kid growing from child to adult­hood, a star­tup is growing from a set of hypot­he­sis to real busi­ness. How its success is mea­su­red should reflect their place on that jour­ney. A concep­tual illustra­tion of that below.

As you get what you mea­su­re, knowing what is the mea­su­re­ment that mat­ters at each sta­ge on the way is crucial. You should unders­tand what is the indica­tor that gui­des you best given whe­re you are and whe­re you want to go next. You first need to vali­da­te that your plan works befo­re you start trac­king your per­for­mance against it.

The subtle art of surviving start-up life

You can never ful­ly con­vince someo­ne he is wrong, only rea­li­ty can” - Nas­sim Nic­ho­las Taleb

The ico­noclast aut­hors words ring eeri­ly true for most of us, who never seem to rea­li­se our own mor­ta­li­ty in the face of an ever inc­rea­sing amount of stress and workload.

Des­pi­te light war­nings and hints from (some) of my own inves­tors regar­ding my pace and lack of reco­ve­ry, I simply frow­ned and replied that I could take the heat. In my mind, only losers burnt out. 

I kept flying towards the sun with the con­fi­dence of Ica­rus, ful­ly con­vinced of my own invinci­bi­li­ty. Until I was not. 

Hemingway’s quo­te of how to end up in bank­ruptcy rang fami­liar. My per­so­nal demi­se had occur­red “gra­dual­ly, then suddenly.”

When bur­nout stri­kes, the war­ning signs can be subt­le. For my part it was hig­her blood pres­su­re and slee­ping problems. The day it final­ly hit me, chan­ged my life forever. 

Since that fate­ful day in May 2017 when I expe­rienced seve­re pain in my lower abdo­men and back com­bi­ned with a crippling anxie­ty I have left my com­pa­ny and spent almost 1,5 years in reco­ve­ry. The total time in pain and anxie­ty has been around 2,5 years. 

Is it pos­sible to take pre-emp­ti­ve measures?

As sta­ted qui­te bleakly in the begin­ning of this article it is dif­ficult, most­ly because of many foun­ders’ strong belief in their own invinci­bi­li­ty. For most, rea­li­ty will wake them up.

Howe­ver, I strongly belie­ve that it is not neces­sa­ry to repress fee­lings of pas­sion and dri­ve in order to stay away from bur­nout, but rat­her build “cus­hio­ning” around eve­ry­day life. Even small things will aggre­ga­te to great bene­fits over time. 

So what are the things one can do to build a robust defence to stress and pas­sio­na­te drive?

1. Medi­ta­tion - a prac­tice of medi­ta­tion has so many bene­fits it is almost inc­re­dible this is not recom­men­ded to all foun­ders. It is one of the most power­ful stress reducers whi­le at the same time brin­ging much cla­ri­ty to thin­king. Stay in bed eve­ry mor­ning for a 5-20 min medi­ta­tion befo­re doing anyt­hing else. Give your body a plea­sant wake up.

2. Do not bring your mobi­le to your bedroom - the mobi­le pho­ne is one of the worst things that has ente­red our lives in terms of sleep, if not the worst. The stress of noti­fica­tions, mail and blue light is a great destro­yer of res­to­ra­ti­ve sleep. Lea­ve your mobi­le out­si­de and never let it in. If you are concer­ned with waking up, buy a regu­lar alarm clock. 

3. Focus on good sleep. Accor­ding to Matt­hew Wal­ker (aut­hor of the bril­liant book Why we sleep, get it now) sleep is so power­ful it is actual­ly remar­kable how living orga­nisms ever woke up. It is the grea­test super­power we humans can have. It’s effects on health are just ridiculous. 

So, if you want to head straight to a bur­nout, plea­se avoid the tips abo­ve, otherwi­se, take care of your­self. This will lea­ve your inves­tors, clients, wife, girlfriend, dog, cat and abo­ve all your­self, much much much happier. 

Tomi Kau­ki­nen - Key­no­te spea­ker, serial ent­repre­neur, bur­nout sur­vi­vor - Licence to Fail  (

Doing only the things relevant at the stage you are at

What your to-do-list con­sists of, and what your met­rics for mea­su­ring progress should be, depend great­ly on the sta­ge (see article on sta­ges) you are at. If you spend ener­gy on a task that should not be on your prio­ri­ties, it is coun­ter­pro­duc­ti­ve. It can be even let­hal. No mat­ter how good or hard wor­king you are. 

Very few acti­vi­ties done in star­tups are inhe­rent­ly wrong. They might be exact­ly right – for someo­ne in a speci­fic situa­tion. But are they right for you, right now is the question.

A com­mon example of this is pre­ma­tu­re sca­ling  - the #1 cause of star­tup death. The acti­vi­ties being per­for­med can be exact­ly the right ones – for someo­ne who is rea­dy to sca­le. But if you are not, you may com­mit a suici­de as a result. 

A rela­ted topic is, what should be the key indica­tors of your progress. If you are in PMF sta­ge trying to mea­su­re Cus­to­mer Love, think what is a good proxy for that? You get what you mea­su­re, so pic­king the right indica­tors for each sta­ge is important. 

  1. Iden­ti­fy the sta­ge whe­re you are at and what should be on your to do list accordingly
  2. Iden­ti­fy the right indica­tor to mea­su­re your progress towards your next milestone

Shor­ta­ge of time is your big­gest obs­tacle - spend it wisely

Time is the big­gest shor­ta­ge star­tup has. So you need to spend your time doing right things at right time - otherwi­se you hours will be was­ted on doing somet­hing that could have been done on later date.

One of the les­sons I lear­ned whi­le ent­repre­neur was: You can spend your time doing things right (cor­po­ra­tion) or right things (star­tup) !

Bad Execution or Bad Assumptions ?

You have a plan, you execu­te but the results (such as sales) are not the­re. What’s the problem? Bad sales­guy, so fire him and hire a new one ins­tead? Or could the problem be a more fun­da­men­tal one: is your plan wrong, or more preci­se­ly, the assump­tions your plan is based on are wrong?

Result = plan x execu­tion. It’s not always obvious which one is wrong. Both could be. But for star­tups struggling with sales, the big­gest issue is typical­ly not about sales execu­tion (it might be subop­ti­mal, but not the root cause). It is like­ly to be a product/market fit issue. Or even more fun­da­men­tal, problem/solution fit issue. If the­re is no real oppor­tu­ni­ty, not even the best sales­guy can get a deal. 

In most cases, rat­her than rota­te through a num­ber of sales­per­sons, you should go back to your basic assump­tions about the mar­ket, cus­to­mers, their needs and expec­ted beha­viour. You pro­bably have mis­sed somet­hing. Learn from your expe­ri­ments, adjust and then try again. 

Experimenting vs implementing

Cor­po­ra­te way of thin­king: We care­ful­ly pre­pa­re a plan. Then we imple­ment it preci­se­ly. The results will be as sta­ted in the plan. Fai­lu­re is due to bad execution.

Star­tup way of thin­king: My plan is not real­ly a plan, it’s just a sum of my hypot­he­sis. For sure it will be wrong but I don’t know whe­re and how. I need to run lots of struc­tu­red expe­ri­ments to test my hypot­he­sis. When I have vali­da­ted my assump­tions, I may have a plan that is worth somet­hing. Fai­lu­re is due to not run­ning enough dif­fe­rent “tests” with customers.

Many star­tups beha­ve like cor­po­ra­tes in this regard, assu­ming their plan will work – just throw in money and people and voi­la. No. Be very awa­re that until you have vali­da­ted your assump­tions you do not have a plan. Then you can not be imple­men­ting a plan (read: sca­ling), all you can do is run experiments.

The result of an expe­ri­ment is to inc­rea­se your know­led­ge – does this work, Yes/No. The job of a star­tup is to run expe­ri­ments. A good star­tup learns a lot whi­le spen­ding very litt­le effort and money. A bad star­tup spends a lot and doesn’t learn much. Cost efficiency of your lear­ning should be a key objec­ti­ve whi­le in the expe­ri­men­tal pha­se (=all pha­ses befo­re sca­ling, by which time you should have a vali­da­ted plan you can just imple­ment). Cost efficiency of run­ning your ope­ra­tion should be your key objec­ti­ve once at the sca­ling phase. 

What are (G)OKRs ? - measure what matters

Most modern lite­ra­tu­re refers to just OKRs ( but I pre­fer adding Goals to it as well – as Mic­ro­soft did back in the 90´s. You need to have defi­ned a clear Goal first befo­re Objec­ti­ves makes sen­se. Anyway, the ope­ra­tio­nal stuff is cap­tu­red in the OKRs (wit­hout the G) so no need to split hair on seman­tics, both work.

The power of the OKR dri­ven ope­ra­tion is explai­ned well in ( If you google “mea­su­re what mat­ters” you find a lot of mate­rial, You­tu­be videos etc to give you a crash cour­se. Though the examples in the book are very big com­pa­nies, the met­hod works well for star­tups as well. Actual­ly they may be even more cri­tical for a star­tup, as “what mat­ters” is depen­dant on the sta­ge of the J Cur­ve you are at. As you make progress, “what mat­ters” should chan­ge. The thing to dri­ve your eve­ry­day acti­vi­ty is the Key Result. The name is a bit mis­lea­ding, it should rat­her be “Key Acti­vi­ty”, but this is the stan­dard term so we stick with it. 

How do I know if I have product/market fit ?

The­re are no strict rules for that as the who­le PMF concept is somew­hat abstract and vague. But the­re are (semi)objective ways to assess it. What exact­ly works is depen­ding on the con­text so you need to iden­ti­fy the rele­vant cri­te­ria for your case.  Howe­ver at the end it boils down to this (by Eric Ries) 

If you have to ask if you have found it, you haven’t.”

Some things to monitor/measure that are indica­tors of PMF (more preci­se­ly, the “cus­to­mer love” or “mar­ket pull” part of PMF):

  • A wide­ly used mea­su­re is pro­vi­ded by Sean Ellis, who coi­ned the term Growth Hac­king. He sta­tes you’­ve reac­hed Pro­duct/­Mar­ket-Fit when at least 40% of the res­pon­dents answer the ques­tion “How disap­poin­ted would you be if this pro­duct no lon­ger exis­ted tomor­row?” with “Very Disappointed”.
  • Is Word of Mouth hap­pe­ning? Are your cus­to­mers tel­ling about you to 3rd par­ties, with no invol­ve­ment from you, which results in win­ning new business?
  • Do you get inbound leads that you can not track back to your own activity?
  • Are cus­to­mers trying to buy befo­re you even tried to sell?
  • Are your sales cycles get­ting shorter?
  • Do cus­to­mer requests gene­ra­te so much workload that you have no time to pur­sue your own deve­lop­ment ideas?

Our own for­mu­la­tion of a lit­mus test to deter­mi­ne whet­her the­re might be PMF:

Pro­vi­de evi­dence of 3 sepa­ra­te mea­su­red tests of your cus­to­mer beha­viour that demon­stra­te your product/service is sig­ni­ficant­ly (=order of mag­ni­tu­de) bet­ter than the exis­ting solution. 

Pro­duct Mar­ket Fit is when cus­to­mers sell for you”.

Glim­mers of fal­se hope is not the same as cus­to­mers wan­ting to rip it out of your hands. Pro­duct Mar­ket fit feels like a land­mi­ne going off.” Peter Rein­hardt

The num­ber one problem I’ve seen for star­tups, is they don’t actual­ly have product/market fit when they think they do.”Alex Schultz

80% of SaaS com­pa­nies never make pro­duct mar­ket fit.” Peter Rein­hardt

Star­tups need 2–3 times lon­ger to vali­da­te their mar­ket than most foun­ders expect. This unde­res­ti­ma­tion crea­tes the pres­su­re to sca­le pre­ma­tu­re­ly.” (Star­tup Geno­me Stu­dy)

You are able to articu­la­te your dif­fe­rent problem/solution fit(s) in detail”.

Befo­re you can achie­ve product/market fit, you need to unders­tand and be able to articu­la­te your problem/solution fit(s) in detail - not in “gene­ric” level or in gene­ric terms (

Stages of startup development

A star­tup is like a new­born baby. The deve­lop­ment of a baby always fol­lows a cer­tain sequence: learn to eat, get the diges­tion sys­tem going, then craw­ling, wal­king, tal­king, run­ning, rea­ding, wri­ting etc. The first clo­se to 20 years of a human life are spent on just lear­ning the skills nee­ded to be a real, adult human being. And it always hap­pens in a cer­tain sequence.

You don’t expect a 2 year old to be able to run a marat­hon, nor a 2nd gra­der to apply for a university.

Star­tups do fol­low a simi­lar kind of a deve­lop­ment. But that is poor­ly unders­tood (or accep­ted), resul­ting in “2nd gra­ders trying to get into a Uni­ver­si­ty, with the help of a rich dad” – in star­tup par­lance known as “pre­ma­tu­re sca­ling” (usual­ly fuel­led by foie gras funding).

Human babies and star­tups ali­ke should focus on deve­lo­ping skills that kids of their age are meant to. Even Wun­der­kinds who have special skills and are fas­ter lear­ners than most have to fol­low the same sequence, they may just advance fas­ter. “The Star­tup J Cur­ve” by Howard Love defi­nes a 6 sta­ge deve­lop­ment process a star­tup has to go through, in sequence, to make it to the finish line. A brief sum­ma­ry of the sta­ges can be found here

Eve­ry star­tup should iden­ti­fy their place on that cur­ve, and unders­tand what should and SHOULD NOT be on their prio­ri­ty agen­da whi­le at that sta­ge. And when are they rea­dy to move to the next stage. 

One way to look at the sta­ges is as a star­tup Foun­der to do list:

  1. Pro­vi­de evi­dence that the­re is a real busi­ness oppor­tu­ni­ty with real problem worth to sol­ve. (problem/solution fit)
  2. Pro­vi­de evi­dence that a) you can build a pro­duct that does the job (pro­duct) b) you can find a mar­ket seg­ment that loves your pro­duct (mar­ket). (product/market fit)
  3. Pro­vi­de evi­dence that you can build mea­ning­ful busi­ness. (busi­ness model)
  4. Pro­vi­de evi­dence that your busi­ness is sca­lable. (rea­dy to scale) 

You should move to the next item on the list only when you have tic­ked the pre­vious off. And expect to do a lot of ite­ra­tions – one step forward, half a step back. Some­ti­mes all the way back to squa­re 1. 

How can I make sure I am ready to move to the scaling phase, to avoid the perils of premature scaling?

You must have a pro­duct that does the job – i.e. you must have found product/market fit (see a sepa­ra­te article on product/market fit).

You must have a busi­ness model that works – i.e. you have unit eco­no­mics that pro­duce a posi­ti­ve result, so that for eve­ry cycle the engi­ne of your busi­ness turns you earn money, rat­her than lose it. Only then does it make sen­se to rev up the engi­ne. (see a sepa­ra­te article on Busi­ness Model)

Some acid test type of ques­tions to veri­fy you real­ly are rea­dy to focus on just sca­ling your business:

  • You can make your busi­ness cashflow posi­ti­ve wit­hin the next 3 months
  • At least 1 of the 5 big­gest cus­to­mer deals have been comple­ted success­ful­ly wit­hout any invol­ve­ment of any of the founders.
  • You must have at least two non-foun­der team mem­bers gene­ra­ting more annual reve­nue than their all-in cost is to the company.
  • You must have at least one non-foun­der team mem­ber who is brin­ging in more reve­nue than the cus­to­mer-facing founder.
  • The Foun­der can switch her email off for 2 weeks and it causes no dent in revenue

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