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.

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) !

What are (G)OKRs ? - measure what matters

Most modern lite­ra­tu­re refers to just OKRs (https://www.perdoo.com/the-ultimate-okr-guide/) 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 (https://www.amazon.com/Measure-What-Matters-Google-Foundation/dp/0525536221). 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.

Doing it in big scale or scaling ?

Sca­ling is a star­tup mant­ra and obses­sion. Financiers and inves­tors - public and pri­va­te ali­ke - push star­tups to sca­le.

New­born star­tups talk about sca­ling and mea­su­re them­sel­ves on sca­le sta­ge quan­ti­ta­ti­ve met­rics, like growth, MRR etc.

But doing things in a big sca­le is not sca­ling. Trying to force busi­ness by spen­ding money, hiring more sales­people and inc­rea­sing num­ber both inbound and out­bound actions is not sca­ling.

Sca­ling means clo­ning a concept that has been pro­ven to work, both tech­nical­ly and com­mercial­ly, in volu­me.

If your com­pa­ny does not have a concept that can be clo­ned, igno­re this at your peril.

Gorilla Capital Management Oy

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