There’s a great quote from management guru Peter Drucker that “if you can’t measure it, you can’t manage it.”
But what exactly do you measure? Users, clicks, click throughs, page views, churn? Obviously the key measurements in a mature business are revenues and profits but the key measurements in a VC-backed business revolve around growth, not necessarily revenue and rarely profits.
I find metrics to be a real struggle for many of my mentees, especially those early stage companies in a B2C market. Back in the last dot.com boom there was a frenzy of measuring “eyeballs” (page views). Today founders seem fixated on their number of users.
But as David Chang, who was an executive at Where.com, shared with me about his conversation with one of my MIT Venture Mentoring Service mentees:
I mentioned to him that the space [B2C mobile/social] is very tough to get initial traction and shared our experience at lWHERE/PayPal with him. Despite our 50M users on the WHERE network and later access to the 160M PayPal user base transaction data, the intersection and engagement with mobile users nearby was still sparse.
So what should a B2C startup measure? One good source of metrics is Snap’s IPO plan. Here are the metrics they plan to use according to the article Snap’s IPO Roadshow Message: We’re the Next Facebook, Not the Next Twitter in The Wall Street Journal by Maureen Farrell and Corrie Driebusch.
To that end, Snap’s IPO team plans to highlight metrics they believe show Mr. Spiegel can design breakthrough products that attract a loyal customer base.
One measure they plan to tout is the company’s daily active user rate, people familiar with the deal said. More than 150 million users access Snapchat at least once a day, the company has said in recent presentations, more than some recent estimates of Twitter’s daily active users. They also plan to highlight the roughly 25 to 30 minutes a day users spend on Snap, company executives said in these presentations. While Facebook has far more daily active users—1.18 billion in September—Snap plans to argue that a higher proportion of its users are in lucrative areas. Facebook’s U.S., Canadian and European users generate most of the company’s revenue but make up about one-third of its total user base. A much higher share of Snap’s users, around 73%, are concentrated in those regions.
So here are the metrics you can extract from the above paragraph:
- Number of users who access your app or web site per day.
- The amount of time users spend with your app or site each day.
- What percentage of your users are in the 18-to-34 demographic coveted by advertisers.
- What proportion of your users are in the most lucrative geographic areas
Of course there are virtually an infinite numbers of things to measure in a startup. Choosing the right ones to highlight to investors or your Board is critical: too many metrics and their eyes will glaze over, the wrong metrics and their eyes will wander.
Two metrics I encourage companies to present are the cost of customer acquisition: how many dollars are spent in marketing and sales to acquire a new user? And what is the lifetime value of a customer to the company? There’s plenty of good info on the web about how to calculate these metrics.
As I was finalizing this post in my head I happened to read this post by veteran VC Brad Feld on Medium: Get Your Metrics Together. Brad concludes
There are tens of thousands of words written on the web about SaaS metrics, consumer metrics, recurring revenue metrics, and all kinds of other metrics.
As part of getting your metrics together for 2017, I encourage you to go read some of these articles. And think hard about which metrics really matter and where the change in them will impact your business performance in 2017.
Mentorphile 