Lecture, Fireside Chat
Adora Cheung - How to Set KPIs and Goals
- Incorrectly setting Key Performance Indicators (KPIs) or goals is predicted to direct startups onto the wrong path leading to demise, whereas correctly setting them serves as an objective feedback mechanism for strategy validation, prioritization, and course correction.
- The primary metric should be a single lagging indicator representing value already delivered, with revenue (specifically Monthly Recurring Revenue) identified as the strongest metric for most consumer startups, while User Acquisition and Active Users (WAU/DAU) are considered weaker or suitable only for specific models like advertising or strong network effects.
- Email signups, Monthly Active Users (MAU), and free user metrics are predicted to be traps for primary metrics due to their ease of movement, slow feedback loops, or lack of correlation with real value, whereas paid users provide more serious feedback.
- Exceptions to the revenue rule include two-sided marketplaces (where metrics must represent value for both sides, e.g., nights booked), biotech/hard tech (focusing on technical milestones or binary regulatory approval), and early-stage product-market fit validation where specific "if you build it, they will come" contracts are needed.
- A "North Star" metric is warned against if it implies ignoring other factors; instead, founders are advised to select three to five secondary metrics to provide a 360-degree view without causing analysis paralysis.
- Growth targets are expected to be exponential rather than linear, with 5% to 7% week-over-week growth considered good during early-stage programs and 10% exceptional, while 1% indicates a lack of product-market fit.
- Historical data from recent YC demo days shows monthly growth rates clustering between 20% and 50% (approximately 5% to 10% weekly), though founders are urged to set ambitious, achievable goals specific to their product rather than mimicking others.
- Goal-setting methodologies include picking a specific weekly growth rate or time-boxing an absolute goal for the end of a course (e.g., 10 weeks) and working backward, with the prediction that starting from zero often yields higher initial growth rates.
- Founders are expected to visually track forward-looking growth graphs for the next 10 weeks, stack-rank ideas weekly by potential impact, and treat missing targets as a signal to either understand the cause or pivot to the right problem.
- Metrics are defined as irrelevant before product launch or problem definition, but become critical once building begins to define the user, align the team, and motivate the launch by highlighting the gap between zero users/revenue and targets.
- Initial growth strategies should focus on organic users rather than paid acquisition, with the expectation that sales cycles for enterprise startups will shorten from months to days or hours over time as the business scales.
- The upcoming week features two specific lectures on these topics: one on consumer startups by the speaker and another on B2B companies by a YC partner.