You're listening to the founders Flint. Audible versions of essays from technology's most important leaders selected by the founder community. This is how VCs see your KPIs. Read by NFX. Most founders I meet with think they're data driven. In reality, few are. Everyone knows that KPIs are critical, but often founders are not looking at KPIs from the right angle. As a four time CEO, I had to learn early on how to choose KPIs based on goals that actually build companies.
Now as a VC, there are three questions I ask every founder I meet. Their responses speak volumes about their odds of success. Do you diligently track KPIs? What KPIs have you chosen to track? Have you set appropriate goals based on your KPIs? How I can tell if you're tracking KPIs? When I'm looking at a startup that has progressed beyond the seed stage, especially in the b 2 c space, I often ask the founder to send me their daily report.
If they don't have a daily report or tell me it's going to take a few days, the conversation's over. And if the founder is only tracking one number, that's a problem too. Unless the analysis around the number is something truly brilliant. The daily report is a good filter for Pete startups and also for most B2B companies. What I've seen your KPIs and goals? Real KPIs are specific, measurable, and actionable metrics that are consistently tracked preferably with a dashboard.
I'm a big fan of making KPIs as visible as possible when the time is right, like having big monitors with your KPIs to blade all over the office so everyone can see them. As an investor and former founder myself, this is what I'm always looking for. Unfortunately, it's all too easy to make mistakes in choosing and I often see founders making the same kinds of mistakes Pete, like tracking vanity metrics or no metrics at all.
It's equally tough to set the right goals based on those KPIs, and tracking towards the wrong goals can be even more counterproductive than failing to track anything at all. The KPI checklist. The thing about KPI is that they're harder than they first appear. Here are 10 guidelines I recommend to founder when they're developing their KPIs to ensure they are the right ones, the kind of KPIs that Beller startups break through and win. 1. Target the next step in the ladder of proof.
The KPIs you have should always aim to move you up in the next rung in the ladder of proof. A framework for whether your startup is venture fundable that my partner James Currier recently shared. The top priority of a startup changes at different points in its life cycle and so should its KPIs. It doesn't make sense to be tracking, for example, faraway proof points like indicators of revenues or gross margin when you're still trying to figure out early retention.
Focus on what's in front of you and choose KPIs that serve your next step in the ladder of proof. Once you climb to the next step, you can always switch your focus to the next important KPI. 2, few is better than many. Sometimes when I ask an early stage startup for KPIs, they'll have a long list of 20 metrics. This is way too many. When I get a list of 20 KPIs, I know that only a few can be really Morgan, and it tells me that the company probably isn't prioritizing the KPIs that matter most.
At any given point, everybody in the company needs to know which KPIs everyone else is focusing on. If you have too many, this simply won't be possible. 3. Be precise. I remembered talking to a marketplace company about their retention metric. The CEO had 7 day retention as a KPI, but when I asked him exactly what that meant and where he had defined it, He said it didn't need to be written down because everyone knew what it meant.
So I went and spoke to a mid level manager and asked him whether he thought the KPI meant retention of the cohort on the week starting with day 7 or on the week ending with day 7. I got conflicting answers, and it turned out that different people at the company had different understandings of that metric, This was obviously a big problem. And this is why it's so important to define your KPIs with extreme specificity so that everyone knows exactly what you're talking about.
Make sure that you use industry standards where they exist too. If you use your own version of a standard KPI, you'll lose a lot of points with investors when they find that out. 4, be measurable. You'd be shocked how many companies I talk to tell me their aiming to improve x, y, or z when I ask about KPIs. Directional indicators are not KPIs. Non measurable KPIs are worthless especially for startups, there's no room for fluff.
Unless a KPI can be quantified, measured, and tracked it's too vague to be useful. Improving retention is not a KPI. More website traffic is not a KPI. Be measurable in setting your goals. In general, KPIs should be quantified and you should be able to present their progress on a graph. 5. Break it down. High level cross company KPIs are hard for employees to translate into their day to day. Are your KPIs broken down into small enough pieces so they can be acted upon?
Break KPIs down into subsets that are relevant to each individual and or team. That way, each employee knows exactly what the responsibility is and how their work maps against the cross company KPIs. If you're ahead of customer success and the company KPIs are currently, get revenues to $10,000,000 to increase profitability to 25% What does that mean for you? The KPI needs to be connected to your everyday job.
Otherwise, the KPI is only useful for senior managers and not helpful to the organization as a whole. 6, be challenging. Everyone agrees that easy goals are useless. But KPI goals that are too easy aren't neutral. They're actively harmful. I've watched countless companies set their bars too low and lose motivation. KPI goals are meant to motivate. When they're too easy to accomplish, they demotivate the team. Motivation does not survive complacency. 7. Be realistic.
Although it's important to be challenging, setting KPI goals that are too daunting or unrealistic, can also demotivate. If the team doesn't believe they have a realistic shot at accomplishing the goal you set up, they'll quickly become demoralized. So setting the right KPI goals is a balancing act between making difficult and yet realistic. On the one extreme you risk complacency, on the other extreme, you risk demoralizing your team.
8, be time specific, Getting to $1,000,000 ARR in 6 months is a very difficult thing than getting to $1,000,000 ARR in 6 years. Think about it. Almost every KPI becomes a completely different thing depending on its time scale. Be time specific about your goals. 9, focus on action. Do your KPI goals lead to action? If you state a KPI goal, are people going to understand what they need to do to get there? Unless goals lead to action, they're just words.
KPI goals should have a clear path to action. 10. Benchmark against competitors. Your competitor's KPIs are a gold mine. You should be constantly searching for them. While I was at PlayTika, a company with a $4,400,000,000 exit, I remember being at the office of a big tech company and hearing that one of our competitors was seeing numbers on mobile that dwarfed our attention and monetization on desktop. We immediately switched our focus to mobile.
Had we not heard about those KPIs, we would have arrived to mobile a year or 2 late, and the company probably wouldn't have been as successful. Competitor KPIs can truly change your company, so keep looking for them everywhere. For more of these audio essays from the people who Beller companies like Instacart, Facebook, Trello, HubSpot, and Dropbox, visit founderslist.nfx.com, and subscribe to the podcast now streaming on all platforms.