5 Tips for Startup Founders on Finding the “One Metric That Matters”

Legendary management guru Peter Drucker once claimed that “what gets measured gets managed.” Silicon Valley has taken this maxim to heart, spawning analytics tools like Optimizely, MixPanel, KissMetrics, and the ubiquitous Google Analytics. It’s never been easier to track all of the relevant metrics in your startup. What’s more difficult, however, is knowing which metrics actually ARE relevant, how to make those metrics grow, and how to make sense of the data you receive. Where should startup founders focus their limited attention and resources? What’s the one metric that matters? 

The answer to the question “what is the one metric that matters to startups” is usually: “well, it depends.” It depends on the stage of your startup. It depends on your priorities and available resources. It depends on the industry you are in and the type of company you’d like to become. And so on, until you are stuck in “analysis paralysis” and wish someone could just tell you what to do. 

Well, we’ve done just that. In search of guidance on this matter, we interviewed five startups to gain some key insights on how early stage founders can find the one metric that matters. 

Tip 1: Don’t delay questions about revenue

Lawn Love is a modern lawn care service founded by Jeremy Yamaguchi. Yamaguchi, a seasoned entrepreneur and Y Combinator alum advises an early focus on revenue. “Among the many early existential risks startups face, two of the most common are market risk and distribution risk. It’s possible that a market simply doesn’t exist for your product, or it exists but you’re entirely unable to access it.” Yamaguchi continues, “An early focus on revenue helps de-risk both of these questions, and the sooner you can do that, the better.”

I’ve seen many founders defer revenue until they think they have a ‘perfect’ product, and believe that’s nearly always a mistake. A focus on generating revenue not only answers questions around market and distribution, it also helps you build a better end product. Asking people to pay for something is one of the best tests of whether you’ve solved a true pain, and it’s these paying customers who care most about what you’re building and can help provide the feedback that informs your product direction.”

Tip 2: Talk to your users

Listia is a marketplace for free stuff: users can give away stuff they don’t need and get stuff they need in return. Listia founder Gee Chuang admitted that, in the early days of building Listia, it took a while to stumble upon the metric that mattered. The team was initially focused on the number of users, which is a common and easily tracked metric for most startups. However, over time, Chuang realized that “users who make a bid” was a much better metric to measure. 

These “users who make a bid” indicated that they had completed the onboarding process and knew how to use the platform. This, in turn, led to further engagement and increased use of Listia’s marketplace. Chuang advises startup founders that “the one metric that matters in the early days of a startup is typically similar, but not identical to, a metric you are already tracking. Analyze how users interact with and move through your product and talk to them closely. You’ll eventually figure it out.”

Tip 3: Qualitative Data can be crucial

Jared Heyman is the founder of the crowd-driven medical resource platform CrowdMed. Heyman asserted that, while it is important for founders to measure growth, it’s equally crucial to be aware of how one measures that growth. Typically, a founding team will measure their number of users, conversion rates, and engagement levels. However, it’s common to underestimate the importance of qualitative data when making decisions around metrics.

According to Heyman, founders should pay attention to and talk to their users with the same focus and intensity with which they are tracking other KPIs. In doing so, founding teams will be able to build a more complete picture of what’s happening with their early users and gain insights that would be unattainable from pure quantitative analysis. Having said that, qualitative analysis should not be viewed as being mutually exclusive from quantitative analysis, but rather a means of getting a deeper perspective on why users are making certain decisions and how to improve the product for their specific needs.

Heyman explains, “As a digital health application, the trust, safety, and anonymity of our patients are all just as important as growth — in fact they’re prerequisites. So in the early days we focused on credibility-building media hits to build trust, medical expert vetting to assure safety, and strict privacy policies to ensure patient anonymity. We eventually achieved impressive traction metrics as well, but had we focused on growth before assuring these qualitative goals were achieved, it would have been like constructing a building on quicksand.”

Tip 4: GMV is Key for Marketplaces

AptDeco is a marketplace founded by Reham Fagiri for buying and selling furniture.

According to Fagiri, a key metric in evaluating success in an early stage marketplace business is GMV, or Gross Merchandise Value. GMV refers to the total sales value of the merchandise sold over a marketplace platform over a given period of time. This metric alone will provide enough insight on the economic health of a marketplace business, when it is too soon to judge on the basis of metrics such as net revenue or profitability. For a growing startup, it is expected that the trend line for GMV should be going up and to the right.

Fagiri confirmed that the one metric she and her team intently watched since the inception of her company in 2013 was GMV. “When it comes to marketplace businesses, the one metric that matters is GMV growth. There are several metrics that will provide insight on the supply and demand of a marketplace, such as new listings added and product turnover. However, the metric that truly demonstrates the growth of your business throughout time is Gross Merchandise Value.” To glean the most insight from GMV, startups should set a reasonable target for a set time period and monitor the weekly performance trend of this metric against this target.

Tip 5: The “One Metric That Matters” will change

Led by founder Mike Del Ponte, Soma is an e-commerce business that sells beautifully designed and sustainable water filters and water bottles. We spoke with Growth Analyst Faisal Al-Khalidi about the growth metric that kept Soma on track to success.

Unlike our other interviews, in this instance we focused on the key metric that currently mattered most, as opposed to the one metric that mattered in the early days. For Soma, the current goal is to track a metric that is as close to revenue as possible, while giving them a simple lens for measuring sustainable growth.

Faisal elaborates, “the majority of Soma’s revenue comes from our water filter subscriptions. Hence, the metric we are measuring is active subscribers. We defined ‘active’ as a subscriber that has received a filter shipment in the last 90 days. Our definition of active subscribers is a good representation of value for both our customers and the company. Customers who remain on our filter subscription program is one measurement of satisfaction in our product.”

In recent months, Soma have ventured into new product lines. As such, they will be adjusting their “one metric that matters” to fit their new growth and traction goals.

Conclusion:

A key lesson that seemed to resonate with all of the founders we interviewed is that the “one metric that matters” will continuously change through the life of your startup. Founders should be aware that “the one metric that matters” is, in reality, “the one metric that matters RIGHT NOW.”

While it’s critical to identify and prioritize one specific metric to gain traction early on, it’s equally crucial to know when to move on and prioritize new metrics to push your venture forward. With luck, your “one metric that matters” will someday become “the metric that got us traction.”

Co-authors:

Rupali Shah: Twitter, Linkedin, Medium

Balaji Venkatesan: Twitter, Linkedin, Medium

Erica McAfee: Twitter, Linkedin, Medium

Amisha Paymaster: Linkedin