Igniting Startup Success: The Power of Leading and Lagging Indicators for Effective Growth Strategies.

Studies suggest that organizations that track and act upon leading indicators are 50% more likely to achieve their sales and marketing goals. Another survey revealed that 72% of executives consider lagging indicators as critical metrics for evaluating the success of their strategic initiatives.

Most startups follow these categories to review their metrics, but are they categorizing each correctly? That's the trick with this approach. You can only put many of them in the correct category if you ask yourself and your leader key questions. Although this is not the only way to categorize them, it is the most popular startup metrics lens that helps to reflect an aspirational company's growth.

Let's bring everyone on the same page here with a short definition of what these two mean:

• Leading indicators are metrics that predict future success. For example, the number of new customers you sign up for monthly indicates your future revenue.
• Lagging indicators, on the other hand, measure past performance. For example, the revenue you generated last quarter is a lagging indicator.

Drawing a line between some of them is difficult, especially if you have more than 100 metrics on the list that include metrics from multiple parts of the company, including product adoption, financials, and GTM operations. However, if you take a broader approach, you should realize how quickly that list fills up.

Many of us working in startups ask ourselves, "Which metrics should I start tracking first?". Of course, the answer depends on the company's maturity phase and size (I'm trying to focus on a general guide, not one size fits all approach).

Leading and lagging indicators are essential, but leading indicators are more helpful in making decisions about the future of your startup. Well, that's a half-truth but a prevalent point of view on the market just because most startup management thinks that more acquired customers equal more revenue. That makes sense, but that works only if you know how to scale your business and have your business intelligence in place.

From the leading indicators perspective, if your new customers are declining, you can address the issue before it hurts your revenue. You get these signals in all types of volumes, from responses to marketing campaigns, your SDR volume of calls, meetings, and early-stage pipeline conversion rates. You don't need to wait until you realize you can't close enough deals, limiting yourself to a short adjustment period. If you have more time to change direction, your spectrum of actions widens, whereas a short period gives you only a few options (often none) for corrective actions.

However, that is only relevant for companies already figuring out how to retain customers and associated revenue. I'd suggest Series A & B companies figure out lagging indicators first. You're not ready to scale effectively if you cannot prove your product's indispensability and revenue retention. This also means that your product strategy must improve, and your team must dig deeper into the underlying dimensions that drive that perception, customer behavior, product adoption, use cases that customer follows, etc. If your customer retention stays below 80% or you have a few customers you cannot afford to lose, you should figure out lagging indicators first. Otherwise, you may spend your business capacity in areas that will yield a different return.

Let's run this through a hypothetical fintech example company neglecting to set this right:?

1. Leading indicators:

• Number of New Customers: A failing fintech startup might need help with consistently low or declining numbers of new customer sign-ups, indicating a problem with attracting and converting prospects. This goes through variations of new prospects, new qualified pipeline, number of deals in negotiations, etc.
• Website Traffic: Monitoring website traffic can indicate the effectiveness of marketing efforts and brand visibility. In a failing fintech company, a significant decline in website traffic might suggest a lack of interest or awareness in the market, potentially indicating a need to revamp marketing strategies or improve the website's user experience.
• Social Media Engagement: Measuring social media engagement metrics like likes, shares, comments, and followers can provide insights into brand awareness, customer engagement, and market perception. A failing fintech company might experience minimal social media engagement, indicating a disconnect with the target audience or ineffective content strategies.
• Early Pipeline Conversion Rate: Tracking the conversion rate of early-stage leads in the sales pipeline can be a leading indicator of future revenue generation. Suppose a failing fintech company consistently needs to improve with low conversion rates in the early stages of the sales process. In that case, it may indicate issues with lead qualification, product-market fit, or ineffective sales strategies.
• Employee Satisfaction: Monitoring employee satisfaction levels through surveys or feedback can be a leading indicator of organizational health and performance. Low employee satisfaction in a failing fintech company could lead to higher turnover rates, decreased productivity, and negative impacts on customer service and company culture.

These are not an exhausting list of metrics and often have a second or third dimension that you must drill down for further insight. To mention a few: sales, marketing, partner-sourced leads, unqualified vs. qualified pipeline and conversion, time to sell from each stage, etc. This list is extended for a reason.?

2. Lagging indicators:

• Revenue Growth: A fintech company should have closely monitored revenue growth, leading to a decline in customer acquisition and revenue generation.
• Assets Under Management (AUM): Neglecting AUM prevented ABC Fintech from understanding the overall value of managing client assets, hindering its ability to make informed decisions.
• Return on Investment (ROI): Poor ROI tracking resulted in uninformed investment decisions, negatively impacting the company's financial performance.
• Customer Retention Rate: Ignoring customer retention rates led to a decline in customer satisfaction and loyalty, causing the loss of valuable customers to competitors.
• Net Profit Margin: Failing to assess the net profit margin prevented a company from identifying areas of inefficiency and low-profit product lines, impacting overall profitability.
• Employee Turnover Impact: A fintech did not recognize the negative impact of high employee turnover. Losing talented employees affected productivity, knowledge transfer, and morale, leading to a disruption in operations and the potential loss of clients.
• Time to Market: The fintech startup needed help to track the time it took to bring new products or features to the market. Delays in product launches resulted in missed opportunities and allowed competitors to gain a competitive advantage.

That list needs to be more exhaustive and could indicate corrective actions. We can include NPS, LTV, Product Adoption Rate, Customer Health Score, CSAT, etc. There is a plethora of metrics that could be used in this space.

Conclusion: Getting this right is a challenging task but worth it. If you invest early in your analytical abilities, even in a limited manner, you create a culture around the measurement, helping teams to understand where your organization is going. I still recall the quote from Edwards Deming that resonates well with me: "Without data, you're just another person with an opinion." Well, who do you choose to be?

Here are some practical ideas on how to get this right for aspirational organizations:

• Choose the right metrics, define them, and ensure leadership understands the "why" behind them. Not all metrics are created equal between different industries or even products. Ensure you're tracking metrics relevant to your business, objectives, product, and market you're operating on. The definition might differ from what you experienced in other organizations, but that's fine (unless we talk about financial metrics that often are regulated or follow standards).?
• Match your metrics to your acquisition and retention process. Many companies agree that metrics matter "because everyone is tracking it." Still, the definition or calculation must reflect what the process or individuals that use the process intend to do. This flaw must be addressed before you onboard an additional 100 HC and put the effort behind it.
• Create a repository for metrics so that teams can use them as a reference. Your top and mid-level management must align with what is what and what impacts what. Ensure that each change is explained adequately through your data, business intelligence, or hypothesis you are following, introducing new definitions.
• Benchmark yourself. Part of your metrics should be matched against your competitors and industry performance. Make sure you know the difference at the definition level. You can create a narrative about them that your organization understands once you track metrics and set benchmarks to see how your startup performs over time. Your benchmarked entities will change depending on the stage of your company. The closer the IPO, the more you should shift to market benchmarks. This is a great walk for the investors during your S1 filing and Roadshow. It can show how much evolution your organization went through and what type of quality decision you made based on multiple data points.
• Take action. Don't just track metrics for the sake of monitoring them. What's the point of having and following the metrics if you don't act upon them? Create a forum of relevant participants to monitor the metrics, ensuring a clear owner is responsible for the metric and action owners. This should be limited to essential questions, avoiding "I'd like to see"- like asks. Participants must know that this is burning the team's cycle that could be spent working on something more productive. The key here is to create a transparent and accessible list of actions so that all participants can see what activities are being performed and what is waiting on the list.
• Be patient. It takes time to see results from tracking leading or lagging indicators. Expect to see a change in your business over time. The same applies to the frequency of changes on your list of metrics. Often leaders are impatient, pushing for too many changes or adding too many metrics. It takes a bit for the teams to adjust their habits to impact the metrics. Remember to give your teams time to settle on this before introducing a new set of metrics. Ultimately, they are not necessarily metrics folks that know what other groups do and how they measure their work. It's an ongoing education process that, if overwhelming, you get the opposite results. Make changes more frequently, and your actions won't be completed; the team becomes demotivated and ultimately idle, only marking work.
• Be flexible. Your business constantly changes, so your leading and lagging indicators occasionally should also change. Set up a calendar or defined window when the discussions should occur. Your teams should refrain from debating during the regular, tactical reviews of the definitions once settled and implemented. At this point, the focus is on execution. Flexibility doesn't equal flux. Are you debating training methods while performing during the Olympics? No right. Why would you argue that when you should deliver? However, that doesn't mean you shouldn't adjust them at all. I'd suggest using the first and second half of the year to reflect and adapt metrics included in your capacity planning. If you run a Series A & B company, you should have these processes aligned to run sequentially around the same time.
• Be proactive. Take action before problems arise. For example, suppose your marketing team cannot produce sufficient responses. In that case, your sales team should generate additional pipeline coverage to keep the momentum. Teams occasionally will drop the ball, and you need to ensure you can compensate for that. Use the data you're tracking to identify and address potential problems before they become significant.