[Matrix Moments] Tracking metrics key for the success of startups
In this episode of Matrix Moments, Tarun Davda and Vikram Vaidyanathan, Managing Directors at Matrix Partners India; and Rajinder Balaraman, Director at Matrix Partners India; speak about how tracking the right metrics will help startups.
Tracking and measuring your startup’s performance is crucial not just in the early stages, but through the course of your company’s lifecycle.
Tarun Davda and Vikram Vaidyanathan, Managing Directors, Matrix Partners India; and Rajinder Balaraman, Director, Matrix Partners India; speak about how tracking the right metrics helps startups in the long run.
According to them, tracking metrics can help measure what is working for your startup and what is not. In addition to measuring performance, picking a North Star Metric (NSM) to align the entire company on what is important helps keep all teams focussed on working towards the same goal.
“There are many types of VCs - there are data junky VCs who measure everything, there are FOMO VCs who measure what other people want, there are vanity VCs who are only measuring vanity metric, and then there are financial VCs who measure financial metrics. I think I have been accused of being all of them. But what’s common to everyone is that they like to measure something,” says Vikram.
Why should founders measure?
It is important for founders to measure because companies cannot improve and progress if they don’t measure.
In the early stages, a lot of what is done is based on the gut instinct. “It is great to be gut-based while things are going well, but when things are not going well, if you don’t measure, you won’t know what needs to be fixed and how,” adds Tarun.
It also becomes necessary to align the entire company towards a goal. It gives insights into what the team should focus on to get the product-market fit (PMF) or getting the business model work. “Without a metric, it also becomes hard to drive a particular outcome,” he says.
“Also, depending on the stage of the company, either you are iterating towards PMF, or you are trying to scale PMF, or you are trying to become profitable, or you are trying to get both because you have already figured out profitability,” explains Tarun.
So, at each of these stages, it is important to have some indication. Should the founder be braking or accelerating? For example, if you are burning more money with every transaction, ideally you should be pressing the brakes and trying to figure out before you start accelerating again. If you don’t measure, you won’t know that. And so, sometimes, you could actually take wrong business decisions.
How to measure?
If you haven’t been measuring the building blocks of the business on the product side, on the marketing side, and the growth side, you will not be able to have enough understanding while building the business plan. And if you don’t know that conversion rate today is X percent, how are you going to be able to project it for the next 12 months?
Explaining why a founder needs to measure, Vikram says,
“The first thing is instrumentation. People are often scrambling to put numbers into a spreadsheet when the MIS or a dashboard is due. What’s better is to build this into the tech. For example, let’s say you want to measure turnaround time (TAT) of a loan. It’s easier to actually put that in the instrumentation of the loan management process, so the TAT becomes a metric that is measured as loans are getting processed. This is instrumentation. It will be different for a fintech company compared to a logistics company or a marketplace. But getting that instrumentation right once you have decided what the dashboard is, is very critical.”
Measurement is for you and your team
While the measurement dashboard is the business team’s KPI or deliverable, it is important to include the product tech teams in it, as it helps getting the instrumentation right. Tarun explains, one of the mistakes founders make is to think dashboard is meant to be built when they want to raise funds.
“Most quality investors, when they invest in your company, will guide you against it saying the dashboard is actually for you as a founder to manage the health of the business, so that when you are ready to have fundraising conversations, it’s very clear that you have a grip on what the company is doing, and what each metric is doing. It’s not for investor reporting. The real aim is to help manage the company on a daily, weekly, and monthly basis,” he says.
For example, DAU in a social company will be actually a weekly metric. Some metrics are monthly or quarterly metrics like Net Promoter Score (NPS).
The types of metrics
There are three different types of metrics - growth metrics, profitability metrics, and usage metrics. Essentially, some version of your MIS is targeted towards each of these. However, this depends on the nature of the market you are in, the state, and the kind of metric. Now, growth metrics can be measured on a weekly or a monthly basis, especially in very early-stage companies.
As your company becomes more mature, it will turn into either monthly metric or quarterly metric.
“Recently, when we were in China, one of the founders told us that one thing unique about China is they actually measure week-on-week growth, whereas a lot of founders in India focus more on monthly growth,” says Tarun.
Something like a net promoter score (NPS), which is more about usage and stickiness of your product, it’s unlikely that you will want to measure that daily because that’s not something that should change daily, unless you are really doing something drastically different.
But what should companies measure?
For early-stage companies, which are typically at seed stage, Tarun says they should understand their North Star Metric. Speaking about it, he says: “This isn’t an operating metric, but it is something more fundamental – it is the value you are able to deliver to your customers.”
“One of our portfolios - Belong, the only North Star Metric, was the number of job offers that were made through the platform,” adds Tarun. He says, they were not even monetising the number of job offers, and the business model was not centered around each job offer, resulting in some sort of revenue for the company. It was more of a subscription business.
“But the reason why the number of job offers was important was because it actually showed there is enough value the platform is delivering. Hence, the best metric to reflect is if people are actually able to find jobs and make offers through the platform. It wasn’t timed to any financial outcome for the company. But that was the number one metric that allowed us to know if we are moving towards PMF,” explains Tarun.
Sometimes, the North Star Metric would also be a derived metric, which actually leads to something that is much more fundamental in terms of your business model working or not working.
It also aims to limit the things you measure to five key metrics, and under no circumstances should there be more than eight metrics. These will be different for different businesses and sectors.
“One advice I would give early-stage founders is to pick more health metrics. For example, a good health metric input in a SaaS company or a fintech B2B company is salesforce productivity, which actually gives you a good sense of whether your salesforce is working efficiently or not. And then, later on, work more on output and performance metrics - whether it’s disbursements or AUM and so on that might come a little bit later in your company’s evolution,” says Vikram.
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Edited by Megha Reddy