Metrics Matter

“If you cannot measure it you cannot improve it” (Lord Kelvin)

Why Metrics Matter

Over the last few years, a culture has emerged which values growth above everything else. This is especially true for startups in the US. Fundamentals such as a profitable business model and achieving product-market fit have been neglected. While the goal for many startups is to present promising metrics early on in their pitch deck, their reality looks much different. After an initial investment, most companies slow down their growth efforts for a while until they have ramped up their teams and improved their strategy as well as their product before they are able to expand further (Shafranik, D., 2019).

However, showing a path towards profitability and not a story of growth at all costs becomes crucial, especially after learning about cases like WeWork (Schulze, E., 2019) or the fitness company Peleton although less severe (Griffith, E., 2019). What is important to show is especially how revenue ultimately surpasses costs, rather than making money straight away (Schulze, E., 2019).

Initiatives like “Open Projects” from Baremetrics have emerged which show more than 800 SaaS benchmarks with live data (Baremetrics, 2018). However, the challenge is that startups try to create something unique by definition and cannot use the same metrics as a measure of their success or progress (Datarockets, 2019). Hence, there is no blueprint for measuring success.

Additionally, many different definitions of metrics are used and the purpose and reason why they are adapted vary greatly. Ultimately, metrics are solely a tool which tells founders why some things are working and others are not. This helps to continuously improve product and business (Jordan, J. et al., 2015).

Startups have a huge advantage compared to traditional companies: they lack the legacy of a traditional marketing approach where many decisions are based on gut feeling, traditional industry behaviour or deep beliefs of senior leadership. However, they often struggle to capitalize on that because the “right metrics” differ depending on the industry, the stage and the business model of the individual Startup.

“A data-based decision making culture based on the right growth metrics is the single most important competitive edge of startups against incumbents. But most startups are in love with their product and rather work on a “Product founder fit” than a “Product-market fit”. With this metrics guide, we want help to focus on customer-centric metrics and enable startups to measure them and improve aspects that matter.”

Dieter Rappold, Founder & CEO of Speedinvest Pirates

Summing up, a lot of uncertainty exists on which metrics should be reached, the corresponding benchmarks and the definition of some metrics varies greatly depending on who you are asking. To shed some light on the metrics maze, we at Speedinvest Pirates created this qualitative guide.

What’s Next?

In the upcoming articles, you will find a set of important metrics for each industry (pre-seed, general, fintech, deep tech, network effects, and industrial tech) mapped to the different stages of early-stage ventures. In this matrix, you can look for your industry, your current stage for what you should be measuring, and where you should be according to qualitative benchmarks.

The metrics listed in the matrix are further outlined and structured along the AARRR funnel. This means that we will look at the metrics in the order of a user journey: Acquisition, Activation, Retention, Revenue, Referral (AARRR). All these chapters have the same structure and consist of three parts. In the theoretical part, we define the metric and give some background knowledge. Next, in the section about the application we look at the formula, the process of how you can incorporate it in your business, and possible challenges you should look out for when implementing the respective metric. In the third part, we look at insights from successful startups who have worked with the underlying metric.

Let us know your thought! Do you think metrics matter? How and where do you source your benchmarks?

Get the full publication on startup metrics here!