Measuring Traction for Tough Goals
How do you know that you are on track for large aggressive goals?
Founders, if you are asked to set 2-3 milestones for your startup within a 6-12 month timeframe, what would they be? Customer targets? Revenue levels? Geographic expansion? Capital raise? How would you know if you are on track on a monthly or weekly basis? Would you use the same targets allocated in smaller achievable chunks? If you do, would these mini-targets tell you if you are on track for the vision you have at 12, 24, or 36 months?
Meaningful milestones and performance metrics reflect what you are trying to understand about a specific aspect of your business model within a defined time frame. They are most useful when serving as actionable pieces of information. A typical startup makes a lot of trade-off decisions: offering more features for a product versus investing more in marketing the product, selecting one marketing channel versus another, targeting one customer segment versus another, etc. Startups are always prioritizing feedback from one set of stakeholders versus another. It can be challenging to evaluate a series of short-term decisions in the context of long-term objectives. There can be too little or too much distracting data.
Consider the following planning framework for small decisions to serve as aligned, iterative experiments to validate your strategy to fulfill your larger vision for your startup.
Mission. Articulate what you are trying to achieve as a company. For example, an electric vehicle (EV) company’s vision could be to make their clean vehicles a viable choice for every budget. A maternal health platform’s vision could be to allow all mothers-to-be access to the necessary information and health resources to reduce maternal mortality rates.
Rationale. Why is your mission important? Climate impact and clean air imperatives? Unacceptable maternal morbidity rates? What are your company values?
Vision. What does success look like? The EV company’s vision could be to address 20% of the non-EV market currently serving specific customer tiers. The maternal health company’s vision could be to halve the maternal morbidity rate by onboarding 50% of all Medicaid patients expecting babies.
Strategy. What is your plan to get there? Some businesses such as Warby Parker achieve their mission of serving certain customers (those unable to afford the typical cost of eyewear) by generating a surplus from other customers (those able and willing to buy new eyewear).
Struggle/Obstacles. What complications can you address or friction that you may reduce to execute your strategy? Supply disruptions, longer sales cycles than expected, etc. For pitches, the discussion of the struggle and how you overcome the expected and unexpected stream of roadblocks is a compelling part of your narrative to investors. How difficult has it been to fundraise, build, and sell your offering? Give specific examples and state your process and ask to overcome these roadblocks (money, team, suppliers, infrastructure, competitive positioning, brand awareness).
Roadmap. How do you prioritize? What needs to be built and what associated milestones are indicative of progress towards the vision? For a two-side marketplace, a convincing dummy click model could be the first milestone, a minimum supply ready platform could be the second, and a basic feature demand side platform would be the next.
Key Initiatives. (Experiments/Tasks). What is the “one unit of work” to validate a hypothesis about an element of your business model such as stimulating customer engagement/activation?
Validation. What indicates validation or success of key initiatives? What metrics will you use to assess whether you have proven or disproven a business model hypothesis, customer acquisition goal, or other specified milestone? In an iterative learning environment, failure can be success if you leverage the lessons learned and data gathered into productive next steps.
Metrics. How could you assess progress in a specific, measurable, actionable, relevant, time bound (SMART) indicator? Selecting optimal KPIs is a function of your business model, development stage, and how your product is used (individually or collaboratively, etc.). Which metric serves best as a North Star? Which metric serves best as an activation metric?
Sample North Star metrics should not be absolute figures (revenues, active users, customer lifetime value) but should be relative and actionable (MoM revenues or active users, paid users/total users, consumption or referral growth, Net Promoter Scores (NPS) at different stages of the customer journey, LTV/CAC).
An activation metric is a useful indicator of a new user becoming a customer. It is an important rallying metric for your whole team as you try different experiments to engage, convert, retain, and grow customers. Such experiments can consist of a variety of activities to reduce obstacles and friction along a potential customer’s journey such as incentives and onboarding facilitation.
Deriving and evaluating activation metrics.
An activation metric is specific to each product. You can derive activation metrics from historical data and current user interactions. Activations metrics are a great leading indicator of the moment your customer understands and acts upon the value proposition of your product. For Zoom, completing a virtual conference call within 7 days of signing up is an activation metric. For Loom, first content created or shared is an activation metric.
Open View Partners’ VP of Growth Strategy, Sam Richards, explains how the right activation metric can help a team understand experiments 3x faster than focusing solely on customer conversion. This can occur when the sales cycle is 30 days while an activation metric occurs within 10 days of a customer’s journey.
Open View suggests 5 tips to derive this often misunderstood metric. 1) Create a list of all the key actions users can take regarding your product/service in their customer journey (Max 10), 2) Get 6 months of product usage info on all users, 3) Choose a metric that is easily achievable by somewhat committed users (40-50% of users), 4) Ensure that it is quickly completed (less than 2 weeks), and 5) Confirm it is directly correlated to a user’s likelihood to convert (and be retained). According to Open View’s survey, 20% is a good activation metric for collaborative users and 40% is a good result for single user products.
Lenny Rachitsky, a savvy investor and podcaster with an excellent newsletter, offers some useful examples of activation milestones and activation rates by product type from a survey he conducted in 2022.
Founders, the best way to get started on all of this is to set up a testing framework based on the tips given above to derive the right metrics for what you value, want to accomplish, and are able to accomplish within specific designated time periods to prove to yourself and to others that you are on track or have the right information to slightly or radically alter course as needed.
Always be ready to discuss with stakeholders four key points: 1) what you thought, 2) what you did, 3) what you learned, and 4) what you are going to do next. Your insight into the process of discovering and monetizing customers and markets in your founder’s journey is the most valuable aspect of discussing milestones and metrics that you can share.
Reference Examples from Lenny Rachitsky's Survey.
Additional References.
Benioff, Marc. Create Strategic Company Alignment with a V2MOM. Salesforce.com. May 1, 2020.
Rachitsky, Lenny. How do strategy, vision, mission, goal, and roadmap all work together? Where should I start? Lennysnewsletter. October 18, 2022.
Rachitsky, Lenny and Yuriy Timen. What is considered a good activation rate? Lennysnewsletter. October 25, 2022.
Richard, Sam. Activation: The Product Metric Everyone Thinks They Need but Can’t Define. Open View Partners Blog. June 30, 2022.
About the author.
Joy Fairbanks is Managing Principal at Fairbanks Venture Advisors, has served as a faculty member at Columbia Business School, and helped launch the Long Beach Accelerator, a public-private partnership. Joy advises over a hundred founders per year across sectors and geographies on product development, funding, and customer acquisition strategy. She writes about startup success at FairbanksVentureAdvisors.com.
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