The title of this discussion features words that are common and don’t bring about any concern at all except for the word KPIs, which might leave a reader bewildered. A careful look at the word reveals that it is an abbreviation. The question that might follow immediately is: what is that all about? Well, KPIs stands for Key Performance Indicators, and they represent how healthy a business is through quantitative metrics.

Anytime one thinks about the existence of a business entity, KPIs or quantitative metrics come into focus. They are in most cases referred to as the backbones of companies. Any business founder who ignores this reality will definitely be wasting time as the business will either collapse or offer lots of problems in managing.

Why you should think of KPIs before starting a business

First reflection on the importance of KPIs is that the analysis of a company will actually take less time to undertake due to these figures that mean so much. In the event that these figures are absent, there is bound to be a lot of work which might involve asking as many questions as possible to those concerned to get the real picture of how the entity is running.

It is always good practice to have these KPIs documented by the time a business entity is being set up, so that proper monitoring starts right from the start. The importance of this task comes more into the limelight with a reflection on terms like startup KPIs, KPIs for startups, and financial KPIs for startups which will always find their way into the write-ups of startups.

Before starting a company, KPIs have to be put down and guide the initial formulation of different strategies that will be used to accomplish goals. The initial stage of any undertaking which is intended to take a professional outlook has to be guided by these figures. This will normally outline every step that is being done. At the same time, in case there is a hitch somewhere, then retracing the way back to the hitch becomes much easier. The knowledge of how a business is doing at any point in time remains so important as an indicator of what needs more attention and what does not. Therefore, this calls for utmost care when starting a business. This is why KPIs are an indispensable part of any successful business.

The initial part of setting up of a business is usually tedious, and it makes sense that it is so, as it is the foundation of a future entity. If the foundation is sound then the business will also run soundly. Part of making the business sound is through having these business KPIs properly set, considering that there will be scrutiny of the running of the business periodically. From the time a business takes off until when a concern is recorded, there is always a reference point which will always help founders to track the way back up to where it occurred. This fact can be ignored when all looks well, but immediately there is a problem then this becomes the first item to be focused on.

What makes a good key business metric

Upon having a firm grip on the KPIs concept and moving further, its appreciation sinks in deeper when one considers that the creation of the primary KPI will impact the definition of the company's secondary metrics. This primary KPI forms the key business metric which will guide the formation of the backbone of the business, while the secondary KPIs will carry the objectives ahead.

The primary metrics will always guide and help in the decision making that has to be done at very crucial times. Talking about the set up of a business and having looked at the concept of a key business metric, the discussion shifts to the process of defining what a primary metric should be based on. We propose 4 approaches.

Customer's perception of value for money

The value of what is being delivered to the client comes in first in terms of reference and setup. When a price tag is put, there are several considerations that have to be made which come prior to that. Eventually, there must be an agreement between the price tag and what the product/ service being traded with the customer will deliver. The disagreement between the two will always create a disharmony in that the client will likely end up giving negative feedback in cases where he or she feels duped (and share it with other potential customers). 

How frequently that value is needed

A second approach to a primary metric is reflecting whether the product/ service value has an enduring or recurring value to the consumer. A product or service has a better chance of trading well if the consumer knows that there is a recurring value that is of benefit periodically. It might be several times a day, daily, weekly, monthly, or annually. This is important given the fact that the client had to fork out those funds that commit the product to him or her. So returning periodically may also be an indicator of the intention of benefiting from more engagement with the service or product acquired earlier.

Lagging indicator of success

Usually, a good primary indicator is a lagging indicator of success, in the sense that it represents the conclusion/ result of a certain chain of actions. When one advertises a service and there are pages which offer signup opportunities, it is the number of signups that points towards lagging success for whatever is being traded. The signups are normally the first step towards accomplishment of a deal since there will be follow-ups through other channels (e.g. email) until eventually a deal is closed with the potential client. This indicator makes the performers go into work to ensure that the signups are well taken care of because they might be a plus in terms of revenue generation. These signups are virtual assets and if treated so they can eventually rise up to save the day in terms of turning into, for example, revenue for a company. In this case, a signup would be a leading indicator of success, and revenue its lagging indicator.

A good representation of meaningful feedback

Alternatively or simultaneously, a good primary KPI can play the role of offering meaningful feedback. While a lagging indicator is more focused on the end result of a certain process, it could be the case - either due to the type or stage of a certain company - that it just makes more sense to centralize the company's focus on a metric that reflects a positive or negative feedback regarding a specific part of the activities in focus (e.g. time to close a deal). Should there be positive feedback, that should be a good sign for the subsequent KPI structure of that specific company.

Using the example mentioned above, while getting consumers’ signups is good, if the company is able to convert these signups into deals faster, that would likely mean lower acquisition costs, higher operational scale, faster revenue, among other metrics. However, if the average deal value is considerably high, the time to close the deal may not be as important, as the company may be willing to spend more time creating a relationship with the client, having slow to close but highly valuable deals. Again, when it comes to KPIs, one size does not fit all! But we do have some examples of common startup KPIs to unlock inspiration.

Summing up, having a primary Key Performance Indicator is... Key

KPIs play a pivotal role in any company. A lot happens between the onset of a business where strategies are drawn and the actual day-to-day operations, and if you fail to have control through KPIs then all of these efforts lose their meaning as they will lack a sense of direction. So you should definitely try to make a reflection on the operational, financial and growth KPIs of your company while it is still on paper. These startup KPIs are the initial guiding your company has until you start getting feedback from clients, which is when you'll hopefully start validating your business.

As usually a lot takes place from the time that the first feedback comes from a client up to the time that the business is aligned to respond to that feedback, yes, your business metrics and KPIs will likely change to adapt to your company's market-fit, but they should always be there as they are crucial to the start, existence, and success of any business.