Before scaling, you need to ensure that your processes and procedures within your business are working optimally. If your startup is not operating like a well-oiled machine can cause havoc when you begin to scale.
The Ultimate Key Performance Indicator
Your north star metric is your company’s guiding light and is the Ultimate Key Performance Indicator. Your north star is a purpose-driven metric. What is the vision of your startup? Where do you want to be? Perhaps you want to be acquired by a major player in the market.
Every decision made in your company should contemplate whether it will move you further toward your north star or further away. The north star metric is the simplest and most important metric that your startup needs to regularly monitor.
If you have not defined your north star metric, do it as early as possible, share it with your team, your customers and incorporate it into your company’s policies and procedures.
You must ensure that you are across all your company metrics when you are preparing to scale and when in the process of scaling. Let us look at some of the most important metrics and how you can put systems in place, which will allow you to monitor and measure performance.
Conversion rates can apply to a variety steps within the customer journey. During the Scale stage, you should be optimising your conversion rates of those KPIs and understand what conversion rates you require to drive your company forward.
For example, when someone registers to download your free report at the first step of the customer journey, it is a download conversion. If there are 100 people that click on the ad and 10 people download the report, it results in a 10% conversion rate.
Where a salesman then calls those 10 people and sells one product, it results in a 10% sales conversion rate.
One relates to marketing and the other relates to sales. Once you know these numbers, it makes it a lot easier to scale, because these numbers help you forecast and set goals.
Customer Retention Rate
While it is important to gain new customers, keeping them is another story. The customer retention rate is the rate at which you can retain customers. Your retention rate will help you determine how useful your product is to customers and whether your product is meeting their wants and needs. If your customer retention is poor, it usually relates to poor product-market fit.
Many would also argue a poor customer retention rate could also mean that clients do not understand how to use your solution or there is poor customer service. This could mean that you need to create better tutorials or update your user-interface to make it more user-friendly.
If you are experiencing low customer retention rates, or you simply want to boost them, then you must ask your customers for feedback. Also, you should ask the customers who left, why they did so. See what their concerns are and how your product can be improved to make it more useful.
Customer Acquisition Cost
Knowing the cost of getting a new client is critical in business – this is known as your customer acquisition cost (CAC). Obviously, you must keep CAC as low as possible.
Many founders are unable to provide you with this number. Believe me, it is one of the first metrics that your investors will ask you, as it closely affects your profit margin.
CAC is calculated by taking the total company expenses over a given period and dividing the total number of customers over the same period.
For example, last month your total company expenses including wages, advertising costs and operating expenses were $10,000. Over the period you gained 20 clients. Your CAC would, therefore, be $500.
Not bad if the product or service you are selling is $5,000. Obviously not so good if it was $1,000 – unless you have a high Customer Lifetime Value.
Customer Lifetime Value
The customer lifetime value (CLV) is a metric that measures on average how much each client spends with your company over their life.
Knowing your customer lifetime value can help you make intelligent company decisions. For example, if you are achieving a CLV of $12,500 then will be better placed to establish an accurate marketing budget or perhaps you may decide that you want to increase CLV by improving your customer service by adding new support staff.
I have heard about all kinds of fancy and overcomplicated explanations that describe burn rate. Burn rate is the rate at which your company is burning through money.
Burn rate is the simplest metric to calculate. You simply choose a period. Let us say quarterly and take the starting balance at the start of the quarter and minus the balance at the end of the quarter and divide by the number of months, which is in this case, 3.
For example, your company’s balance sheet shows $100,000 at the start of the January quarter and $70,000 at the end. Therefore, there is a loss of $30,000. If you divide $30,000 by 3 (number of months in the quarter), the burn rate is $10,000 per month.
Churn is the rate at which clients leave. Therefore, you need to ensure that your churn rate remains low. If your churn rate is high, then there is likely something wrong with your product or service that needs to be fixed.
Churn rates can be calculated over various time periods. The earlier stage your startup is, the shorter the period that you should measure. As you know, all things must be measured closely when your startup is finding its feet. Most startups calculate churn on a monthly basis.
Churn considers current clients, new clients and the ones that leave over the month period – or another period that you nominate.
To calculate churn rate:
- Current customers as at the start of period + new customers at end of period = Total Clients
- Total Clients – Clients that Left as at end of period = Clients
- Clients / Clients that Left = Churn Rate.
Revenue Growth Rate
This metric is crucial. Revenue Growth Rate measures the monthly growth rate of revenue and indicates whether or not your product or service is gaining traction in the market.
It is also important to know what time period the RGR is calculated on. For example, is the RGR over a one month or 12-month period.
It is likely that your business plan has changed from when you drafted your Lean Canvas. Many founders neglect to update their business plan and it sits on a shelf somewhere in a back office.
Remember, the Lean Canvas is a simple solution to get your startup to launch quickly. However, now you are at the stage of scaling, you will need a full business plan – especially if you intend to build a large organisation.
The CEO will need to create the company’s business plan in consultation with the board. Once completed, it is the responsibility of the CEO to ensure that the business executes the business plan.
A business plan will also be required when applying for government grants, seeking finance or making significant hires – such as new board members.
You may recall at the start of the book that I recommended starting with one channel in which to market, before moving to the next. By the time that you are ready to scale, you should be planning to execute your marketing through one of two additional channels.
For example, if you are like many startups, you may have initially relied on Facebook or Google as your marketing channel to promote your startup.
You later may decide to choose from guest post blogs, Youtube ads, Radio, TV interviews, content marketing, public relations, or corporate sponsorship as your next marketing channel.
I recall Gary Vaynerchuk in a recent Youtube interview or presentation saying that every company is capable of being a media company these days. Publishing on social media is free. I think we all forget that sometimes.
Additionally, the low cost and availability of equipment to produce media content creates a level playing field for businesses large and small. If you agree with Mr Vee, then your team may choose to expand your company’s marketing channels by adding an industry podcast or Youtube channel.
There is a lot of talk around culture in startups. But there is more to culture than adding a ping pong table in your staff room. Your culture cannot be installed like a new hard drive, it must develop over time. Later, employees, customers and even suppliers who align with your culture will seek you out. Rather than the other way around. Having a great culture is a powerful way to engage new employees and keep the current ones and allows your customers to connect with your brand.
Culture is something that is unique to each organisation and many find it difficult. A Deloitte study named “Culture and engagement, the naked organization” found that 87% of organisations globally said that culture and engagement were one of their “top challenges”. Further, 50% believed culture and engagement to be “very important”.
Before you can talk about your culture, you need to understand your company’s values and what they mean. You could say that your values relate to your company’s standards and its stance on issues that are relevant to your industry and more specifically, your customers.
Culture evolves over time. Do not be in a rush. But make it a priority. There are many things that you can do to develop a great company culture by engaging employees, customers and management.
Customers are king. When you identify your core clients and know what is important to them, you should take this information and apply it to your values.
For example, if you are creating software that teaches a language, you may find your communication matters to your customers because it helps develop relationships that are important to them.
Your employees must also recognise what is important to their client. Ideally, it should also be important to them. It is always best practice to hire employees whose values align with your customers’ values.
For example, a startup that assists young mothers with their health will benefit from having young mothers as employees. If this is the case, you can attract your ideal employees by providing flexible working hours.
Management needs to listen to what is important to their customers and employees. If your team and customers are family-centric, then management needs to recognise this and make allowances for that in the company’s culture. It is in management’s interest to have a happy and productive team because it assists with customer satisfaction and better employee retention.
Once you have your values down, this will allow you to attract like-minded talent and consequently; like-minded customers.
Overall, team members want to have a sense of belonging. There is something inside of all humans that relishes a community connection. You only need to look to the startup community for evidence of that.
There are other things that you can experiment with to create a meaningful culture, for example a ‘culture team’. Perhaps this team arranges inspirational guest speakers from within your industry to give talks. You could also organise tours and events that include leaders from within your industry.
A great way to spark culture is to give each member of your team a voice. Not everyone is outgoing and willing to share their opinions so readily. Perhaps you could have a simple suggestion box in your office where employees could anonymously add their suggestions.
Be Loud and Proud with Culture
If you are serious about your startup’s culture, then there is nothing quite like advertising it. That is what Hootsuite does. The social media management software company advertises their Hootsuite Manifesto online for all to see their core principles, values and even company vision.
Not like the old days where companies would have their mission statement hidden somewhere on a laminated A4 page Blu-tacked to the back of the boss’s office door.