I recently attended a great panel discussion on Startup Key Performance Indicators (KPIs) by The CFO Leadership Council.
Chris Hering from NetSuite was the moderator and the speakers were Melissa Stepanis from Silicon Valley Bank, Christina Calvanesco from Eyeview and Kim Armor from Comcast Ventures.
These were my four key takeaways:
Keep your list of KPIs short and relevant
KPIs are clear for the growing number of SaaS models
Investors and lenders focus on the key growth drivers that a startup reports to its Board
Data quality is key
Keep your list of KPIs short and relevant. So three to five that the leadership team and the whole organization can focus on is enough. Any more and there is no focus. Relevant means making them part of a firm’s culture. This means they need to be visible. (So reiterate KPIs face to face in a weekly standup … not via emails.) One suggestion from Kim Armor that I particularly liked was rebranding “KPIs” (= buzzword and meaningless) to “Measures of Success” (= direct and meaningful). Chris Hering noted that Netsuite has “Company Musts” and has them printed on t-shirts!
For the growing number of SaaS models KPIs are clear = Monthly/Annual Recurring Revenue (MRR/ARR); Churn (which comes in many forms); Customer Acquisition Cost (CAC); Customer Life Time Value (CLTV or just LTV), but as the business evolves so do they. Specifically you need to look at KPIs in more sophisticated ways – so churn by revenue and by logo; cohort analysis etc. They also change in importance. So as a SaaS business grows churn becomes important (so once trends become more established) and upsell/cross sell metrics come in to play too. The panel agreed the importance of metrics is SaaS: “MRR trumps everything,” and that some metrics are more trustworthy than others. Specifically, LTV should be “taken with a grain of salt” given so many definitions and multiple subjective inputs (future churn rate, discount rate).
Investors and lenders focus on the key growth drivers that a startup reports to its Board. So keep it simple – what you use internally to run the business, to keep the Board happy and to inform outside stakeholders should be pretty much the same. Outsiders, especially those with large portfolios to track will definitely apply the KISS (Keep It Simple Stupid) principle – at the top of the list revenue/revenue growth. Then, cash and cash burn. However, Christina Calvanesco pointed out that there are some internal “health metrics” that a CFO needs to keep a close eye on that are less relevant for the Board, such as leadership and collections, which feed cash flow.
Data quality is key. Christina noted that the CFO needs to partner closely with operational folks to make sure data is appropriate, and pulled from the right places in the right manner.
And the bonus take away was from Kim Armor who provided a list of 11 “investment metrics” Comcast Ventures uses to assess the merit of potential investees. The top ten are generic and can be applied by any thoughtful investor, which include:
- Product market/fit
- Market size
- Team
- Defensibility
- Competition
- Capital required
- Business model
- Exit opportunities
- Deal terms
- Risk/reward payoff
- Strategic fit to Comcast/NBC (obviously unique to them)
Finally a shout out for David Skok, a General Partner at Matrix Ventures. David provides a great list of SaaS metric definitions HERE.
For more details on the CFO Leadership Council contact Becky Blackler