At some point, we started to have stakeholders that invest in our endeavour. Venture capital firms, private investors such as business angels at first, and, hopefully, one daywe make it to an IPO, have new partners and other people that have a stake in our business.
If someone wants to make money with us, we need to deliver some results.
How do you measure that? You create key performance indicators (KPI), hard facts, that you can track month over month to see if you are going in the right direction.
There are, however, different interests of who wants to know what. The investors will want to see certain money related indicators go up, like revenue or net profit, the amount of users or customers month over month, and such. If they invest in you, you will have to provide the KPIs to them and they adjust it what they think you should be able to achieve.
As a Founder or CEO, your job is to break these KPIs down to your team and creating the quarterly strategies and plan, which operational numbers you want to track internally.
Let's go through an example of how we used the Investor KPIs.
Understanding Investor KPIs
First, the Investor KPIs (Key Performance Indicators). These are the metrics that investors focus on to evaluate the performance and potential growth of a startup.
They are usually longterm, a year or more, or even from round to round. Investor KPIs often include items such as:
Revenue Growth: Tracking the increase in sales over time, usually month over month.
Customer Acquisition: The number of new customers gained over a specific period.
Customer Retention: The percentage of customers who continue to use the product or service over time.
Net Profit: Measuring the profitability after all expenses have been deducted. If you are pre-profit, it will be probably the Burn Rate instead: The rate at which a company is spending its capital before generating positive cash flow.
There will usually also be some individual KPIs they want to see, to see the company expand, such as a product related KPI, like features or stability or refacturing of code, assembly line improvements and such.
Depending on your company maybe also an internationalisation KPI like having the first international customers in Q2 and so on.
As the CEO/Board, you do have a say in this so choose wisely what you agree to, because changing them afterwards will take a lot of explaining. We had to change Investor KPIs frequently because we changed tools, such as payment tools, where tracking was done differently but it was more accurate.
These KPIs help investors understand if the business is likely to provide a return on their investment.
Breaking Down Investor KPIs into OKRs to work towards
Objectives and Key Results (OKRs) are a goal-setting framework that helps ensure the company focuses on the same important issues throughout the organization. You use them sort of a guiding star for the team. Whether you work towards them every quarter or yearly depends a bit on the leadership style. We prefer quarterly OKRs, because the goals are smaller than yearly ones. As founders, our job is to see, that these align with the investor KPIs.
We usually create the OKR as a team, so that everyone is on board with what we are working towards.
Two examples how you can do that
1. Revenue Growth
Objective could be, to Increase monthly revenue by 20%.
Fokus: Launch a new marketing campaign by Month X.
Fokus 2: Increase sales conversion rate by 15% by the end of the quarter.
Fokus 3: Expand into one new geographic market by the end of the quarter.
2. Net Profit
The Objective could be, to Improve net profit margins by 10%.
Fokus 1: Reduce operational costs by 5% through process optimization.
Fokus 2: Increase average order value by 10%.
Fokus 3: Implement a customer referral program to reduce customer acquisition costs.
Translating OKRs into Team KPIs
To achieve these OKRs, you need to break them down further into specific, actionable KPIs for different teams within your organization. In your early stages, it will be basically the founder team who does it.
Then, you have some vertical hierarchy with maybe a sales and a marketing person, then you have a small team, where the teamlead will be responsible for the KPIs.
Here, you have to figure out how your company works best.
For me it was usually worth to create the Investor KPIs with the other C Level people and the Board, as these are our responsibility.
The OKRs we would do with our teamleads/Department leads, and we give pretty much free reign to the teamleads for their own KPIs and how they want to reach them. This gives more freedom to the teams that are doing the operational stuff.
Some examples:
Marketing Team
Objective: Increase brand awareness and lead generation.
KPI 1: Number of new leads generated per month.
KPI 2: Social media engagement rate.
KPI 3: Website traffic growth.
Sales Team
Objective: Convert leads into customers.
KPI 1: Monthly sales conversion rate.
KPI 2: Number of deals closed per month.
Monitoring and Adjustment
Once you set up your KPIs, you will have to Monitor them.
We usually did an extended sync every month, where all responsible people have to go through their data and add it to our spreadsheet, we quickly go over them and they can leave some comments if they have any.
This is more meant to create transparency between the people who are responsible and to foster discussion between us.
If they experience heavy roadblocks, we usually discuss them in a 1/1 or extend the meeting with only the people that are needed.
At the end of each quarter, we re-evaluate the relevance of the KPIs and OKRs, set new ones, adjust ones we want to keep going and so on.
The worst cases are, when you change things or tools in the existing system. Like, a change how you track numbers, or use a new tool and so on. This usually creates a whole backlash of work for some team members, to go backwards through data, evaluate stuff, maybe you even need to create a report for the investors what you change and why and so on.
So what's the TL;DR?
Aligning your startup's KPIs with investor expectations through the framework of OKRs and team-specific KPIs helps you to create a strategy for growth and accountability that aligns the team. This approach not only ensures that you are meeting the expectations of your investors but also drives your team towards achieving meaningful and measurable goals.
By translating high-level investor KPIs into actionable team KPIs, you create a clear roadmap for success that everyone in the organisation can follow.
This exercise is a bit timeconsuming in the beginning, but necessary to make sure, that all people are aligned and actually work towards the right thing on an operational level.
Anyway, that is what we do.
What works for you?
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