How to determine metrics leading startups to success
What is the best metric startup companies should track? There are a wide variety of metrics such as LTV, CAC, and charn rate. To determine a metric is quite important, but difficult. Paul Graham said,
One of the most important principles in Silicon Valley is that “you make what you measure.” It means that if you pick some number to focus on, it will tend to improve, but that you have to choose the right number, because only the one you choose will improve; another that seems conceptually adjacent might not. For example, if you’re a university president and you decide to focus on graduation rates, then you’ll improve graduation rates. But only graduation rates, not how much students learn. Students could learn less, if to improve graduation rates you made classes easier.
Then, which one do startups adopt? Let’s check out three cases: Airbnb, eBay, and Twitter.
Airbnb - Net Promoter Score
Net promoter score or NPS is in widespread use as a metric to measure customer experience and predict business growth. The NPS calculation is simple: ask a question to your customers, “How likely is it that you would recommend to a friend or colleague?” The scale is 0-10 that classifies the users into detractors (0-6), passives (7-8), and promoters (9-10).
This startup value the “Airbnb Experience” that includes visiting to their listing, being welcomed by their host, settling into the place, and exploring the destination. The net promoter score enable them to measure such experiences. Will the customers return to book? Do they spread the word? Airbnb analyzes the score as likelihood to recommend with rebooking rate and so on.
eBay - Gross Merchandising Volume
Gross merchandising volume or GMV is the total sales amount of merchandise transaction in the marketplace over a given period of time. It is a useful measure in marketplace business because it shows the size of the market. eBay disclose it as a metic with financial statements.
Please note that GMV is totally different from revenue. If GMV is $20 billion in a quarter and the transaction fee is 10%, the revenue is approximately $2 billion. Of course, revenue can also include advertising and sponsorship.
Twitter - Feed Views
Twitter considered how many people were looking at their feed. They were tracking two types of people with frequency of visiting timeline: active users (at least once in the last month) and core users (at least seven times in the last month).
Josh Elman, worked at Twitter, told about feed views in Lean Analytics.
Early on Twitter focused its energy on increasing feed views because it knew its revenue would be tied to advertising - and that advertising could happen only when a user looked at her Twitter feed. Number of feed views was a leading indicator of revenue potential even before the company hit the Revenue stage.