If there is one thing that I think we can all agree on, it’s that Google Maps is still much better than Apple Maps. This is particularly true when I’m going somewhere off the beaten path…a new camping spot or perhaps a restaurant in a remote location. But if Google Maps thinks I’m walking rather than driving, the directions aren’t going to make any sense. And I’m probably going to end driving down sidewalks and bike paths if I’m not careful.
In our Pivot to Profitability assessment framework, we start by defining the customer and revenue-focused Key Performance Indicators (KPI’s) that we will use to measure our progress.
But what KPIs should we choose? We’ll get to that, and dive in deep on the topic of KPI’s in future posts.
But first, we need to take a step back and be sure we are clear on the business model we are pursuing.
More specifically, how are we going to generate revenue? Who are our customers? What are they buying, subscribing to, or doing that will generate revenue for our business?
Often when I ask entrepreneurs to explain their business model to me, they tell me their startup’s mission. They explain the product, the app they are building, or the service they want to deliver.
But what I really want to understand is how they will generate revenue.
If you’re building a subscription business, then you’ll need to think about metrics that include conversion rate, retention rate, and subscriber lifetime value.
If you’re selling products, you’ll need to focus on metrics that include average order value, repeat purchase rate, and product return rates.
If you’re building a business that is going to be powered by advertising revenue, then your KPI’s will likely include CPM’s, sales pipeline metrics, and average deal size.
We’ll get into defining your specific KPI’s in another post. But your starting point is to be very clear on your business model so that the KPI’s you choose will align with how you are going to drive revenue growth.
Close your eyes for a moment. Picture the customer journey in your mind. Break down every step in the journey, and think about the trail of KPI’s they leave behind along the way.
How do you get them to your product? What do they do when they arrive, and what does it take to convert them to a customer? How much do they spend each time they purchase, and how often do they purchase? How do your KPIs differ for new customers vs existing customers?
A word of caution. Make sure you are clear on who your customer is. It’s the one paying for your product, services or content. There might be other constituents that engage with your product, but they might not be your customer. For example, if you are building an advertising supported media company, your audience is part of the product you are selling to advertisers. Your advertisers are the customer.
One last point. When you’re first trying to get your startup off the ground, you might not be 100% sure as to how you’re going to be generating revenue. You might have a few different business models you plan to test. That’s ok. But for each business model you want to experiment with, you’ll need to start by defining the KPI’s for each model that you want to measure. You need to ground yourself in measurable metrics, or you’ll never really be sure if you’re on the right track.
And that’s when Google Maps sends your car careening down a bike path by mistake.