If you’re a founder or business leader you may be wondering what are the best KPIs to measure your overall business performance. ARR? Number of customers? NPS?
In this post, I share what I view as the 3 key questions to consider what is the most important priority for your business at any given point in time.
It’s tempting to track everything and say it’s all important. But as Andy Grove, the former president of Intel, explains, indecision creates a lack of focus for you and your team:
“[Focus] can only happen if we keep the number of objectives small. …We must realize—and act on the realization—that if we try to focus on everything, we focus on nothing. A few extremely well-chosen objectives impart a clear message about what we say ‘yes’ to and what we say ‘no’ to.” — Andy Grove, High Output Management
While a business can have multiple priorities, I find it valuable to always have one Most Important Thing — the single priority to which you're dedicated to investing the maximum time and attention to ensure its successful achievement. This tool can be valuable in focusing one’s own work. And in a leadership setting this clarity will also help to align one’s team or overall company around the topic that will have the biggest impact.
So how do you decide which KPI should be the main focus for the business? The answer is very context-dependent. It should be based upon what is most important to drive your particular business at a particular point in time. But despite the contextual differences, there are 3 questions that you can always ask to help you decide.
There are many different terms and delineations that are used to map out the lifecycle of a business, from the inception of the initial idea, through various stages of growth, and ultimately to decline. For examples, check out: The Five Stages of the Startup Lifecycle, The 5 Biggest Stages Of A Startup From Idea To Scale, or The Stages of a Startup. Regardless of the mental model you subscribe to, there will be certain key activities and milestones at each stage which are uniquely important to that stage.
For the sake of explanation, let’s look at an oversimplified lifecycle that defines two broad stages which we will call Product-Market Fit (PMF) and Scale:
During the PMF stage, you’re looking to get sufficient validation that your idea can be a successful business. In this stage, you are likely spending a majority of your time on topics related to customer value, to build confidence that you can sell your service and that you can solve a problem that your customers care about.
For example, depending on what you’re trying to accomplish, you may decide that the most important thing is to achieve a sufficient score with Sean Ellis’ PMF survey question:
“Just ask users ‘how would you feel if you could no longer use the product?’ and measure the percent who answer ‘very disappointed.’ …Ellis found that the magic number was 40%. Companies that struggled to find growth almost always had less than 40% of users respond ‘very disappointed,’ whereas companies with strong traction almost always exceeded that threshold.” — Rahul Vohra, How Superhuman Built an Engine to Find Product Market Fit
You may also be validating specific aspects of feasibility, usability, and business viability, but only isolated to the areas that are most in doubt. What you probably care much less about in this stage are things like general scalability, repeatability, and optimization, as Paul Graham famously challenged all founders in “Do Things That Don’t Scale”.
Let’s contrast this with a business in the Scale stage, that has already sufficiently demonstrated PMF and now needs to fill in the missing pieces, stabilize, and then multiply. Depending on how much progress has already been made, your main focus may be monthly growing new customers, revenue run rate, or even profitability.
So considering the stage of your business, you’ll have a better understanding of what is essential to that stage and what is required to reach the next stage.