Business development

Building an Agile Startup 02 — Business Objectives and Metrics

by Alex Iftode

All you really need to found a startup is an idea. Leading it to prosperity, though - that takes a lot more. You’ll need insight, timing, hard work, maybe a pinch of luck, and a matrix - a set of goals.

Objectives like “have a successful launch” won’t fly. It needs to be specific, measurable attainable, relevant, and time-bound. So it needs to be S.M.A.R.T. Since the objectives are measurable, you should also choose the metrics by which to track goal progression. More on those in a bit.

Not all objectives are created equal. Staying organized and efficient will call for goals of all shapes and sizes, from the overall company mission to daily targets.

Long term Business Objectives

It’s a common occurrence for entrepreneurs to get stuck in a routine of putting out short-term fires and forgetting about long term goals. It’s understandable but this routine is dangerous - it stops you from focusing on what the startup should become and how to do it.

Even if your product or service isn’t launched yet, set the big goals for the next three years. You might think it excessive but long term targets are the foundation on which you’ll then build closer goals.

Here are a few examples:

  • Marketing - raise the website visitor conversion rate to 10% by 20XX
  • Development - release an MVP by 20XX
  • Business - reach the break-even point by 20XX
  • Growth - launch the product in two new markets by 20XX

Look at the development goal. The MVP has to offer a taste of the intended product experience, so it’ll need research, design, and coding. These become medium-term objectives.

You don’t have to add too many details to far-off targets. The scope of the product can change as you’re building it. Still, these goals need to be stated.

Long term objectives

Medium-term Business Objectives

Medium-term goals are basically steps in achieving long term goals. If a long term goal is expected to take a year or even more to achieve, medium-term objectives should take a few months.

Let’s take the marketing example from the previous section and break it into smaller targets:

  • Plan a sales funnel with the website as the main channel by the end of the quarter.
  • Create a landing page and an eBook to encourage visitors to share their email address with us in the following 6 months.
  • Create a drip campaign consisting of five emails and get a conversion rate of 33% by the end of the year.

These objectives are just one way the fictional company could raise its conversion rate. Other methods could be added, meaning more medium-term goals and more time needed for the long term goal.

Short term Business Objectives

While the targets you set for the following years and months are meant to help the company stay on course, short term goals are an operational necessity.

Short term objectives

This category encapsulates simple, short objectives. They could be viewed as the executive summary of one or several sprint backlogs.

Let’s take the last example from the previous section and expand upon it with short term objectives:

  • Create an email template by XX.XX.20XX
  • Create and send the first e-mail by XX.XX.20XX
  • Create and send the second e-mail by XX.XX.20XX
  • Create and send the third one by XX.XX.20XX
  • Create and send the fourth by XX.XX.20XX
  • Create and send the fifth by XX.XX.20XX
  • Convert 33% of the email recipients into paying customers

Many companies consider that goals should be set for longer periods of time. For example, an older, more stable company’s medium-term objectives could take several years. That might work for them but it’s less likely to help you.

As an agile startup, you should focus more on doing the best you can at the moment, rather than focusing on a goal so far back, you don’t even know where the business will be at that point.

Valuable metrics for agile startups

A goal without a way to track progress is just a bunch of empty words. That’s one of the reasons why having S.M.A.R.T. goals is so important - it forces you to set a monitored metric right away.

Valuable metrics

Besides the analysis that comes with your set goals, there are a few other metrics that you should keep an eye on. These act more as progress indicators and monitoring them is akin to holding your fingers to the company pulse.

Customer Lifetime Value and Customer Acquisition Cost

Customer lifetime value (CAV) is the total profit a customer brings you over the duration of your relationship with them. That means subtracting Customer Acquisition Cost (CAC) and other operational costs associated with serving the customer from the total amount of money they bring.

These metrics are essential to understanding both the strong and weak points in your interactions with customers. For example, if CAV is high, it justifies investing more in customer acquisition and having a higher CAC. Likewise, if CAV is low, you need to keep CAC low too.

There are plenty of strategies that you can test with the help of these metrics - marketing channels, targeting parameters, upselling or cross-selling initiatives, the list goes on.

Lead time and cycle time

These two metrics are especially important in the Kanban methodology but they apply to any agile structure.

Lead time is the duration it takes for a newly added item of work to reach completion. Basically the time it takes from “we should do this” to “we’ve done this”. This can apply to any sort of task or series of tasks, decided by you, or required by clients.

Cycle time follows the same concept but the timer starts ticking when work actually starts. From “we’ve started doing this” to we’ve done this”. This metric tells you how fast the team finishes tasks.

Lead time

The crucial part is comparing the two. If lead time and cycle time are close to the same, that means that your company is staying on top of work and keeping pace with demand.

Fixing work to feature work ratio

When building a new product, you’ll inevitably run into all sorts of problems and bugs. That’s not a problem in itself. But it can become a problem if fixing past mistakes is starting to take a sizable chunk out of your time and resources.

Whether you measure the time or the number of tasks, the metric is simple - how much do you spend on creating new features versus how much do you spend fixing old features.

If you’re spending more and more time on fixes, it might mean that you need a more rigorous quality assurance process. Maybe tight deadlines are making your team sacrifice quality for quantity.

Month-over-month growth

Month-over-month (MOM) growth simply compares the numbers you got in a month with last month’s numbers. It can be applied to just about everything - clients, site visitors, revenue, completed tasks, etc.

This metric is an excellent way of seeing the speed at which your business is growing. Once the startup has been active for a year or so, you can also see the compounding monthly growth rate (CMGR). It shows you the average growth the startup has had over that period of time. The formula looks like this:

CMGR = first month’s measurement / last month’s measurement ¹ / ⁽ᴸᵃˢᵗ ᴹᵒⁿᵗʰ ⁻ ᶠᶦʳˢᵗ ᴹᵒⁿᵗʰ⁾ - 1

MOMG and CMGR are some of the first metrics VCs look at. So if one of your goals is to get funding, this is a criterion you have to consider.

Growth

Consider these objectives and metrics as general guidelines or examples for your plan. Add in your company vision and the conditions specific to your niche to create your personalized goals and metrics.

Check out the next installment - developing a hierarchy that ensures your team is always working on the most important tasks.