Investing In KPIs For Tech Startups
If you’re looking for investors, it may be time to take a hard look at your KPIs. Here’s how…
For startup entrepreneurs or founders building their own business, creating a viable business model and functioning product is only half the battle. Selling it—whether that’s to investors or to customers—is the real struggle. One can have the most revolutionary product on the marketplace, but if you can’t convince those with deep pockets to fund it, you’re not going to make much progress..
Getting To The Basic Performance
However, adapting your sales strategy based on your audience is a key step many people skip. While users might want to know about functionality and benefits of using a service, this scope is often too limited for the investment stage. Indeed, when it comes to pitching to investors, one of the problems that a lot of entrepreneurs run into is investors may not always see your product from your perspective.
For example, a founder might want to flaunt press coverage or an amazing list of contacts in the tech journalism world as a sure sign of future coverage. But an investor might see this as smoke and mirrors and would prefer to see hard numbers and key performance indicators (KPIs) that underlie success. As TechCrunch put it, “KPIs, if constructed correctly, give management and potential investors a cold, analytical snapshot of the state of the company, untainted by emotion or rhetoric.”
Get Invested
Ultimately, as a founder you have to be very familiar with the numbers of your company before standing up in front of potential investors. Be willing to answer tough questions and further probes into the meaning of your figures. That said, here are some of the key performance indicators and other metrics that investors are most keen to see from entrepreneurs and founders pitching startups.
Cost Per Lead
If you’re convinced your company has the potential to be sold to a huge crowd, you need to know just how much it’s going to cost to sell it to each member of the core demographic. Put simply, cost per lead is the “is the calculation of the number of sales leads generated by a certain amount of expenditures on sales and marketing.” It’s great if your company has mass appeal, but if it costs too much to gain customers, that may be a limiting factor.
Monthly Active Users
This metric is pretty self explanatory: it’s a measure of how many people are using your service or product in a month. However, it’s a particularly important metric for apps, online games or social networking sites whose main path to creating value is via how many eyeballs they can get on their product each month.
Profit Margin
Profit margin is a key indicator of how much it costs to make your product versus how much you’re selling it for. If there is a huge “markup” on your product it can be a good or bad thing depending on how willing your customers are to pay your stated price. Expressed as a percentage, this figures indicate sustainability to investors.
Runway
The runway time is an indication of how quickly your company is burning cash. It’s calculated by dividing your current funds by your monthly expenditure. A runway of about 12 months is advisable if you want to ensure investor confidence. After all, an investor might be wary of giving you money if it looks likely that you’re going to be asking for more in just a few months time.
K-Value
The K-value is a KPI that’s essential to the tech world but borrowed from the world of medicine. Essentially, it’s a measure of virality. As TechCrunch put it, “this number is exponential, and defines the magnitude of the user growth rate by word of mouth (as opposed to paid acquisition). For social media startups, this is often the only metric that matters (the other is retention).” If your K-Value is strong, it’s possible that your investors might be willing to overlook other KPIs that might be lacking.