BoSON22 Nov | Matt Lerner | Identifying Your Metrics That Matter

startupcorestrengths.com
A NEW MENTAL MODEL TO ALIGN YOUR STARTUP
–
Matt Lerner
November 9th, 2022
FINDING FOCUS

GRAB A
PIECE OF
PAPER...

JANUARY, 2009
SAN JOSE, CALIFORNIA

2009
–

$114B

Square: $114B
Stripe: $96B
PayPal: $310B
$210B

W W W . S T A R T U P C O R E S T R E N G T H S . C O M
0%
5%
10%
15%
20%
25%
30%
35%
40%
1 3 5 7 9 11 13 15 17 19 21
Activation
Rate
Month
“Oh Shit”
meetings
Obvious
Fixes
Harder
Fixes
Stuff that
didn’t work
Step back and
think a bit
Launch Party
A N O L D P A Y P A L W A R S T O R Y
* All numbers are fictitious and illustrative, but directionally accurate

A P A R E T O D I S T R I B U T I O N
0%
20%
40%
60%
80%
100%
1 2 3 4 5 6 7 8 9 10
Share
of
Value
Decile

A P O W E R L A W D I S T R I B U T I O N
0%
20%
40%
60%
80%
100%
1 2 3 4 5 6 7 8 9 10
Share
of
Value
Decile

$-
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
Average Test Group Control Group
Average Test Group Control Group
R E S U L T S
40%

AGENDA
Intro
North Star
Key Drivers
Activation vs. Habituation
Rate-Limiting Step
Nuance Metrics
Bringing this to life
01
02
03
04
05
06
07

Matt Lerner
16 years in Silicon Valley
Growth team @ PayPal
Partner @ 500 Startups VC
Lectures at Stanford, Imperial College
Founder & CEO @ Startup Core Strengths

Of Our Founders Are
Likely To Recommend
6%
9

CHAOS

The
Critical
Insight
90% of your results will come
from 10% of your ideas...

Assumption: Most of your ideas
won’t make a big impact.

Credit: Jack Butcher
Progress is deciding
what not to do...
Implication:

HOW DO YOU CUT?
–

Show me the
incentives and
I will show you
the outcome.
“
“
Charlie Munger, Berkshire Hathaway

A BETTER MENTAL MODEL
Work Revenue
Revenue
Customer
Value
Work
Hard
Easy

Three Types of Metrics
North Star Metric Customer behavior that
encompasses the whole funnel or marketplace, and
increments when value is delivered to both customer
and the company.
Key Drivers 1-3 Measured first-order impacts of the
work you do each day to maximise the NSM.
(One of these is your “rate limiting step”)
Nuance Metrics Important numbers to watch, maintain
in a range, but not maximise.

NORTH STAR METRIC
–
MEASURES CUSTOMER VALUE

How Do You Measure
Value Delivered?

What Is:
Customer Value Delivery?
You deliver value to customers when you
help them make progress in their lives.
What measurable customer behavior is
the closest proxy for that “value delivery”?
If customers absolutely loved your product,
how would they naturally behave?
How many of them are behaving like this?
(Track in cohorts, improve over time.)
Clayton Christensen,
Harvard Business School

“To give people the power to build
community and bring the world
closer together.”
“Provide simple, affordable, secure
and reliable digital payments
to…millions of people around
the world.”
“To offer our customers the lowest
possible prices, the best available
selection, and the
utmost convenience”
Mission
EXAMPLE NORTH STAR METRICS
Total Payment Volume Repeat Purchases Daily Active Users
Ubiquity
(be available at every transaction
point)
Preference
(be every consumer’s preferred
payment method)
Price
Selection
Convenience
DAUs by product, number
of products
Registered users, user frequency
Invites, follows, post count,
post engagement, etc.
Key Drivers
North Star

B2C
Facebook – Daily active users
Amazon – Repeat purchases
Spotify – Time spent listening
B2B
Slack – Daily active users (DAUs)
Salesforce – Records created
Hubspot - Weekly active teams
If customers absolutely loved your product or service, how would they naturally behave?
NORTH STAR METRICS
MARKETPLACE
AirBnB – Nights booked
eBay – GMV
Uber – Rides per week

What Is Your North Star Metric…?
North Star Metric Increments when we deliver value to
both customer and company in a natural way where
customers and company behave as expected.
Simple & memorable for the whole company
Represents the full funnel including new, engaged and
churned users.
Does not change often (e.g. every few years max)
Everyone can connect their work to this number

Key Drivers
Key Drivers are the customer behavior drivers you
push each day to maximize the North Star.
They track controllable customer behaviours.
Select only a few (1-3)
Start with first-order drivers and work backwards.
Often, it’s a ratio (e.g. activation rate, signup rate).
Revisit every 3 months.
Each one should have an owner and target.

Your
Key
Drivers
Subscribers * Avg Plan Cost
Qualified Traffic
WAUs (Retained + New Actives) + Lapsed
↑
↑
↑
Monthly Recurring Revenue (MRR)
Trial Account
Try the product
Convert to Paid Plan
Use the product a bit more

Traffic
(# unique prospects)
TOP LEVEL
METRICS
KEY
DRIVERS
ACTUAL
WORK
Paid
SEO
Referral
Revenue
Conversion
(% conv. rate)
Habituation
(Signup to Habituated %)
WAUs
(North Star)
Home Page
Landing Pages
Traffic Quality
Boarding Flow
Welcome Sequence
Engagement Loops
Three
Levels

Prioritising
Key
Drivers
Can it be really big?
Can it be self-sustaining?
Can it be profitable on a unit basis?
Does it deliver customer value?
Is it an input or an output?
Is it in harmony with your business?
01
02
03
04
05
06

–
ACTIVATION VS.
HABITUATION

Researching
solutions
Comparing
solutions
Enjoying
solution
Joy is
Fading
visit visit retarget visit first
action
try use use churn
“Maybe this could help”
“Tell me
more”
“Might
Work”
“Yay, it works!”
“doesn’t
work
anymore”
Thinking:
Doing:
Aha Moment & Habituation
Acquisition Auto-Pilot
Habituation
Threshold
Aha
Moment
Enjoying
Trying

Your Habituation Threshold
What early life behavior pattern predicts retention? That’s
the habituation threshold
What % of new signups cross that line?
Starts with finding your habituation threshold
How much of your revenue is coming from habituated
customers? (Happy MRR) vs. New customers vs. At-Risk
ones?

Your
Rate Limiting
Step

Your
Rate Limiting
Step
Which of these metrics,
if improved, makes the
whole system run faster?
Find it. Focus on it.

What Are Your Nuance Metrics?
Nuance Metrics are important “read only” numbers (watch but
do not maximise). Make sure they stay within an acceptable
range.
Many are drivers, but not “key” drivers
Sometimes they are not directly controllable
Helpful if they explain variations in the North Star
Often a “check” number that should stay in a certain range,
like CPA, NPS, or average delivery time.

QUIZ
TIME

Bringing
Your Metrics
To Life

OUR
GOALS
Simplification. Helps everyone
understand the strategy overall
Alignment. So they can connect their
work to the company’s growth
Prioritisation. So they can make better
resource allocation decisions

Best
Dashboard
Tool

The KPI Sheet
Credit: Lenny Rachitsky
startupcorestrengths.com/kpi-sheet

Here’s the Magic
METRICS >>> Process
The leverage is in which work you choose to do.
Your goal is to get everyone doing the most impactful
work, making good tradeoffs about how to spend their time
and budgets.
Each person must understand the North Star, and be able
to connect their work to it. (OKRs)
And that should empower them to make good “resource
allocation” decisions for how to move that metric, as the
expert in their domain.
Keep asking “Which is the most important work, and how
is it going?”

USE
YOUR
KPI
SHEET

Cash
Headcount
Engineering resources
Executive attention
Start with the RLS, then other key
drivers, then everything else
RESOURCE
KEY DRIVERS
FIRST

QUARTERLY
GOALS =
KEY DRIVERS

QUESTIONS
REINFORCE
FOCUS
Now
How does your work impact our
North Star?
Quarterly
Which work should we do?
Weekly / Monthly
What’s important and how’s it
going? What have we learned?
Daily
I don’t know, what do you think?

X Focus on revenue, not customer value
X Chasing too many metrics
X Analysis paralysis (e.g. attribution)
X Obsessed with a local maximum
Common
Pitfalls
Data should help us focus, make good
decisions quickly and keep executing.

RECAP:
North Star Metric of Value Delivery, endures over time
Focus on 1-3 Key Drivers, including your rate limiting step,
revisit focus every 3 months.
If pre-PMF, key drivers focus you on fast learning
and fit-deepening.
Each key driver gets a single accountable person.
Questions for each employee:
Do they understand how their work affects the NSM?
Do they understand their key driver?
Can they make good tradeoffs re. investments of time
and budget, and focus them on the most impactful work?

Action
These
Metrics
1. Explain them to everyone
2. Ask each person how their work
connects to your North Star
3. Assign each key driver to a
single individual
4. Prioritise resourcing your RLS
5. Set quarterly OKR targets
6. Pursue your North Star relentlessly
using experiment-driven sprints
7. Revisit your model quarterly to
reconsider your RLS and key drivers

There’s a difference between knowing
the path and walking the path
“ “

MEASURE TWICE
CUT ONCE

HYPER CURATED
FOR IMPATIENT
LEADERS.
TWO MINUTES
PER WEEK.

BoSON22 Nov | Matt Lerner | Identifying Your Metrics That Matter

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BoSON22 Nov | Matt Lerner | Identifying Your Metrics That Matter