The key metric for your startup must satisfy these 4 criteria

Edited excerpt from Avoiding The Wheel Of Meaningless Growth by Brian Balfour:

The one metric that guides us like our north star is Weekly Active Users. We defined this as our authentic growth metric using a few criteria:

1. Retention. In the consumer world things like Daily Active User (DAU) and Weekly Active User (WAU) are most commonly used. Celebrating metrics such as total registrations or downloads over time tell you nothing about whether or not you are building real value.

2. Meaningful interaction. Qualifying events should be meaningful interactions with the product, not just “fly by’s” such as visits or sessions.

3. Relevant. The metric must be relevant to the intended use of your product. If your product is meant to be used daily, then something around Daily Active Users. Weekly, then weekly active users.

4. Brutally honest. How many times have you read a title such as “XYZ sees 452% (or some incredible number) Growth” Or “XYZ company grew by 10,000 new users.” Here is the problem…452% growth of something small is still small.  Growing something from 10,000,000 to 10,0010,000 isn’t a win.  And growing something, but taking an immense amount of time probably isn’t a win either. There a lot of ways you can frame numbers to make them sound good.  Just be honest with yourselves. Whenever we communicate/report growth metrics, team members report on the percentage increase, the absolute increase and the time period in which the growth occurred.

Notes:
(1) Note the emphasis on retention. Cf. Eric Schonfeld’s How to distinguish vanity metrics from real metrics and Bill Gurley’s The best startup metric: Conversion rate?
(2) Monthly uniques is the most popular metric reported by web publishers. Perhaps it’s because advertisers run campaigns monthly and care about audience reach. But monthly uniques is a vanity metric for the publishers themselves, because it doesn’t capture retention.
(3) On daily versus weekly uniques: We use daily uniques as our key metric in Seeking Alpha, because finance is a daily habit. (That’s one of the most attractive aspects of our vertical.) But we add an additional requirement to ensure that the interactions aren’t fly-by’s: we only measure users who come to us directly, not via search or inbound links from other sites. Our key metric is therefore what we call DDUs — daily, direct users. It’s an exceptionally tough metric to grow. Here’s how we’re doing.
(4) In the section on being brutally honest, note Brian’s emphasis on measuring growth, not absolute levels. This is because the measure of a startup’s success is its growth rate.
(5) Reporting metrics as growth rates (or absolute growth) focuses the company on growth, and encourages everyone to think big.

5 thoughts on “The key metric for your startup must satisfy these 4 criteria

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  3. Pingback: Why Skift rejected monthly uniques as its key metric, and you should too | A Founder's Notebook

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