Miscellaneous Determining Metrics at Startup

Metrics become a standard for startups to measure their business achievements. Of course, startups must have metrics in order to understand the business they are running and determine future business strategies.

In a webinar entitled "Measurements & Metrics", GoPlay CEO Edy Sulistyo share interesting perspectives and experiences in the content business on-demand in Indonesia. Edy who has a long career in the world entertainment media it unveils the myriad of metrics in the startup world.

For more details, see the interesting summary presented by Edy in the series of sessions of the ActCelerate accelerator program organized by MCash, SiCepat, and DailySocial.id this.

Define metrics

The metric "North Star" or often called "North Star" is widely used by startups as a benchmark for companies to achieve their business targets. It's like one single metric.

Every startup business vertical has different metrics, none of which are the same. For example, business E-commerce it could be based on Money Transaction User (MTU) or Daily Transaction User (DTU). 

In other business categories, the metrics can also refer to Monthly Active User (MAU) and Daily Active User (DAU), or DAU to MAU ratio to measure stickiness every user. All of that again depends on the type of product, business, and vision-mission determined by the startup. 

Then, when is the right time to determine the metrics? Of course, since the beginning of building a business. It becomes important to know what goals you want to achieve. If you want to achieve a target, the method can be translated through metrics. 

Metrics investors are looking for

Edy mapped three categories big metrics that investors are after. First, transaction-based metrics. Investors see the importance of transaction-based metrics to see how much sustainable a business, whether it can generate revenue or positive EBITDA. 

Second, there are investors who favor MTU and DTU-based metrics. Generally, this metric is used for products with a subscription model (subscription). With this metric, investors can find out how many users are using the service per day or month.

Third, DAU to MAU ratio. For investors, this metric is very important because it can show the quality of a product. "It becomes honest metrics but it's really hard to do. Usually, this metric is mandatory for startups that have entered the E series stage and above," he explained.

Take for example, DAU a service entertainment media is at Rp. 100. This means that every day users spend IDR 100 for content. If multiplied for 30 days, we will pocket 3 million uniqueuser. Even though it looks like a lot, for Edy it doesn't show good results because there aren't any stickiness user.

"If you want to achieve, for example, DAU to MAU ratio 20%, we have to make 87% of users come back again for spend next day. No amount of money who can orchestrate it. [To achieve this] we have to Purely have product-market fit," he added. 

Mitigating failure metrics

Every person/division in the company must onboard with what they do and achieve. Edy assessed that too many metrics to be pursued would make it difficult for startups to achieve their vision and mission. Especially if each division pursues a different metric. 

"There must be one metric that matter the most. While all metrics are important, it is not possible to achieve all of them. In our case, we usually hold daily stand-up to know each other what metrics to pursue. If it's different, you'll find out. As long as everyone knows what is being done, this can mitigate the possibility of failing [a metric]," explains Edy.

However, there are also cases of startups changing their metrics. For example, startup switches to metrics ads-based because MTU is considered irrelevant to its business. Then, switch back to DAU. With a note, all this can change depending on the company's growth, stage, and direction of its business in the future.

Attract investors with metrics

Eddy judged, did comparable business become one of the important strategies when looking for investors. The goal is to know the position of our business in the industry, whether there are any that are much bigger than the business we run, and whether there are competitors who have reached the IPO route.

"If the goal is to get to the IPO, looking for information about competitors can help us determine the valuation. For example, our competitors take the floor to the stock exchange. If the competitor's valuation is assessed from ten times price-to-earnings ratio, here we can estimate the income or the valuation of our business," he said. 

You don't have to look for case studies in companies that have IPOs, startup players can also look at companies private. The comparison can be seen from a number of metrics, such as GMV or the number of their clients.

But it also needs to be researched. If the client's contribution reaches 50%, this can be order of flags because if the client quits, the company could potentially lose 50% of its revenue. This could be a sign that the business is not yet product-market fit.

Don't engineer metrics

According to Edy, there are startup actors who manipulate metrics to increase valuations or obtain funding from investors. For him, this should not be imitated because it will turn to the startup itself.

"Don't let us deliberately create fake metrics. When they manage to get a higher valuation and funding, here your nightmare begins. Getting funding doesn't mean it's finished, it just gets bigger money obtained, the greater the burden. Especially if raise money with a valuation of inflated number," he said.

Edy said that startups have runway The amount of funding received is limited, so they will most likely have to look for new funding, considering that investors don't like slow business growth. From here, problems will start to arise because startups inevitably have to re-engineer their metrics in order to achieve bigger metrics. In other words, these mock metrics will never end.