Austrian consultant Peter Drucker said “what gets measured gets done”, and for startup founders on a mission to build successful SaaS companies, getting insights on metrics is key to victory.
At YS’s Investor Summit 2021, Prasanna Krishnamoorthy, Managing Partner, Upekkha Catalyst, talks about Vanity Metrics vs Value Metrics for Growth for SaaS startups.
“Startup founders give away the optionality, choice, and freedom for growth at all costs and this does not turn out well for them. They get stuck onto a particular trajectory too early. To have the choice of exiting, or remaining a founder forever, or hyper scaling. But the founder must first reach an initial scale,” he said.
Measuring metrics is crucial for B2B SaaS startups because, without incremental metrics, the business would be badly hit.
“Many founders run the startup based on their gut. Sometimes, what they strategise may reap results in the long-term but when they fail to achieve the aim in a short period, they give up. On the other hand, relying on the wrong metric also makes the business fall,” Prasanna added.
Vanity vs Value Metric
For SaaS businesses, growth means more revenue and not necessarily more customers.
“Customers are a vanity metric. For example, you may have a lot of free customers and you feel they will be your users in future and they don’t turn out to be. Focusing on customers who are getting you MRR is a value metric,” Prasanna explained.
For any company to grow, the MRR has to double by six percent every month. The founders need to monitor it by marketing sales, product (consumption and NPS), customer success.
“If all of this works well without any bottlenecks, the business can achieve a good MRR,” he said.
Focusing on the right metric, depending upon the nature of the business, is crucial for growth. Identifying the value metric and working upon is the right solution to gain more customers and strengthen the business with high NPS and referrals.
“The correct evaluation of logo churn (customer churn) and dollar churn helps in getting the right churn metric of the business. An increasing monthly churn helps in sustaining the business,” Prasanna explained.
To complete the value flywheel, founders need to attract customers basis the market they are operating in, the pricing choice, and problem-solving choice; engage them, convince customers to buy the product, help them retain, expand, and refer.