Recently I had a very interesting meeting with a young entrepreneur. This entrepreneur found a smart solution for a latent business problem and started his own business.
But like many start ups he changed his execution plan several times. He had the feeling that his target group didn’t adopt and buy his product fast enough. He asked me to take a look at his business what I did.
My impression was:
- He developed a “Blue Ocean” product (and therefore found a niche market)
- His business plan was comprehensive and clear
- His goal setting was based upon market research and realistic
- His business model was good
- His launching strategy was good.
But he forgot to set the right KPIs (Key Performance Indicators) to measure his progress.
Why are KPIs important?
KPIs must reflect the organization’s goals. They must be key to its’ success, and they must be quantifiable (measurable). Key Performance Indicators usually are long-term considerations. (source: management about)
What is the ideal number of KPIs?
There is no “ideal number” of KPIs. What matters is choosing the right KPIs.
The most highly cited paper in psychology “The Magical Number Seven, Plus or Minus Two” is often quoted that the number of objects an average human can hold in working memory is 7 ± 2. And this applies very well how many KPIs a single person can handle!
What are the advantages of a right set KPIs for this entrepreneur?
- He can raise the red flag at the right time and respond directly
- He has good focus because of only using 7 KPIs
- Instead of looking back he gets predictive insights
- Clear KPIs are aligned with his strategy, mission and vision
- Right group with KPIs aligns company with requirements of (future) venture investors: Financial, user, acquisition, sales, and marketing.
What is the challenge?
The main challenge for start ups is the lack of history. Great companies have a history and have better insights in what really counts to achieve their strategy.
Choosing the right set of KPIs seems easier for them… But in practice they are also struggling with KPIs and cannot boil them down to 7 KPIs to measure their performance level!
- KPIs give a clear picture of the start up’s (long term) performance level
- Steering on a good set of KPIs enables an improvement of results
- Start ups are already prepared for further conversations with venture investors.
And that’s is exactly what turned out in my meeting with this entrepreneur:
He got nervous because he couldn’t pay his bills anymore. Too many changes in strategic directions had the effect that the business didn’t had enough time to develop and grow.
With serious effects for his company. He urgently needed an investor. And a solid basis for further discussion!
I wish you a good set of KPIs!
- Wikipedia Performance Indicators
- The Magical Number Seven, Plus or Minus Two
- Daan van Beek, author of book “ The Intelligent Organisation”
- Management About: Key Performance Indicators
- KPI Institute