Many entrepreneurs think that buying up analytics tools for their startups automatically means they’re metrics or data-driven companies. However, that’s not always the case, as there is more to the terms than just buying analytical products. Earlier, in one of my posts, I talked about being “metric-driven” for a startup. In case you missed out on it, you can always check here to read about it.
A startup is metric-driven when it relies heavily on specific metrics, such as KPIs, to make decisions about the business. It’s one of the philosophies that people use to drive their startups forward. Another one is data-driven, and this involves getting data and using it to make better decisions regarding business growth.
In business, “metric-driven” and “data-driven” approaches are two different terms business owners use to describe how they drive their businesses forward. So, what exactly are the differences that exist between these two approaches? Well, as you read through the rest of this article, you’ll find everything you need to know about the two approaches.
Here’s Everything You Need To Know About Being Data-driven For A Startup
What does it mean for a startup to be data-driven?
As earlier mentioned, a startup company is said to be data-driven if it relies heavily on analytical tools to acquire vast volumes of data daily. That’s not all; the company uses data visualization software to extract patterns and facts and gain better insights into how the business is performing in real-time.
Business owners can utilize data generated through this approach to do several different things, such as improving the business processes, enhancing the revenue model, and making informed decisions regarding how the business will grow.
Furthermore, companies make use of several different technology solutions to make data-driven decisions for their startup businesses. They make use of the combination of these solutions to improve their business performance. The answers are data warehouses, business intelligence, customer data platforms, personalization, and analytics.
A data warehouse is a central repository that provides businesses of all sizes with valuable data points. An excellent example of this solution is Google BigQuery.
Furthermore, a business intelligence solution works hand in hand with a data warehouse. Here’s how a business intelligence solution works; it helps analyze the data stored by the data warehouse.
Also, a good business intelligence tool will allow you to gain better insights into how each of your departments is performing. Some examples of this tool are Microsoft Power BI and Tableau.
Customer data platforms are a type of solution that helps business owners to collect data regarding their customers. One of the benefits of these tools is that they help you and your team understand how your customers interact with your platform.
Indeed, you’ll agree with me that one-size-fits-all doesn’t work anymore like it used to do in the past. Here’s why most companies often choose personalization solutions to improve their business performance. This type of solution is effective for achieving a one-to-one marketing strategy.
What are the business benefits of being data-driven for a startup?
There are tons of benefits attached to becoming a data-driven company. When you rely heavily on data to make informed decisions regarding your business, you’ll gain a competitive advantage and several other excellent benefits. That said, let’s have a quick look at some of the benefits of being a data-driven startup company below:
- Competitive advantage
As earlier mentioned, one of the advantages of relying on vast volumes of data to make decisions regarding your business is that it’ll provide you with a competitive advantage. By analyzing data using an effective business intelligence solution, one of the things you’ll be able to do is predict future trends accurately.
By predicting future trends, you are always a step ahead of your competitors. You understand what you need to do to improve your business and achieve better revenues.
- Effectiveness of your business operations
Another great benefit of being data-driven for a startup business is operational efficiency. When you use the right analytics for your startup business, you’ll be able to understand which data you need to analyze.
That’s not all; you’ll also gain better insights into the areas that you’re doing well and where you’re underperforming. After analyzing the data and you notice you’re not performing well, you can always opt for better strategies to improve your operational efficiency.
- Continuous business improvement
Another thing that you stand to gain by being a data-driven startup company is that you’ll continuously improve your business line. After analyzing your data, you can always make practical changes to your business operations based on the information acquired. The benefit of that is you’ll achieve improved overall performance in your business.
Being data-driven means, you don’t just make decisions based on business experience alone. The data is there, and it doesn’t lie. All you need is to check the dashboard, see how the business is performing, and then make good decisions based on your information.
Here’s how to make data-driven decisions for your startup
As you already know, one of the primary benefits of being a data-driven startup business is that it allows you to make informed decisions regarding your business. But here’s a quick question, what is the best way to make data-driven decisions for your business?
- Why do you want to collect data?
To make better decisions based on the information acquired, you need first to understand your mission. Ask yourself why you’re collecting the data.
One thing is to collect data regarding your business operations; another thing is to understand how to use the data to achieve the best results for your startup. By clearly understanding how you’ll use the data acquired, you can always make a better decision regarding your business.
- Identify your data sources
As previously mentioned, startup companies can always use a combination of several different solutions to acquire data and make better decisions that can help them improve their business performance. Since that’s the case, for you to achieve the best results, you need to identify all your data sources. After that, all you need to do is to find a standard variable for the different sources.
- Clean and organize your data
There’s something called 80/20 rules in data analytics. This rule states that analysts often spend 80% of their time cleaning and organizing their data, and the remaining percent goes to the actual analysis of data.
As you can see, cleaning and organizing your data is essential things you need to do before analyzing it. That’s not all; since the process takes the most time, it means this step is pretty much essential.
Data cleaning is a time-consuming process that allows analysts to prepare their raw data for analysis. Furthermore, the process involves removing irrelevant data from where all the information is stored.
The bottom line is that by thoroughly cleaning and organizing your data, you’ll be able to make an informed decision regarding your business.
- You need statistical analysis
In addition to cleaning and organizing your data, you also need to make statistical analyses to make better data-driven decisions for your startup company. To perform statistical analysis, you’ll need to test different models and see which one fits your data set.
Furthermore, you need not be reluctant to test these models, such as random forest modeling. That’s because the process is more of an iteration; you’ll need to continue pushing the models until you find one that better suits your data set.
- Make informed decisions
After cleaning & organizing your data and then performing statistical analysis, what is next is to conclude. Yes, it’s time to make informed decisions based on the information at your disposal.
So, the question should be; did you acquire new information after performing the analysis? After completing the statistical analysis, the conclusion you get to draw is what will make you make better decisions that’ll help you drive your business forward.
Here’s Everything You Need To Know About Being Metric-driven For A Startup
What does it mean for a startup to be metric-driven?
As previously mentioned, a startup is said to be metric-driven when the company relies heavily on specific metrics to drive the company forward. Being metric-driven means the company develops a set of KPIs or other good metrics to measure the performance of your business.
Furthermore, metric-driven offers businesses of all sizes tons of unique benefits. First, it can help to drive your company’s operating model. What does that mean? Here’s what you need to know; some metrics only focus on strategic initiatives. With these metrics, you’ll be able to measure your daily or weekly activities and optimize your operations for better results.
Another great benefit of being metric-driven is that you’ll be able to make informed decisions regarding your business. As long as you opt for a good metric for your startup, you will continually achieve improvement in your startup business. That’s possible because you already know how the company is performing and what needs to be done to get it better.
Furthermore, being metric-driven as a startup means your company will understand the actual state of the performance of each of its departments. By knowing how your business performs, you’ll be able to identify the strategies working for you and the ones you need to stop using. The bottom line is that the approach will allow you to have a view of everything that’s happening in each stage of your startup business.
What is the right metric to use for a startup?
A good metric is anyone that allows you to understand that your business is performing as expected. The metric should be designed in a way that will enable you to tie your business goals and objectives to it. A good metric should display on the dashboard that your business is performing well by checking with the set objectives. That’s not all; a good metric should also mean that your startup business has room for improvement.
Furthermore, when choosing the right metric for your startup, you can always consider a couple of them, including KPIs, pirate metrics, IPA, or TIE.
“KPIs” means critical performance indicators, and opting for it will allow you to only focus on analyzing the key metrics that’ll help improve your business. Choosing “pirate metrics” will only help you gain better insight into the areas of your startup that you need to work on. “IPA” will only allow you to display the most critical metrics on the dashboard, while “TIE” will assist you in validating and revising your existing metrics.
What Is The Difference Between Metrics-driven And Data-driven Startups?
You already know what being metric-driven and data-driven means for a startup. Now, let’s quickly talk about the difference that exists between the two philosophies in business setups.
To answer the burning question of the critical difference between data-driven startups and metric-driven startups, I’ll say it’s how the companies drive the business to success.
Here’s what you need to know; data-driven startups rely heavily on data collected through the data warehouse, analytics, customer data platforms, or business intelligence solutions to improve the processes, enhance revenue models, and make informed decisions.
As for metric-driven startups, these companies only get to drive their business forward by relying on specific metrics. Business metrics are adequate for evaluating your startup performance. That’s not all; they also help entrepreneurs to compare results and keep track of the much-needed data to improve business outcomes.
Conclusion
Metrics are the numerical representation of a company’s performance. Data-driven startups use metrics to measure how well they serve their customers and what is most profitable for them. At the same time, traditional companies may not understand these numbers or rely on gut instinct in decision-making.
Most data-driven startups will be able to tell you something about their business that would otherwise remain hidden without advanced analytics. For example, if it costs more to acquire new clients than retain current ones, then this metric needs attention.
Analytics tools can identify critical problems with your marketing strategy before they become too costly and difficult to fix later on down the road – like when your website goes offline because there was no uptime monitoring system installed previously!
Glossary
A business metric is used to compare an organization’s or individual’s current performance to that of their baseline (past performance) or also to the industry (or market) average.
A startup metric is any non-financial metric that can be used to measure the performance of a business to support managerial decisions and customer acquisition.
Data governance refers to the process of setting standards for the types of data that should be collected, how it should be stored, and who can access or use it.
Product analytics is the process of analyzing a company’s products to do cost analysis, product-line profitability analysis, and price optimization.
The churn rate is the percentage of customers who cancel their service, generally in a given year. The churn rate can be a helpful metric helping to determine customer satisfaction and retention rates.
Key Performance Indicator (KPI) is a quantitative measurement that indicates performance in achieving an organization’s goals, objectives, and strategies.
The key metric can measure anything from how many people opened the email, clicked on the link, clicked through to a page on your website, or completed an online form.
A lean startup is a business that has had ideas validated by customers before fully developing them. It cuts down on the risks and uncertainties that may come with conventional startups. This often involves identifying “early adopters” for products or services which people don’t traditionally need until they’re much more refined but might now want because of the higher quality and lower price points those earlier models offer.
A SaaS startup is a new saas company that provides its service Online, while the customer interface with the system is through some Web browser. The term “software as a service” is often shortened to “SaaS.”
Customer churn is best understood as negative customer behavior when someone’s response to a marketing campaign causes them to stop doing what they were doing before.
Financial metrics are numerical measurements used to measure the profitability of a business or entity, financial strength, solvency, and efficiency. Several metrics can be calculated from several financial statements, including balance sheets, income statements, and cash flow reports. Metrics usually used for measuring profitability include return on assets or equity, total debt to equity ratio, or leverage ratio.
Marketing analytics is a subset of business intelligence that analyzes market trends and customer preferences. It forms a vital component in any marketing campaign, a critical metric, as it is one of the most valuable resources for understanding your prospective customers.
Average revenue is a term used in public and private finance, which refers to the mean – or moderate – of all revenue generated over time by a company or organization. To calculate your average revenue, you would take the total amount of money from all transactions and divide that number by the number of items sold.
Revenue churn is the number of customers who stop paying for your service, usually shown as a percentage. It’s just one way to measure customer retention and how competitive you are with other providers in your industry.
Monthly Recurring Revenue, also referred to as MRR, is an essential metric for businesses. The formula is simple: recurring revenue – upfront costs = monthly regular payment. Suppose the monthly recurring revenue exceeds the total upfront cost of a subscription or other long-term plan. In that case, it’s considered profitable and worth continuing to offer under the same conditions and price.
An Analytics Team is a group of people who work together to make decisions about where and when (currently) to direct site development based on web analytics such as the conversion rates of the home page, how many people view items in different categories, and what time users spend looking at products.
Product strategy is used to build a sustainable product or business. It is typically defined as an overarching statement of how an organization will behave and the barriers it will overcome relative to its market space.
What are startup KPIs? Technically, a startup’s Key Performance Indicators (KPIs) are all of its data and metrics to measure performance, progress, and success.
Performance metrics are the numbers of business success easily identifiable for an organization. Performance metrics can be used to measure quantitative or qualitative information of organizations.
The customer acquisition cost, or CAC, is a metric that helps you to gauge the “cost” of acquiring new customers. The lower your CAC, the better it is for your company because you’re spending less than what’s needed to retain and service those customers.
Customer lifetime value is the value of a customer to your business over the entire lifetime of that customer’s relationship with you.
Product market fit can be defined as the degree to which a product meets the needs of its target customers. The goal of startups should be to develop products that establish themselves very quickly with their first set of customers, without worrying too much about reaching other potential customers until they’ve figured out what makes their first ones tick.
Actionable insights are detailed, objective findings that describe the specifics of what motivates people. They feed into the innovation process by influencing how a business thinks about its products and services.
Recurring revenue is income that’s received periodically, and it refers to money received over and over again.
Marketing metrics, or marketing analytics, collect and use data to make informed decisions about marketing performance.
