Tom Blomfield emphasized the importance of implementing key metrics before product launch to track business performance and make data-driven decisions.
Tom Blomfield recommended focusing on 4-5 key metrics initially, such as revenue, burn rate, runway, retention, and net dollar retention, while avoiding vanity metrics.
Tom Blomfield highlighted the importance of gross margin, particularly for businesses with significant operational costs per customer, and cautioned against scaling businesses with negative gross margins.
Meeting Notes:
Importance of Metrics for Startups
Metrics provide visibility and control over business performance, allowing founders to track progress and make data-driven decisions.
Launching without basic metrics implemented is like flying blind - founders won't know if they are gaining or losing users.
Metrics should be built into the product before launch, not added retroactively after launching.
Investors can easily differentiate founders who command their metrics versus those who don't by how fluently they discuss key metrics.
Selecting the Right Metrics
Focus on tracking 4-5 key metrics initially, not 30-50 metrics.
Agree on clear definitions of each metric within the team and stick to those definitions consistently over time. Changing definitions obfuscates whether real progress is being made.
Avoid vanity metrics like gross merchandise value, impressions, etc. which produce large numbers but lack actionable insights.
Common vanity metrics to avoid: gross merchandise value, gross transaction value.
Top Metrics to Track**
Revenue is the most crucial metric for most companies, according to Tom Blomfield.
Burn rate = monthly costs minus revenue (the amount the company's cash reserves deplete each month).
Runway = how many months the company can operate with its current cash reserves based on the burn rate.
Retention = percentage of customers that continue using and paying for the product over time. Track by cohort.
Net dollar retention (for B2B) = revenue from existing customers over time. >100% means revenue from existing customers is growing, an important signal for B2B companies.
Importance of Gross Margin
Gross margin = revenue - cost of goods sold
Crucial metric for businesses with significant operational costs per incremental customer like AI companies paying for compute/models, delivery businesses, etc.
Avoid scaling businesses with negative gross margins which requires continually raising capital to subsidize losses.
Software companies have typically had high gross margins (90%+) but this is changing with more operational costs.
Final Recommendations
Implement key metrics before launching to avoid flying blind initially.
Maintain rigorous consistency in tracking and defining metrics to accurately measure progress.
Balance metrics with customer feedback and actual product experience - don't optimize solely based on metrics.
Be transparent with investors, even when reporting poor metrics. Don't try to hide underperformance.