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What You Aren't Measuring Could be Killing Your Company To know where you're going, it often helps to know where you've been. Here's how to measure your startup's performance.

By Kai Sato

entrepreneur daily

Savvy entrepreneurs typically rely on key performance indicators to monitor their businesses and to help them determine where to focus their precious resources. As CEO, Bob Parsons, says, "Measure everything of significance. Anything that is measured and watched, improves."

For many entrepreneurs, the hard part is deciding what to measure and staying disciplined in doing so. Like reading the dashboard of a car while driving, here's a look at how to use effective measurement to improve your company's performance:

Determine what to measure
Dave McClure of 500 Startups fame provides a great measurement framework. Whether you run a social network or an ice-cream shop, most businesses boil down to five basic elements: Acquisition, Activation, Retention, Referral, and Revenue.

Figure out how each of these factors relates to your business by asking yourself the following questions: How many different channels deliver customers to your business and how many customers arrive through each channel? How many customers use your product/service for the first time? How many customers come back multiple times? How many customers refer others and create new leads for you? How do your customers make you money and how much?

Related: 5 Steps to Getting Your Business Ranked on Yelp

Stay disciplined
Once you begin tracking your progress, it's crucial that you continue to do so diligently. The easiest way is to schedule regular meetings to review and be compulsive about sticking to them. Weekly, monthly and quarterly are somewhat standard, though you can modify the schedule to your needs. Some companies even monitor their performance daily and in real time, so they can maintain a constant pulse on how their business is performing. Younger, more embryonic, companies should review as frequently as possible because their business models are less proven and subject to more volatility.

The most important thing is that you habitually compare your performance indicators to previous milestones and understand any changes that have occurred. Here's an example: Let's say 1,000 potential customers have come to your website this quarter and all of them have tried your product, but none of them have come back a second time. Through disciplined measurement, you know that your acquisition and activation efforts are sound, but you appear to have a retention problem. Therefore, you should likely focus your resources in this area and develop ways to draw customers back to your product/service.

Related: No Marketing Budget? 3 Proven Strategies for Direct Selling

Keep up the good work
It's often said that data drives decisions. By tracking your stats regularly, you'll begin to see improvement, as you'll better understand where to focus your resources. Once that happens, keep these points in mind:

1. Resist the urge to over-measure. Seeing improvement, entrepreneurs can become obsessed with measurement and will sometimes attempt to track minute progress in excruciating detail. This can lead to "analysis paralysis" which can waste your valuable time and frustrate your team. As a baseline, start with McClure's five elements and add to them as absolutely necessary. You want to remain focused on metrics that are fundamental drivers of your business.

2. Delegate your measurement tracking tasks. Assign at least one indicator to each team member or department. This way, they will they will be responsible for a sector of the business and will report back to the team on progress. For example, your marketing director will often be responsible for acquisition because marketing is responsible for driving potential customers to your business. This not only helps fuel intra-company communication but can also foster autonomy and creativity among each of your business units.

Related: Learn Before You Earn: How to Figure a Startup's Pre-Money Valuation

3. Set better goals and push yourself based on your data. By measuring past performance, you'll be able to make much better educated guesses for future results. But remember that the past doesn't always dictate the future, so you want to keep raising the bar higher when setting your future KPI goals and business forecasts.

How do you keep your business on track toward growth? Let us know in the comments.

Kai Sato

Entrepreneur & Advisor, Co-Founder of FieldLevel, Inc.

Kai Sato is the co-founder of FieldLevel, a private social network for coaches to recruit athletic talent. He also blogs about the intersection of sports and entrepreneurship for The Huffington Post and works with nonprofits in Los Angeles.

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