Any investor worth their salt will want to see KPIs when considering a pitch from your company. But the role of the Key Performance Indicator goes well beyond successful fundraising. It’s also essential for you and your team in charting and assessing a pathway to success.
Venture Capital hall-of-famer Josh Stein summed it up when he said: “Effective entrepreneurs understand what their top priorities are and manage their companies by focusing their teams around a handful of critical metrics that reflect these priorities.”
It’s common knowledge that KPIs are metrics. But understanding what ‘critical’ means in relation to your business might not be straightforward – especially if your mission is social impact.
How can you correlate the positive work you’re doing with standard business metrics? What does growth look like for your company – and how can you relay this to investors?
In this article, you’ll find practical tips on how to link your mission to standard KPIs. But first – let’s take a quick look at the framework of your average KPI.
What are Key Performance Indicators – and how can they help my business?
As per the name, KPIs are used to measure performance, and investors will expect to see them in your fundraising pitch. KPIs should also lead your decision-making process.
By definition, they are:
Key – As Stein says, ‘a handful’ (meaning you don’t need more than 3-5).
Performance – They should answer the question ‘How’s the business doing?’
Indicator – They should give you a sense of direction and a clear message
Establishing clear KPIs will help you:
- Focus on what really matters in order to deliver your business plan.
- Compare yourself to your business competitors.
- Motivate your team by distilling big goals into simple routine tasks.
- Explain your business to potential investors.
TOP TIP: Things can change quickly in business, and your focus may change as well. You should review your KPIs every month. At the end of each quarter, re-assess whether these are still the key drivers of your business. If not, make adjustments accordingly.
Why do investors want to see KPIs?
Remember: investors are total newcomers to your business. They haven’t done market research, competitor analysis and all the other hard work you’ve put in to advise your company strategy. Investors want insights into your business plan, and a clear, easy-to-understand explanation as to why it’s realistic and achievable.
KPIs built on market information and trends will help put things in perspective for them. Using comparables – such as competitor price points and valuations – will show investors that you’ve done your homework, and can slot into that modus operandi because it suits you (until you’re ready to differentiate your business elsewhere).
If you’re a social impact business, it might be harder to source competitor data (especially if you’re the only mover in your space). But don’t worry – there are always other ways to get your point across.
Where to start with KPIs?
If you’re new to the business game, you might be unclear on where to begin with setting KPIs for your start-up. Use the SMART checklist as your North Star for quality KPIs.
Pay close attention the final point above. When setting timelines for targets, do not overpromise (to yourself or to investors).
TOP TIP: As per the famous motivational quote, ‘Most people overestimate what they can achieve in a year, and underestimate what they can achieve in ten years’. If setting SMART goals means it will take longer to get your business where you want it, don’t despair. Very often, slow and steady is what wins the race.
What are some must-have KPIs?
The full answer to this question is really its own blog series. But briefly, here are three main points of focus that should show up in KPIs.
The above is a basic outline of the most important topics to feature in your KPIs.
You’ll notice that ‘impactful outcomes’ appears as a point of interest to investors. If you want to showcase the positive results of your social mission, you need to link it to a KPI. Here are three effective ways to do that.
How to create impactful KPIs
1. Make it relatable
If you want investors – and your team, even – to understand the impact your mission is having, you need to make it real. Consider using analogy as a tool to drive this home.
Take green-tech recycler Spring. “The average person owns a whopping average 34 phones in their lifetime.” They shared, “That’s enough copper to make a 3 mile long wire and enough aluminium to create 63 cans. That’s a lot of baked beans.” They also used analogy to explain real-life results of their mission efforts: “If Spring Pod recycles 1 tech device per day for a whole year, we could save enough water for 6843 morning showers.”
KPI example: Number of devices stopped from reaching landfill = Gross Margin Per Device Recycled
2. Choose quality over quantity
Strive for simplicity when it comes to your social outcomes. Focus on your core mission and pick 3-5 figures that demonstrate how well you’re achieving this.
Take social action start-up Incommon. Their aim is to bridge generational divides by connecting young people with older neighbours in retirement homes. “1250 people have had an intergenerational connection with Incommon.” They reported, “Also, 95% of older people feel happier after their sessions.” Make sure your KPIs reflect your social purpose in a simple, clear way.
KPI example: 99 % of older people would volunteer again = Customer Churn Rate
3. Define your calculations using credible sources
Use data from a respected source that underpins your metrics of reporting.
They might have sadly fallen into difficulty now, but Bulb Energy is an excellent example of this strategy. Have a read of this extract from one of their reports:
“According to a study by the Forestry Commision, it would take 1,590 trees to absorb 3.2 tonnes of carbon a year. Kielder Forest has 150 million trees locked up 82,000 tonnes of carbon a year. Each tree is locking up roughly 0.546 kg of carbon per year (2 kg of CO2). So you would need 1.590 trees to absorb 3.2 tonnes a year. Collectively, our Bulb members have reduced their carbon footprint by 11 million tonnes of CO2 over the last five years.”
KPI example: Amount of clean energy provided = Average Cost Per Tonne
These examples may not cover your exact mission or industry. But, hopefully, they provide some insights into how other companies are reporting on impact by using KPIs.
For-profit companies with social impact at their core can attract (and secure) significant investment. Embedding your mission into your product or service will help you win clients. It will also enable you to create meaningful, relatable KPIs which you can use to gain investors – as well as track your progress and build business growth.
Want some help with that?
If you’re reading this article, it probably means you’re looking to fundraise. If that’s the case – we should talk!