Setting KPIs and Goals with Divya Bhat | Startup School

The Foundation of Startup Success

As a startup founder, you're in a unique position where nobody tells you how to spend your time. This freedom can be both liberating and dangerous.

The Core Challenge:

• Infinite possibilities, finite time - There are countless things you could be doing each day
• The productivity trap - It's easy to feel busy and productive without actually moving your business forward
• No external structure - Unlike employees, founders don't have managers directing their priorities

Why This Matters Right Now:

1. Speed is everything - The faster you get to market, the sooner you earn money and can reinvest
2. Competitive advantage - Moving slowly gives competitors time to copy you and catch up
3. Resource optimization - Time spent without real progress burns money and raises red flags in fundraising

The Running Analogy:

"You need to run fast and be running in the right direction. When you're doing a startup, time is at a premium." - Divya Bhat

Common Time Wasters That Feel Important:

• Perfectionism on features nobody's using
• Premature optimization for scale you don't need
• Choosing intellectually hard problems over what users actually want
• Over-researching decisions that are "good enough"

Timestamp: [0:01-4:48]

Understanding the Metrics That Drive Success

KPIs (Key Performance Indicators) are the metrics that you track and report on both internally and externally. They're your North Star for decision-making.

What KPIs Actually Do:

1. Measure what matters - Ensure you're tracking the right things
2. Validate your efforts - Tell you whether what you're doing is working
3. Guide prioritization - Help you decide what to work on next
4. Create accountability - Provide clear targets for you and your team

The Prioritization Connection:

Prioritization tells you in what order to tackle your work each day. It's the bridge between having good KPIs and actually achieving them.

Key Prioritization Principles:

• Focus on KPI impact - Work on tasks most likely to move your top metrics
• Accept trade-offs - Decide which "super important" things you don't get to today
• Team alignment - Direct your team's time toward the same priorities

Real-World Example:

"I remember in the early days of one of my companies we were trying to pick a legal firm to work with. Sure you need a lawyer and you need to pick a good lawyer, but this felt flattering and glamorous. We felt so busy but at the end of the day we hadn't even launched. Choose a good lawyer, but this is not impacting your KPIs - do it quickly and move on." - Divya Bhat

Timestamp: [1:12-4:48]

The Two-Level Approach to Time Management

There are two distinct ways to think about prioritization as a startup founder, and getting both right is crucial for success.

Level 1: Startup vs. Life Balance

• Personal decision - How much time you allocate to your startup versus other life priorities
• Co-founder alignment - Critical to align expectations with your co-founder on time commitment
• Speed reminder - Remember that speed matters in the startup world

Level 2: How to Spend Your Allocated Startup Time

This is where the real magic happens - making sure you're doing the most impactful things with your valuable time.

The Framework for Daily Prioritization:

Step 1: Identify Your Top KPIs

• Post-launch companies: Revenue growth should be your primary KPI
• Pre-launch companies: Weeks until launch or number of user conversations
• Quick transition: Once launched, immediately shift to revenue growth

Step 2: Set Weekly KPI Goals

• Choose specific, measurable targets (e.g., "10 more paying customers by next week")
• Ensure goals ladder up to longer-term objectives
• Track weekly to maintain urgency and compound growth

Step 3: Identify Your Biggest Bottleneck

• Find the primary obstacle preventing you from hitting your KPI goals
• Focus on solving the highest-impact problem first
• Resist the urge to work on easier or more interesting problems

"Here at YC we talk a lot about the early days of Airbnb where the founding team wrote their weekly KPI goals on their bathroom mirror so they were facing that reality multiple times a day." - Divya Bhat

Timestamp: [4:48-6:27]

A Real-World Case Study in Smart Prioritization

Super Daily, a daily grocery subscription service in India that sold to Swiggy in 2018, provides a perfect example of how to prioritize effectively when everything seems important.

The Challenge:

Super Daily was an operationally complex business with countless areas needing optimization:

• Mobile app development
• Operations tooling
• Inventory management
• Ground logistics
• User experience improvements

The Smart Approach:

Instead of trying to fix everything at once, they identified their biggest bottleneck:

The Key Question:

"Why are high intent users not converting?"

These were users who got pretty far down the signup flow and then churned - the most painful type of loss.

The Discovery Process:

1. Prioritized conversations with churning users over feature development
2. Ran targeted experiments to understand the dropout pattern
3. Discovered the real problem - users wanted a specific milk brand that Super Daily didn't carry

The Solution:

• Onboarded the missing milk brand instead of beautifying the signup screen
• Avoided premature optimization of earlier funnel stages
• Ensured foundation was solid before moving to lower-intent users

The Results:

50% increase in conversion rate by solving the right problem first.

The Strategic Lesson:

"By focusing on this question they realized that high intent users were dropping out because a lot of users wanted a specific milk brand that super daily didn't carry. It wasn't a UX friction issue or an app issue." - Divya Bhat

Key Takeaway: Sometimes the most important fixes aren't the most obvious or technically interesting ones.

Timestamp: [6:58-8:31]

Essential Insights:

1. KPIs and prioritization are inseparable - You can't prioritize effectively without the right metrics, and the right metrics are useless without proper prioritization
2. Revenue growth is king - For launched companies, revenue should be your primary KPI unless you have a very compelling reason otherwise
3. Bottleneck identification beats scattered optimization - Focus on solving your biggest constraint rather than improving everything incrementally

Actionable Insights:

• Write your weekly KPI goals somewhere you'll see them daily (like Airbnb's bathroom mirror approach)
• Ask "Why are our highest-intent users not converting?" before optimizing earlier funnel stages
• Choose "good enough" solutions for non-KPI impacting decisions and move on quickly
• Track goals weekly to maintain urgency and leverage the power of compound growth

Timestamp: [0:01-8:31]

People Mentioned:

• Divya Bhat - YC Visiting Group Partner, two-time YC founder sharing insights on startup prioritization and KPIs

Companies & Products:

• Super Daily (YC - W17) - Daily grocery subscription service in India that sold to Swiggy in 2018, used as case study for effective prioritization
• Swiggy - Food delivery platform that acquired Super Daily
• Airbnb - Referenced for their early-stage KPI goal-setting practices with bathroom mirror strategy
• Y Combinator - Startup accelerator providing the framework and examples discussed

Concepts & Frameworks:

• Key Performance Indicators (KPIs) - Metrics that track what matters and validate whether your efforts are working
• Prioritization Framework - Three-step process: identify top KPIs, set weekly goals, find biggest bottleneck
• Vanity Metrics - Metrics that make you feel good but don't actually drive business success
• Product Market Fit - The ultimate goal that all prioritization and KPI efforts should drive toward

Timestamp: [0:01-8:31]

A Step-by-Step System for Aggressive Prioritization

Having KPI goals is one thing, but systematically achieving them requires a disciplined framework that prevents you from chasing shiny objects.

The 4-Step Framework:

Step 1: Brain Dump Ideas

• Write down all ideas that might help hit your goals
• Don't start working immediately - resist the urge to chase shiny new things
• Capture everything before evaluating anything

Step 2: Strategic Ranking

• Rank by probability of success first
• Sub-rank by complexity or time required
• Pick only a couple of things to try

Step 3: Honest Assessment

• If KPIs aren't moving, ask "why" several times until you understand the real reason
• Be willing to hear hard truths - it might be something simple like the milk brand example
• Do weekly retrospectives on your initiatives

Step 4: Fast Learning Cycles

• Review prediction accuracy - Were you right about impact and complexity?
• Analyze completion rates - Did you finish what you planned?
• Identify fake progress - Did you accidentally work on low-impact tasks?

The Core Philosophy:

"Don't let indecision slow you down. Just pick a path and keep moving. Ideally you're going to be growing fast. If not, talk to a lot of users fast, churn through your bad ideas fast so you can get to working on the right good ideas as fast as possible." - Divya Bhat

Key Implementation Tips:

• Give yourself time blocks to reduce context switching
• Break down tasks if you're not completing them as expected
• Move fast, learn, then do something different if what you tried didn't work

"The definition of insanity is doing the same thing over and over and expecting different results." - Divya Bhat

Timestamp: [8:34-10:05]

The Real Work vs. The Fake Progress

Not all tasks are created equal. Here's what should actually make it onto your priority list as an early-stage startup.

Tasks That Should Be On Your List:

1. Talking to Users

• Direct path to revenue growth - This is the only way to know what customers want
• Continuous feedback loop - Building and iterating based on user input
• Support email responses - Every customer interaction is valuable data

2. Building Based on User Feedback

• User-driven development - Only build what people actually want
• Iterative improvement - Constant refinement based on real usage

"The only way you know what your customers want is by talking to them all the time and the only way to grow is by building something people want. Not much else is going to help you at this stage." - Divya Bhat

Tasks That Should NOT Be On Your List (Fake Progress):

Passive Networking Activities:

• Fundraising conversations when you're not actively raising
• Conference attendance (unless in select industries where it clearly moves the needle)
• Random coffee meetings with potential advisors or partners

Premature Technical Optimization:

• Arbitrary technical milestones that don't serve users
• Technical benchmark optimization without user demand
• Android app launch unless users are clearly asking for it

Administrative Perfectionism:

• Over-optimizing paperwork beyond legal compliance
• Perfect equity structures that won't make or break your business
• Searching for slightly better insurance or legal arrangements

The Reality Check:

"This fake progress list - it's not anything to be ashamed about. Smart people put these things on their list all the time. We've all done it. These are all tasks that can make you feel good, they boost your ego, they're metrics that you can brag about on LinkedIn, they might make your mom proud, they might make your ex-boyfriend jealous, but what they don't do is they don't necessarily get you closer to product market fit." - Divya Bhat

Timestamp: [10:05-11:42]

5 Psychological Barriers That Keep You From Real Progress

Your brain is actually working against you when it comes to startup prioritization. Here are the common mental traps that prevent you from focusing on what really matters.

Trap 1: The Low-Leverage Task Addiction

Why it happens: These tasks provide instant gratification and tangible accomplishment when your startup's future feels uncertain.

Common Examples:

• Paperwork optimization beyond basic legal compliance
• Cool hard features that you don't know people want yet
• Perfect incorporation or equity structures

"Many people are drawn to low leverage tasks because they provide a sense of accomplishment, they allow you to check things off your list, and it's so tangible at a time when your startup's future is uncertain. There can be so much satisfaction in checking tasks off a list. Don't fall into this trap." - Divya Bhat

Trap 2: Fooling Yourself About Progress

The danger: Mistaking slow growth for product-market fit when they feel fundamentally different.

"It doesn't feel good to admit to yourself or your teammates or your investors or your mom that things aren't going well, but you're not doing yourself any favors by not diagnosing problems early and often." - Divya Bhat

Reality Check:

• Slow growth can be deceptive - don't mistake it for real traction
• Be honest about problems early and often
• Different growth feels different - true PMF has unmistakable momentum

Trap 3: Perfectionism and Indecision Paralysis

The mindset: When nothing's working, every decision feels make-or-break.

The Better Approach:

"Most decisions don't matter and for the ones that do, it's okay to decide wrong first and then fix it later. Just keep moving. I recommend making pretty good decisions quickly and then if they turn out to be wrong, fail, learn and switch to what's working quickly." - Divya Bhat

Key insight: If it's a tough call, you probably can't go wrong - so pick one and keep moving.

Trap 4: Downside Protection Over Upside Chasing

The problem: Fixing little problems feels safer but rarely drives innovation.

Examples of Downside Protection:

• Getting out of spreadsheets when they're working fine
• Optimizing operational efficiency before finding product-market fit
• Focusing on incremental improvements over breakthrough discovery

"At this stage spreadsheets are fine until they're not. If they're working, stick with them. It's good to do things that don't scale as long as they're not breaking. Instead spend your time finding out what your users need in order to use your product every day instead of once a week." - Divya Bhat

Trap 5: Avoiding the Big Existential Problem

The scenario: Chipping away at small problems when there's a massive issue you don't want to face.

Real Example:

"You may tell yourself 'hey okay my 150 users are asking for one click ordering, let me go build it.' You guys, you only have 150 users - this is a problem. Maybe you've only had 150 users for the past three months and they're starting to churn and no one new is signing up. That's your biggest problem - go solve that." - Divya Bhat

Timestamp: [11:42-15:42]

Essential Insights:

1. Framework beats intuition - Use the 4-step prioritization system to avoid chasing shiny objects and maintain focus on KPI-moving activities
2. Fake progress is everywhere - Smart people constantly fall into the trap of working on ego-boosting tasks that don't drive product-market fit
3. Mental traps are predictable - Your brain will try to protect you from negative feelings by steering you toward low-leverage but satisfying tasks

Actionable Insights:

• Write down all ideas before evaluating any of them to prevent premature optimization
• Ask "why" multiple times when KPIs aren't moving until you find the real root cause
• Choose "pretty good decisions quickly" over perfect decisions slowly - most decisions don't matter as much as you think
• Focus on chasing upside (what users need to use your product daily) rather than downside protection (fixing minor operational issues)
• Address the biggest existential problem first, even if smaller problems feel more manageable

Timestamp: [8:34-15:53]

Companies & Products:

• DoorDash - Referenced as example of company with clear product-market fit that feels fundamentally different from slow growth
• Android - Used as example of premature platform expansion that may constitute fake progress

Concepts & Frameworks:

• 4-Step Prioritization Framework - Brain dump ideas, rank by success probability and complexity, honest assessment, fast learning cycles
• Fake Progress Tasks - Activities that boost ego and provide satisfaction but don't move you closer to product-market fit
• Low-Leverage Tasks - Work that provides sense of accomplishment but has minimal impact on business outcomes
• Downside Protection vs. Upside Chasing - The strategic choice between fixing small problems versus pursuing breakthrough opportunities
• Product-Market Fit Recognition - Understanding the fundamental difference between slow growth and true market traction

Timestamp: [8:34-15:53]

Primary vs. Secondary KPIs and Why Most Startups Get This Wrong

Choosing the right KPIs is crucial because you can't afford to waste time running fast in the wrong direction. Here's how to structure your metrics for maximum impact.

Primary KPI (Your North Star):

Definition: The main metric you use to measure whether your business is on track.

For Most Startups:

• Revenue growth should be your primary KPI
• Why it matters: Indicates you've built something people want and you're on track to building a huge business
• The rule: Don't try to optimize for multiple hard things at once

Limited Exceptions:

• Marketplace businesses: May choose signups or GMV as primary KPI
• Early enterprise businesses: Might focus on letters of intent due to long sales cycles

Secondary KPIs (Your Safety Net):

Purpose: Track things moving in the right direction to ensure you're not cheating on your primary KPI or to get early signals when your primary KPI is lagging.

Essential Secondary Metrics:

1. Retention and Churn - Directly contribute to revenue growth
2. Unit Economics - Ensure you're making money on each user, not giving away free money
3. Customer Acquisition Cost - Know your payback period and profit per customer

Keep It Simple:

• 3-5 secondary KPIs maximum - More than this creates dangerous split focus
• Relevance matters - Each metric should directly support your primary KPI

Vanity Metrics to Avoid:

These feel good and provide external validation but don't drive real business progress:

• Website traffic without conversion
• Social media followers
• App downloads without usage
• Press mentions

The Reality Check Question:

"Is this directly on my path to revenue growth? Is this my biggest blocker?" - Divya Bhat

Timestamp: [15:56-17:22]

The DoorDash vs. Rickshaw Case Study: A Cautionary Tale

This real-world comparison shows exactly why split focus on KPIs can be fatal for startups, even when initial traction looks promising.

The Similar Beginnings:

Both DoorDash and Rickshaw (Divya's startup) went through YC as delivery platforms with remarkable similarities:

• Both had laser focus on order volume as their top-line metric
• Both achieved strong early traction with very similar growth patterns
• Both demonstrated clear execution with focused prioritization

Where the Paths Diverged:

DoorDash's Strategy:

• Maintained clear focus on top-line growth post-demo day
• Stayed the course with their primary KPI
• Continued aggressive growth strategy

Rickshaw's Fatal Mistake:

"Post demo day the paths diverged a little bit. Rickshaw had a bit of trouble fundraising despite comparable early traction to DoorDash. This caused us to make a decision out of fear and instead of continuing to have a clear focus on top-line growth as DoorDash did, we tried to optimize for both growth and unit economics. We tried to hedge and this was very dangerous." - Divya Bhat

The Consequences of Split Focus:

What Happened to Rickshaw:

• Split focus created confusion - trying to optimize for two hard things at once
• Landed in "no man's land" - neither exceptional growth nor great unit economics
• Slow growth became the killer - as described earlier, this can destroy startups

The Key Lesson:

"This split focus put us in a weird no man's land of slow growth which as we described before can kill startups. The main message today is to choose your primary KPIs and don't try to get smart and optimize for two or more hard things at once." - Divya Bhat

The Ultimate Outcome:

DoorDash eventually acquired Rickshaw in 2017, demonstrating how maintaining focus on the right primary KPI can make the difference between becoming the acquirer or the acquired.

Strategic Takeaway:

Fear-based decisions that lead to split focus are more dangerous than maintaining aggressive growth focus, even when fundraising becomes challenging.

Timestamp: [17:45-18:58]

Setting Realistic Yet Ambitious Growth Targets

Understanding what constitutes good growth helps you set meaningful targets and avoid both complacency and unrealistic expectations.

Paul Graham's Growth Benchmarks:

For companies going through Y Combinator:

• 5-7% week-over-week growth = Good performance
• 10% week-over-week growth = Exceptional performance

Why Weekly Growth Matters:

"Small changes in weekly or monthly growth rate really compound and make a difference in the long run. So early growth is better than late growth if you can choose. That number on your bathroom mirror per the Airbnb story reminds you to focus on this early." - Divya Bhat

The Compound Effect:

• Early growth compounds more dramatically than late growth
• Weekly tracking maintains urgency and focus
• Bathroom mirror strategy keeps goals visible and top-of-mind

Factors That Impact Your Growth Rate:

1. Latent Demand Effects:

• Early boost possible - Some users will tolerate inferior product for urgent need
• Sustainability challenge - This growth rate might be tougher to maintain later
• Plan accordingly - Don't assume early momentum will automatically continue

2. Enterprise Sales Cycles:

• Long cycles impact KPIs - Length should decrease over time
• Alternative metrics - Set goals around leads in different funnel stages
• Process optimization - Focus on improving cycle efficiency

3. Acquisition Strategy Impact:

• Organic is ideal early - Know where to find passionate first users
• Direct engagement - Talk to users directly and have them spread the word
• Paid acquisition timing - Only after organic growth and clear payback period

"Early on organic is ideal. You should know where to find your first few passionate users and talk to them directly and ideally have them spread the word. You can also run paid acquisition tests so that once you have a product that's growing organically and a sense for payback period you can crank up the ad spend to drive growth. But please don't do this too early and don't leak money on this strategy accidentally." - Divya Bhat

Timestamp: [18:58-20:51]

The False Choice That Trips Up Most Founders

This is one of the most common strategic questions founders face, and the answer reveals a deeper principle about startup growth.

The Short Answer:

"You have to do both." - Divya Bhat

The Nuanced Strategy:

Both acquisition and retention impact revenue growth, so get a sense for which will have more impact first.

Step 1: Fix Your Retention Foundation

Essential requirements before scaling acquisition:

• Ensure users stick around long enough to pay back acquisition costs
• Enable word-of-mouth - retained users tell their friends
• Avoid pouring resources into bringing new customers to a substandard product

Step 2: Scale New User Acquisition

Once retention is solid:

• Focus on bringing in new users for maximum growth impact
• Both metrics must be strong to sustain healthy revenue growth
• Acquisition becomes the primary lever for scaling

Super Daily's Smart Pivot:

The Problem They Discovered:

• Acquisition numbers were misleading - didn't reflect healthy growing business
• Paid promos artificially boosted signup metrics
• Signups were too easy to game and didn't predict long-term value

Their Solution:

• Switched from tracking signups to tracking customers with 5+ orders
• Focused on leading indicators of long-term revenue-generating customers
• Aligned marketing efforts with overall revenue goals rather than vanity metrics

The Impact:

"This helped the Super Daily team align their marketing and their overall revenue goals to chase top line revenue growth." - Divya Bhat

Key Strategic Principle:

The question isn't whether to focus on acquisition or retention - it's about ensuring your acquisition metrics actually predict retention and long-term revenue generation.

Timestamp: [20:51-22:13]

Essential Insights:

1. Primary KPI clarity is non-negotiable - Revenue growth should be your primary KPI for most startups, and trying to optimize multiple hard things simultaneously creates dangerous split focus
2. Growth benchmarks provide realistic targets - 5-7% week-over-week growth is good, 10% is exceptional, and early growth compounds more than late growth
3. Acquisition vs. retention is a false choice - You need both, but fix retention foundation before scaling acquisition to avoid burning money on bringing users to a substandard product

Actionable Insights:

• Write your weekly growth percentage goal on your bathroom mirror (like Airbnb) to maintain daily focus and urgency
• Ask "Is this directly on my path to revenue growth?" to identify and eliminate vanity metrics from your task list
• Track leading indicators of long-term value (like Super Daily's 5+ orders) rather than easily-gamed metrics like signups
• Start with organic acquisition to find passionate early users before investing in paid acquisition strategies
• Ensure users stick around long enough to pay back acquisition costs and spread word-of-mouth before scaling new user acquisition

Timestamp: [15:56-22:13]

People Mentioned:

• Paul Graham - Y Combinator co-founder referenced for his classic essay on startup growth benchmarks (5-7% weekly growth is good, 10% is exceptional)
• Divya Bhat - YC Visiting Group Partner and two-time founder sharing personal experiences from Rickshaw

Companies & Products:

• DoorDash - Used as positive example of maintaining laser focus on top-line growth and clear KPI prioritization
• Rickshaw (YC - W14) - Divya's delivery platform startup acquired by DoorDash in 2017, used as cautionary tale about split KPI focus
• Super Daily (YC - W17) - Grocery delivery service that smartly pivoted from tracking signups to 5+ order customers for better leading indicators
• Airbnb - Referenced again for their bathroom mirror KPI goal-setting strategy to maintain daily focus
• Y Combinator - Startup accelerator providing the growth benchmarks and framework discussed

Concepts & Frameworks:

• Primary vs. Secondary KPIs - Strategic framework for organizing metrics with revenue growth as primary and 3-5 supporting secondary metrics
• Vanity Metrics - Metrics that feel good and provide external validation but don't drive real business progress
• Split Focus Danger - The risk of trying to optimize multiple hard things simultaneously leading to "no man's land" performance
• Compound Growth Effect - Why early growth is better than late growth and weekly tracking maintains urgency
• Organic vs. Paid Acquisition Strategy - Framework for when and how to transition from organic user acquisition to paid strategies

Timestamp: [15:56-22:13]

The Two-Approach Framework for Ambitious Yet Achievable Targets

When setting KPI targets, you don't have to choose between top-down or bottom-up approaches - you should use both to ensure your goals are realistic, achievable, and ambitious.

Top-Down Approach:

Method: Set a future milestone and work backward to determine required weekly growth rates.

Example Framework:

• Set the target: $5,000 MRR by end of Startup School
• Calculate backwards: Determine weekly growth rate needed to achieve this goal
• Focus on compound effect: Early start helps dramatically due to compounding

Benefits:

• Creates ambitious vision that pushes beyond comfort zone
• Leverages compound growth by starting early
• Provides clear finish line like Airbnb's demo day example

Bottom-Up Approach:

Method: Ask what's realistic to achieve next week, then project forward.

Key Questions:

1. What's realistic for next week? Start with honest assessment of immediate capacity
2. What could we achieve with unlimited funding? Remove the mental bottleneck
3. How can we achieve that with limited resources? Find creative solutions

Benefits:

• Grounds goals in reality of current capabilities
• Identifies resource constraints and creative workarounds
• Builds confidence through achievable incremental steps

The Balanced Strategy:

"Set your goal between top down and bottom up. Either is actually fine. I recommend periodically doing both to see whether what you're doing is realistic, achievable and ambitious at the same time." - Divya Bhat

Critical Check:

Always ensure you're on track to build a big business and avoid ending up in the "no man's land of underwhelming but consistent growth."

Timestamp: [22:15-23:42]

When "Smart" Metrics Actually Make You Dumber

CAC to LTV ratios are buzzwords that sound sophisticated, but for early-stage startups, they can be a dangerous rabbit hole that distracts from real progress.

Why CAC/LTV Is Premature:

• Post-product-market-fit concern - These metrics matter after you have a fundamental business people want
• Scaling optimization - Relevant when you need to reliably scale an established user base
• Complex calculations - LTV especially can become a time-consuming rabbit hole

What to Focus on Instead:

Payback Period:

• Ideal scenario: Zero payback period (customers profitable on day one)
• If spending on acquisition: Understand how quickly users pay back that cost
• Retention reality check: Does your retention rate make the economics work?

Simple Profitability:

• Basic question: Are you making money per user?
• Avoid over-optimization of complex formulas
• Focus on fundamentals rather than sophisticated calculations

"LTV can really be a rabbit hole for early stage companies and it's really hard to calculate. So just make sure your payback period is reasonable and you're making money per user." - Divya Bhat

The Strategic Principle:

Early-stage startups should focus on building something people want enough to pay for, not optimizing theoretical unit economics that may not reflect reality.

Timestamp: [23:47-24:42]

The Critical Difference Between Free and Paying Customer Feedback

Focusing on free signups or daily active users can be tempting, but it often leads startups down the wrong path when building a sustainable business.

The Fundamental Problem:

"Paying customers will have very different expectations for a product than free customers will. So if you plan to charge for your product eventually, don't mess around getting feedback from free customers. It'll likely be the wrong feedback." - Divya Bhat

Why Free User Feedback Misleads:

• Different expectations - Free users tolerate problems paying customers won't
• Wrong product direction - Building for free users creates a different product
• False validation - Free usage doesn't predict willingness to pay

The Better Strategy:

Charge From Day One:

• Get real feedback from customers with skin in the game
• Validate actual demand rather than casual interest
• Build the right product for people willing to pay

Exception Cases:

Marketplaces and Network Effects:

• Volume requirement - Need critical mass for utility (like Uber needing enough drivers)
• Network value - Platform becomes more valuable with more users
• Strategic patience - Signups or GMV can suffice temporarily if no revenue possible yet

The Scribd Cautionary Tale:

The Timeline: Scribd (YC Summer 2006) spent four years growing a free product.

The Fear:

• Millions of free customers made them afraid to start charging
• Loss aversion prevented them from testing paid conversion
• Delayed business model validation for years

The Reality:

When they finally started charging in mid-2010:

• Lost 90%+ of customers - but this was actually good news
• Revenue grew by infinity percent - they finally had a business
• Real learning began - discovered what paying users actually wanted

"While Scribd already had millions of users, it wasn't until they started charging that they started to really learn what their paying users wanted." - Divya Bhat

The Strategic Lesson:

Free users are not just "future paying customers" - they're often fundamentally different people who will never pay, and optimizing for them can destroy your path to building a real business.

Timestamp: [24:42-26:17]

The Legitimate Exceptions to the Revenue-First Rule

While revenue growth should be the primary KPI for most startups, certain business models and industries have legitimate reasons to track different metrics.

Valid Exception Categories:

1. Hardware Companies:

• Long development cycles make immediate revenue tracking difficult
• Capital-intensive product development phases
• Manufacturing milestones may be more relevant early indicators

2. Biotech Companies:

• Regulatory approval processes span years, not months
• Clinical trial phases provide better progress indicators than revenue
• R&D milestones are meaningful markers of advancement

3. Enterprise Businesses with Long Sales Cycles:

• Complex B2B sales can take 6-18+ months
• Letters of intent or signed contracts may be better leading indicators
• Pipeline progression more relevant than immediate revenue

Alternative Metrics for These Cases:

• Letters of Intent - Formal expressions of buying intent
• Signed Contracts - Committed future revenue
• Technical Milestones - Measurable progress toward market readiness

The Critical Requirement:

"Please keep yourself honest and make sure that these are actually indicators of actual progress and growth and audit them frequently." - Divya Bhat

The Honesty Test:

• Real progress indicators - Do these metrics actually predict future revenue?
• Frequent auditing - Are you regularly validating these metrics' relevance?
• Avoid vanity metrics - Even in exception cases, metrics must drive real business progress

The Strategic Caution:

Even when non-revenue KPIs are justified, maintain skepticism and regularly challenge whether you could be tracking revenue-related metrics instead.

Timestamp: [26:17-26:47]

The Action Steps That Separate Successful Founders from the Rest

The talk concludes with specific, actionable homework designed to immediately improve how you spend your time and accelerate your journey to product-market fit.

Your Immediate Action Items:

Step 1: Define Your Metrics

Write down your primary and secondary KPIs:

• Primary KPI: Should be revenue growth for most startups
• Secondary KPIs: 3-5 metrics that support and validate your primary KPI
• Be specific: Include exact numbers and time frames

Step 2: Set Ambitious Targets

Create concrete goals:

• Use both approaches: Combine top-down vision with bottom-up realism
• Make them ambitious: Push beyond your comfort zone
• Make them measurable: Include specific numbers and deadlines

Step 3: Audit Your Task List

Review this week's planned work:

• Laser focus check: Ensure every task contributes to hitting your KPI goals
• Eliminate fake progress: Remove ego-boosting but low-impact activities
• Prioritize ruthlessly: Focus only on your biggest KPI blockers

Step 4: Create Accountability

Share with your community:

• Startup School groups: Use Slack and WhatsApp communities
• Get feedback: Allow others to challenge your KPI choices
• Hold yourself accountable: Public commitment increases follow-through

The Ultimate Goal:

"I hope this talk helps at least one of you get to product market fit faster." - Divya Bhat

Success Metrics for This Homework:

• Clarity on priorities - You know exactly what to work on each day
• Elimination of busy work - You stop spending time on fake progress
• Accelerated learning - You get feedback faster by focusing on the right metrics
• Community support - You have accountability partners tracking your progress

The Compound Effect:

Remember that small improvements in weekly growth rates compound dramatically over time. Getting this right now, at the early stage, will have exponential impact on your startup's trajectory.

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Essential Insights:

1. Dual approach to goal setting works best - Use both top-down ambitious vision and bottom-up realistic assessment to create targets that are challenging yet achievable
2. Sophisticated metrics can be dangerous early - CAC/LTV ratios and complex calculations often distract from the fundamental question of whether you're building something people want to pay for
3. Free users provide wrong feedback - If you plan to charge eventually, free customers have fundamentally different expectations and will lead you to build the wrong product

Actionable Insights:

• Ask "What could we achieve with unlimited funding?" then find creative ways to accomplish it with limited resources
• Focus on payback period and basic profitability rather than complex LTV calculations for early-stage startups
• Charge from day one or don't count free users in your growth metrics - paying customers give you the feedback you actually need
• Write down primary and secondary KPIs, set ambitious targets, audit your task list, and share goals with your community for accountability
• Audit non-revenue KPIs frequently to ensure they're actually indicators of progress toward building a real business

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People Mentioned:

• Divya Bhat - YC Visiting Group Partner providing the framework and homework assignments for achieving product-market fit faster

Companies & Products:

• Scribd - YC Summer 2006 company that spent 4 years growing free users before charging, used as cautionary tale about delaying revenue focus
• Uber - Referenced as legitimate exception to revenue-first rule due to network effects requiring driver/rider volume for utility
• Airbnb - Referenced again for their demo day goal-setting approach as example of top-down target setting
• Y Combinator - Startup accelerator providing the community and accountability framework mentioned in homework

Concepts & Frameworks:

• Top-Down vs. Bottom-Up Goal Setting - Dual approach framework for setting ambitious yet realistic targets using both future vision and current capacity assessment
• CAC/LTV Ratios - Customer Acquisition Cost to Lifetime Value metrics that can become dangerous rabbit holes for early-stage companies
• Payback Period Focus - Simpler alternative to complex LTV calculations focusing on how quickly users pay back acquisition costs
• Free vs. Paying Customer Feedback - Critical distinction between user types and why free user feedback misleads product development
• Network Effects Exception - Legitimate cases where volume/signups may temporarily matter more than immediate revenue (marketplaces, platforms)

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