Y Combinator Question 30: What Is Your Top-Level KPI (Revenue, Usage)?
This Y Combinator question asks for a clear definition of the key performance indicator (KPI) that you prioritize above all others to track the overall success and health of your startup.
Part of the series:
Y Combinator: 40 Questions and 40 Answers
Selecting a top-level KPI is crucial as it guides strategic decisions, measures growth, and demonstrates the startup’s focus on critical business outcomes.
Y Combinator: 40 Questions and 40 Answers
1. Why Y Combinator Asks This Question
Y Combinator wants to ensure that founders have clarity on what drives their business forward and can succinctly communicate this to stakeholders.This top-level KPI should reflect the core value your startup delivers and serve as a compass for aligning team efforts and resources. It helps investors understand what you consider most important for assessing your company’s performance and potential for success.
2. How to Answer the Question
To effectively answer this question, choose either a revenue-based or usage-based KPI (or another critical metric) that best represents the success of your business.Explain why this KPI is pivotal for your business model and how it influences major decisions and strategic direction. Be specific about how improvements in this KPI impact the overall business health and scalability.
For example, if your startup operates a subscription-based educational platform, you might choose ‘monthly recurring revenue’ (MRR) as your top-level KPI, because it directly reflects steady income and user commitment to your service.
3. How NOT to Answer the Question
Avoid mentioning multiple KPIs without specifying which one takes precedence, as this could indicate a lack of focus or clarity in business strategy.Don’t choose a KPI that has little direct impact on your business’s core objectives or long-term sustainability. It’s important that the KPI not only looks impressive but also genuinely represents meaningful success.
4. An Example, Based on a Tech Startup
Consider a tech startup, AppStream, that offers a streaming service for gaming. Here’s how they might respond:- Top-Level KPI: “Our top-level KPI is daily active users (DAU). For our streaming service, consistent daily engagement is crucial as it drives our advertising revenue and influences our market positioning within the competitive gaming industry.”
- Significance of the KPI: “DAU is vital for us because it not only reflects our user engagement and service attractiveness but also directly impacts our advertising rates and partnership opportunities. A rising DAU indicates growing user interest and retention, which is essential for attracting advertisers and sponsors looking to reach a dedicated gaming audience.”
Y Combinator looks for clarity with which startups define their most critical KPI, ensuring it encapsulates the core value and strategic focus essential for driving their business forward.