Why Startups should use OKRs?

Category: OKR University.

The startup ecosystem has come a long way in recent years. In India alone, an average of 1300 startups are registered every year, 70% of which are tech startups. According to a report by Nasscom, the investments in startups had crossed 4.4 Billion USD in May 2019. But, how many of these startups survive in the long run?

As per a report, 9 out of 10 of these startups shut down within the first five years of inception. Have you wondered why innovative ideas fail to turn into successful businesses?

As Steve Blank, the founder of the famous Lean Startup movement started, “Startups are not miniature versions of established large companies”. While large companies execute known and proven business models, startups are in search of business models. Most startups fail because they do not find the right business model -they could not find the Product /Market fit and could not find enough paying customers.

Product/Market Fit:

“When a great team meets a lousy market, market wins. When a lousy team meets a great market, market wins. When a great team meets a great market, something special happens.” “If you address a market that really wants your product — if the dogs are eating the dog food — then you can screw up almost everything in the company and you will succeed. Conversely, if you’re really good at execution but the dogs don’t want to eat the dog food, you have no chance of winning.” Andy Rachleff. Finding the Product/Market fit is the first task of any startup that is aiming for success, or even to survive.

We will now focus on Pre Product/Market fit startups for the rest of the article;

Finding Product/Market Fit with OKRs

Finding the Product/Market fit is not a straight-forward process. It requires defining hypotheses and testing them through iterative business execution. The following key principles of OKRS will be relevant for finding the Product/Market Fit:

Let us consider the example of a startup that aims to find a profitable business model for selling Organic pet food.

  • ObjectivesAmbitious Goals: Objectives should be aspirational and should map to the hypotheses that the team would like to test. The initial hypothesis to test could be the Value hypothesis – is there a market for organic pet food in the major metros of India? The team may want to choose one locality in Bangalore to test out their hypothesis. They may want to use different hypotheses for testing out other factors like Price, Delivery model, Marketing Communication etc.
  • Key Results: Key Results are metrics used to measure the success towards achieving an objective. In the above example, Key Results could be:

In 4 weeks:

  • Selling to 1000 customers in one locality
  • Achieving repeat order rate of 50%
  • At least 100 customers ready to provide online reviews
  • At least 100 customers ready to refer other customers

Benefits of Using OKRs for Startups:

  • Focus: With limited resources, it is important that everyone in the startup concentrate their energies on achieving the chosen objective. By clearly defining the OKRs and the time frame to achieve them, everyone absolutely knows what they need to do on a particular week or even day.
  • Transparency: While using OKRs, particularly coupled with a good tool, everyone is clear about their goals and the achievement status of each of the OKR. This keeps everyone on the same page and helps in reallocation of resources, as required to the teams that are falling behind.
  • Early Identification of Problems: One of the biggest benefits of using OKRs is the “bubbling up of problems” early. The weekly reviews is the process that forces the surfacing of problems as every team needs to report their progress as well as confidence level in achieving their Key Result. In the case of early-stage startups, reviews can be done even twice a week till they find the product/market fit.
  • Alignment: OKRs ensure that everyone is aligned towards the overarching goals. In our example, while the Sales team is focused on the Key Result of “Selling to 1000 customers in 4 weeks, the Customer Success team is focused on achieving repeat order rate of 50%.

Tips for making OKRs work for Startups:

  • Three Objectives or Less: As resources are limited, it will be a good idea to focus on just one or two objectives till the Product/Market fit is established. The upper limit should be three.
  • Plan Shorter Cycles: Aim for 2/3 week cycles to test hypotheses. Quarterly cycles are OK after Product/Market fit is established.
  • Focus on Learning: Startups should plan to obsessively learn during this phase. Having internal tools that can be used to record client interviews, have hashtagged conversations so that the field lessons are quickly disseminated across Sales, Customer Success, Product and Marketing teams.
  • Data before Ego: Not everyone can be a Steve Jobs – Having a great intuition about the market and designing products without market research is difficult for an overwhelming majority. Founders should put their ego aside and respect the ‘market” while testing their hypotheses and be ready to Pivot early while they still have the funding left.

OKRs, in our view can be a great tool for startups of any size provided they are used diligently applying the core principles stated here. Teams need to have an open culture valuing transparency, should be ready to go out to the market and test their hypotheses and rapidly recalibrate their offerings till they find the Product/market fit.

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