Benchmarking Your Startup
It’s important to set appropriate goals for your startup business. By its very nature, managing a startup is like flying by the seat of your pants. Because the company is brand new, founders and their employees often have to make things up as they go, with few opportunities to take a moment to breath and do a self-check to see how they are really doing. This style of working is starting to change as new benchmarking trends promise to provide insight as to how well a given startup stacks up against peers and competitors. The question is, are these benchmarks relevant to all startups and do they really help new businesses succeed? Let’s take a closer look.
How to Measure Success
Whether you’re an early stage startup or have gained some initial traction, we all wonder how we are measuring up. Some startups will rely upon key metrics: their number of customers, number of users, sales growth, etc. Others may focus on product or service success: login percentages, number of transactions, active users, feature requests, etc.
Regardless of what type of startup you have launched, relentless focus on both your product and your business is critical in the early stages. Too many founders have put off investing in sales and marketing until their product or service was “finished.” These types of entrepreneurs extend beta periods, forego sales while customers validate the product or provide invasive discounts just to get customers in the door.
At the same time, there can be good and bad aspects of benchmarking for startups. Tools and models are helpful because they can force founders to step back, especially when it’s easy to get lost in the minutia of day-to-day operations. However, leading CEOs advise that no two companies are the same and benchmarking is not a substitute for building a great team around the startup, even if it’s an informal board of advisors, peers, or a mentor.
Crunching the Numbers: Cash Flow, Burn Rates and Growth
Once you have an idea about how to measure your startup’s success, it’s time to do the math. Cash flow, burn rates and growth rate are important metrics for entrepreneurs to learn. The basic questions are these:
How much money has your startup raised?
How much revenue does the company make each month?
What is your startup’s growth rate?
How many employees do you have and how fast is the startup growing?
With those four answers?—?even if they are estimates?—?you can figure out how much money your startup has in the bank and how quickly it will run out of money (which is a very valid concern with early-stage startups). It’s a red flag for potential investors if a startup spends too much money, too quickly.
You will also organically spend an enormous amount of time examining your own product. Have you already discovered your market fit? Do people love what you’re building? Are users inviting their friends? If people don’t already love the product, it’s only a matter of time before the startup fails.
Diving deeper, you can look at your user and/or revenue growth rate. In other words, how are you currently acquiring the majority of your customers? Both product and growth are two of the most important aspects of benchmarking a startup. Just bear in mind that a good product with healthy growth can change your career for the better.
