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How to Set Milestones for Your Startup Before You Raise Money from Investors

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Set Milestones for Your Startup

The question “What do you want to be when you grow up” is a pain to answer for kids as it is for startup entrepreneurs. Most times you just dont know. Sometimes you ask other people in the hope that it will lead to an answer that you can co-opt. Other times it is not clear yet (unlike with kids) if you will ever grow up.

Even if you dont want to grow up, I’d still recommend you spend some time putting together milestones that matter to your company for an 18-24 month period from when you start so you know what you are shooting for.

The milestones fall into many buckets, but they should answer the question:

“If you hit the milestones you set out for your company, would you be much more valuable as a startup than you are now”?

The relative sense of “much more valuable” indicates that this is very different for each company, founder, market and type of startup. Most entrepreneurs who are focused on B2B bemoan that they are measured to revenue metrics, compared to their B2C counterparts who usually are measured on user growth (or engagement).

Regardless of what you are measured on, the key is to ensure that you document the most important metrics that will move the value of your startup.

So, to set milestones, the first step is to agree on metrics to measure, and then the date by when they will be achieved.

Here are some examples.

1. Revenue metrics. Regardless of what the new “temporary” trend might be, revenue and profit trumps all. In the early stages of your company, profit will be an illusion, so I would focus a lot on revenue growth. 

How quickly you grow revenue and have reduced churn, better predictability and more diversity gives an investor more confidence in your business. If you need to have one metric alone in place I’d recommend a revenue growth metric. As in most things, quality and quantity of your revenue metric matter.

2. Absolute # of customers / users metric: In some cases, when the revenue is not significant initially (for example you are in the razor blades and razors model of a business) then I’d focus on growth in # of customers.

Again, like the previous metric, quality and quantity both matter. If you are an enterprise software business, getting the initial key marquee customers matters more than any customer. In B2C, this is widely followed with startups tracking # of users, MAU, DAU, or engaged users, or a proxy for # of users (# of snaps sent for example).

3. # of employees: This used to be a metric people tracked, but I am not sure this really matters as much in terms of growth. I’d focus more on the quality and profile of employees alone, instead of a growth in # of employees,. If, however you are in a consulting or services business and this metric drives revenue, by all means this becomes important to track.

There are many more metrics you could track, but the key question you have to answer is “Will this metric(s) drive my startup’s value higher. You can also track metrics that are a proxy for the metrics I listed above. This is so that you can communicate it externally and get people excited about it, instead of having to share a revenue metric.

In some cases, (like Uber for example) the # of rides as a proxy for revenue might be tracked.

Then the next part after you select the metric, (typically one is preferred) is to draw a line in the sand for those metrics –

What would those numbers be and by when would you achieve them.

This part is the “setting milestones”. It has to come with a “sell by date” or “achievement date”.

Simply setting metrics alone, without the date of achievement is typically useless.

The important next steps is to break down the milestone into smaller more achievable milestones during your progress (monthly, quarterly, etc.). This is so you can communicate with your team and have them all rally behind the milestone.

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Creating Artificial Constraints as a Means to Innovation

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Artificial Constraints

Many of the entrepreneurs I know have created new innovative startups thanks to real constraints they had. For example, I was hearing AirBnB’s Brian Chesky, on the Corner Office podcast and he mentioned that when he and his cofounder were trying to get some money to get started and the only way to keep afloat was to “rent” their air bed they had in their room. That, then led to Air Bed and Breakfast, which is now AirBnB.

This was a real constraint they had – no money to “eat” so they had to make it happen somehow.

I have heard of many stories of innovation where in the protagonists had real constraints of either financial, technology, supply, demand, economic, social or any number of other characteristics.

The interesting story that I have also recently heard of how Facebook has “pivoted” from being a desktop offering to getting a significant part of their revenue from mobile is how they were given the arbitrary constraint of only accessing Facebook via the mobile phone.

So there are ways that you can create “artificial” constraints to force innovation to happen.

Most larger companies and some smaller ones as well, have to constantly find ways to create artificial constraints – to find a way to innovate and be more be a pioneer.

While some constraints are good – lack of funds at the early stage for example and lack of resources, there are entrepreneurs that are stymied by these constraints and those that will find  a way to seek a path to go forward.

I think this is a great way for you to think about innovating in a new space. If you have constraints, find a way to use it to your advantage.

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The Great Mobile App Migration of March 2020

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Mobile App Migration

Over the last few weeks as many in the world have been in lockdown, there has been a temporary “mobile app migration” happening. There are new apps downloaded and they replaced existing apps on the “home screen”.

While some of these apps are likely temporary use, for e.g. I have 6 “conferencing apps” – Zoom, Uber Conference, Webex, Google Hangouts, Blue Jeans and Goto Meeting. That is because of the many people I have conference calls with – each company seems to have chosen a different web conference solution.

Other apps seem like they will have staying power – Houseparty, for e.g. which has games, networking and video conferencing all built into one app to keep in touch with friends and relatives.

Houseparty

The apps that have moved away from my “home” screen, which I expect will come back once the crisis will be behind us include – Uber, Lyft and all the airline apps from Delta, Alaska and United.

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Perseverance with the Ability to Pivot on Data: 21 Traits We Look for in Entrepreneurs

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Perseverance with the Ability to Pivot

There are 5 key inflection points I have noticed which makes founders question their startup, to either make a call to continue working on their startup, pivot to a new problem or quit their startup altogether.

It is at these points that you really get to know the startup founder and their hunger and drive to be successful. I don’t think I can characterize those that choose to quit as “losers” or “quitters” because of many extraneous circumstances, but there is a lot of value that most investors see in entrepreneurs who face an uphill part of their journey to come out on the other side more confident and stronger.

These five inflection points are:

  1. When you have to get the first customers to use and pay for the product you have built after you have “shipped” an alpha / beta / first version. Entrepreneurs quit because they have not found the product-market-fit – because the customer don’t care about the product, there is no market need, or the product is really poorly built, or a host of other reasons.
  2. When you have to start to raise the first external round of financing from people you are not familiar with at all. Entrepreneurs quit because while it is hard to get customers and hire people, it is much more harder to get a smaller set of investors to part with their money, if you do not have “traction”, or “the right management team” or a “killer product”.
  3. When you have to push to break even (financially) and sustain the company to path of being self sufficient. Entrepreneurs quit at this stage because they have now the ability to do multiple things at the same time – grow revenues and manage costs, and many of them like to do one but realize it is hard to do that without affecting the other. So, rather than feel stuck they decide to quit.
  4. When you have to scale and grow faster that the competition – which might mean to hire faster, to get more customers, to drive more sales, or to completely rethink their problem statement and devise new ways to grow faster. Entrepreneurs quit at this point because they are consumed by the magnitude of the problem. They overassess the impact the competition will have on their company, give them too much credit or focus way too much on the competitors, thereby driving their company to the ground.
  5. At any point in the journey, when the founders lose the passion, vision or the drive to succeed. Entrepreneurs quit a these points because they have challenges with their co founder, they don’t agree with the direction they have to take, or encounter the “grass is greener on the other side” syndrome.

While I have observed many entrepreneurs at these stages at  discrete points in time, I have also had the opportunity to observe some entrepreneurs in the continuum, and I am going to give you my observations on 3 of the many folks I have known, who, have quit.

Perseverance separates great entrepreneurs from good ones
Perseverance separates great entrepreneurs from good ones

One went back to college to finish his MBA after getting a running business to a point of near breakeven, another found the business much harder than he originally thought he would and got a job at a larger company and the third was just unable to have the drive to go past 11 “no’s”‘ from angel investors.

Over the last 8 years, if I look at my deeper interactions with over 90 entrepreneurs, who I would have spent at least 100+ hours each, I would say that of the 24 people that are not longer in their startup, the one thing that stands out among the ones that persevere is that it is not “passion” or “vision” at all.

It is the inherent belief that they are solving a problem that they believe is their “calling”. They also don’t believe that there is any other problem that’s worth solving as much, even though there may be easier ways to make money.

So most of my questions of entrepreneurs to test whether they will pivot or quit are around why they want to solve this problem (which I am looking to see if they know enough about in the first place) versus any other one.

The answer to that question is the best indicator I have found to be the difference between the pivots, the leavers and the rest.

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