Calling All Student Entrepreneurs: Tell Us About Your Startup

How To Think About Growth Of Your Startup

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Jul 16, 2015

Anything that can't be measured does not exist. For startups this is a lexicon they should inscribe on stone and put before their eyes forever. Startup is incredibly hard journey. Ben Horwitz puts it in the best way possible: a startup is stupidly hard and pursuing a decision to start one is irrational because it’s a torturous experience.

Unfortunately, most startups fail-even after inhuman amount of hard work dedicated to them. Although, sometime you would not be able to avoid the catastrophe but often you can have an idea what is going to happen in your startup next. The idea is to measure your progress often. Measuring growth of your startup in a structured way is one of the few critical things you have to be religious about. 

Paul Graham-the man behind the unmatched success of Y Combinator-suggests:

A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on technology, or take venture funding, or have some sort of "exit." The only essential thing is growth.

But how do you know growth when you are not even measuring. Besides, measuring growth is not same for all the startups. For someone who sells pantyhose ‘sales is the most important metric to understand ‘growth’ and yet for someone who is doing a non-profit like Lifeline growth is users or number of people donating blood.

How Do We Measure Growth At Future Startup?

FS August Growth Figure
FS August Growth Figure

We have our own metrics of growth that we look at to understand how we are doing. We use few tools to understand month to month growth and to track major changes. There are few other issues we are focusing on as well. Every month we try to set a solid goal and work on it and measure our progress against that goal. We also focus on month to month comparison. How good you did compare to your last month is critical to understand your growth.

We are also focusing very much on the organic growth and what are the factors that are contributing to our organic growth. Measuring organic growth of your company is called viral co-efficient. A positive viral co-efficient means your business is in good position from multiple aspects that include product/market fit, low customer acquisition cost, positive customer experience and a high profitability.

Measure Your Progress

Measuring progress starts with setting target and measurement metrics. Your job is to set a target, SMART one, and go for it. Paul Graham put it brilliantly:

We usually advise startups to pick a growth rate they think they can hit, and then just try to hit it every week. The key word here is "just." If they decide to grow at 7% a week and they hit that number, they're successful for that week. There's nothing more they need to do. But if they don't hit it, they've failed in the only thing that mattered, and should be correspondingly alarmed.

Set A Growth Target

Your first job is to set a growth target for your startup. A short period target is good for early stage startups because it helps you to understand the validity of your idea and product-market fit.

Identify Key Activities To Achieve The Target

Now you know where you want to go and next thing you need to do is to find out what are the resources or things you need to do to get there. For most companies growth depends on customer acquisition and keeping revenue stream straight. But these goals don’t happen without reason. You need to work on your product and communication and strategy to achieve these goals. Find out the important changes and trends within your business and work on those issues. You might need to work on your platform, or give extra push to your distribution or rearrange your strategy. Find at least 3 things to improve and work on it. Don’t look away from this goal.

Focus

Stop being distracted by long term goals or any other priorities. Just keep your focus on these key areas that will directly contribute to your growth. Distraction often kills productivity and moral. Declutter your do list and priority lists and work on things that matter. In a recent Economist article Schumpeter asserts:

Clutter is taking a toll on both morale and productivity. Teresa Amabile of Harvard Business School studied the daily routines of more than 230 people who work on projects that require creativity. As might have been expected, she found that their ability to think creatively fell markedly if their working days were punctuated with meetings. They did far better if left to focus on their projects without interruption for a large chunk of the day, and had to collaborate with no more than one colleague. 

Use Metrics

There are hundreds of metrics that you can use but very few are really important. Here is a list of metrics to be serious about:

  1. Revenue: Sales is the king. This is the most important metric you need to keep track of. Set a solid goal and measure seamlessly.
  2. Customer Acquisition Cost (CAC): CAC tells you about your expense behind acquiring new customers. A high CAC metric means you need to work on your product and improve the offering. Like all other startups you will have to spend in customer acquisition but if spend more on per customer it will become difficult for you to compete in market.
  3. Customer LifeTime Value (CLT): The CLT is the value you expect from a customer during their stay with you. CLT is important for two reasons: it gives you a comparison for your customer acquisition cost. If your customer acquisition cost is higher than your CLT it means the situation is alarming for you and you need to act accordingly. On the same time it helps you ponder upon how to increase CLT of your customers.
  4. Viral Coefficient: Viral co-efficient tells you about the organic growth of your company. Measuring organic growth is simple: you put number of your current customers, then attempt taken to get each new customer and percentage of conversion rate from those new attempts. This conversion rate over a time period called viral coefficient. a positive viral coefficient means you are doing good and a negative viral coefficient means you need to be cautious about your growth.
  5. Retention: Retention is way more important than acquisition. customer retention rate tells you a lot about your product and services and tells you what you need to change and improve. Moreover, new customer acquisition is often costly than retaining an existing customer.

Growth is what going to keep you alive. If you can hit your growth target, everything is fine. And if you can’t, nothing is fine. Tear off all distractions: meetings, events, talks, everything and die for growth. As Paul Graham says: Startup = Growth.


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Ruhul Kader is a technology and business analyst based in Dhaka, Bangladesh. He is also the co-founder and CEO of Future Startup and author of Rethinking Failure: A short guide to living an entrepreneurial life. He writes about internet business, strategy, technology, technology policy, and society. He can be reached at ruhul@futurestartup.com

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