Metrics for Startup Success

What is the right startup success metric?

I was recently asked why we celebrate fundraising amounts as opposed to other meaningful metrics, such as revenue, recurring customers or staff size. To be perfectly honest, it’s a struggle to find intermediate metrics for startup success.

In our industry, funding is used often as a measure of success, but this is by no means a perfect metric. Just because you raise money doesn’t mean you should celebrate. Securing funding doesn’t automatically mean your company is going to be successful. Think Color or Quirky. If we measure success by fundraising, then these were huge successes. But clearly they were not actually successful.

There are other meaningful metrics to consider, such as impact, number of employees, amount of revenue or number of customers. All of these are reasonable intermediary proxies, and we take them as signals of success, which is the best gauge we have in this industry. But no one factor by itself is sufficient to compare the success of startups. For instance, you could try to use number of employees as a metric, but sometimes great companies are built and create a lot of value while hiring very few people (think Craigslist).

When we say that Techstars companies have raised $3 billion, that’s a proxy for activity, but it’s not a measurement of success. Ultimately the measure of success is the return on investment—and we’re fortunate to have some pretty great returns on Techstars. However, you don’t know how “successful” a particular company is until you actually get that return on the investment. The problem is exacerbated because we are also judged on imperfect intermediary metrics like funding by our capital partners. It’s the best we all have until companies are more mature. Startups are a long-hold, long-term type of asset.

In the long term, you can absolutely measure success based on return to investors. But on an intermediate basis, it’s truly a struggle to find the right way to measure startup success. I’m sure you’ll have some ideas for the comments.

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  • http://dewellconsulting.com Tom Dewell

    David, how long do you consider a company to be in the start up phase? Is there a metric for that? And how do you measure ROI for investors when so many companies, at least in the SaaS world, keep driving top line growth over profitability.
    Thanks
    Tom

    • David Cohen

      It’s a good question, and i don’t have a great definition. It’s sort of like porn, i know a startup when i see one. For purposes of this post, I’m talking about companies that are under 100m in value most typically.

      • Andy’s HVC

        I think it was Paul Graham from YC who defined a startup as a business experiencing rapid growth in an allotted time period, e.g. growth of 5% per week for X consecutive months.

        • David Cohen

          I think that is one kind of startup.

          • Quentin Levy

            Steve Blank’s definition of a startup: A startup is a temporary organization used to search for a repeatable and scalable business model.

  • Aditya

    National Entrepreneurship Network (NEN) inspires, educates, and supports student entrepreneurs, startups, and SMEs for creating high-value jobs. NEN has also ventured into creating city-based entrepreneurial ecosystems consisting of mentors, investors, and incubators supporting startups and SMEs. https://www.wfnen.org

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