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The three metrics of a startup

We all have way too little time on our hands, and when starting a business, time and focus will shift further. The success of your startup has three sources: focus, focus and focus. So instead of making a complete dashboard (something that I do however recommend in most cases), there is a minimum of measurement your startup needs:

1. When will we run out of cash?

Take the current position in the bank; calculate the cash-implications of all costs and investments you committed to. Then you calculate all the sure revenues (that is for services rendered and products sold, not future sales). Put all these costs on a timeline when they are due. This will show the date your new venture will run out of cash if you can’t find new money coming in. This date is a very specific instrument on managing costs. When you look at expensive decisions, especially the ones with a longer commitment (hiring staff, renting a building …) this shows you how much time of existence you put in the balance.

Besides that, it keeps you (and your team) focused on those things that bring in fresh money…

 

2. What’s our Sales Funnel (really) worth?

When all goes well, you know who you can and will sell your products and services to. Every opportunity to do business in the future should be recorded somewhere. No fancy and expensive systems needed, but you need to evaluate where you are with the sales. If you understand the values of a good CRM, you could use one of these systems (but take into account they might come with a cost in acquiring and maintaining – impacting your first metric). You could have a look at methodologies such as Solution Selling, to evaluate where an opportunity is, and how much chance you have in sealing the deal. This could be as low as 0.02% chance if you just met the person yesterday at a cocktail, and be over 50% if he called you to tell that he will order from you. Once you evaluate all opportunities, you know what is coming to you in new business. Look at metric 1 and know if you are selling enough to keep the door open any longer.

When evaluating the funnel, be honest with yourself: all enthusiast salespersons will believe that anyone they have met will buy one day. Look at your past success rates. If you make this too optimistic, you are fooling yourself and your company.

Understanding the funnel value will allow you to reverse engineer the sales process and show you how many hits you need on the websites, to get a certain amount of subscribers to your services for example. If you are in a classical sales model, these metrics will give you an idea as well in how effective you are. If you have sent out 50 quotes and made no sale, you know that you need to look into the reasons why this conversion is weak.

 

3. How productive have we been lately?

We all have goals in operations. It’s not easy to make a generically applicable model for all startups. In your organization, try to understand what the elements are that differ you from the rest and what the elements are that ensure your current (and future) success.

The objective of this exercise is to understand what makes your operations valuable for your customers. Some of this metric will be based upon your feeling and recent experience. No need to do a survey amongst all your customers to value satisfaction if you hear them often and know (by asking, not guessing) how pleased they are with what you offer. If you have systems in place that support your operations (product sales, support systems, incident management, timesheets – you see where this list goes) take the relevant outputs as a metric.

 

Shared Secrets?

If you hope that your team is feeling your will to succeed, share these metrics. Don’t forget to explain WHY these metrics are important, AND that using them is a way to focus. Beware however on how you deliver these messages. If you tell a member of your staff that you will run out of cash in 7 weeks, you need to bring the message showing what actions are taken and how the sales funnel is important. If you fail in explaining this, staff might understand from your words that they are on a sinking ship – and that’s not the message you are aiming for, right?

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This entry was posted on Saturday, August 13th, 2011 at 11:08 and is filed under business, entrepreneur, startup. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Written by: Koen Blanquart

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