As an umbrella statistic, 9 out of 10 startups fail. In this unfortunate 90%, construction and information-based startups tend to have the lowest success rate.
These businesses can be run by driven, knowledgable founders — however, if the product presented to the market (no matter how innovative or well designed) isn’t desired by users, then it’s destined for failure.
‘Every optimistic entrepreneur needs a dose of reality now and then. Cold statistics like these are not intended to discourage entrepreneurs, but to encourage them to work smarter and harder.’ — Neil Patel
So what is it about the 10% that investors snap up? Why are their products so valuable when pitched to VCs and users?
Let’s keep it simple today and go over three easy startup evaluation metrics you should research and consider discussing when engaging interested parties.
- Growth: if a startup is showing growth, then it’s evident their product is the solution to a marketplace problem. Even if this is a simple perception the product is addressing a niche gap, it’ll still lead to growth and customer sign-ups. This is really important in Seed or Series A startups. Focusing on growth shows you’re really in tune with your customers’ needs and align your business with them, adjusting your product as they change.
- Churn: once you’ve established growth or customer acquisition (CAC or other growth metrics), it’s time to hone in on what your users are doing. If they’re cancelling or not renewing their subscriptions, or unsubscribing it can be the symptom of a deeper issue within your product. Maybe your product didn’t deliver as promised or your product/ market fit isn’t right. Customer churn, revenue churn and net churn are great metrics to measure this level of activity within your company.
- Gross Margins: If your company is growing fast and has a negative net churn, things are looking good! However, as time progresses, venture capitalists want to be sure of the return on their investment and not just subsidising a startup’s customer indefinitely. Eventually, the business model and profit margins become more important. The gross margin measures a company’s net sales revenue minus the costs of goods sold. The higher the gross margin, the more capital retained — looking much better to investors needing to see a return.
