The Key to Startup Success
Since being at Scale Venture Partners, I’ve worked with 40-plus enterprise startups throughout their paths to success. At Scale, we typically invest in companies after they have had early traction with customers and are looking for capital to scale the company. Based on my experience investing in and working with B2B startups, I’ve noticed a few common traits among the most successful ones:
Keep your eye on the metrics
This is the thing we focus on the most at Scale. Keep your eye on relevant business metrics so you can quickly assess the health of the business.
For many of our SaaS companies, the two most relevant business metrics are revenue (or ARR) growth rate and sales efficiency (we use the Magic Number). Track these metrics over time and on a quarterly basis. If the metrics improve, something is working, and that’s when we’ll apply more capital. If the metrics start to decline, that means something isn’t working, so take time to evaluate reasons for the decline and quickly start to make changes. After you make changes, continue to track your metrics to see if they improve. Your business metrics are the leading indicators of future success or failure.
Businesses fail when you run out of money. Watch your burn rate and make sure you are spending your cash wisely. Make sure every dollar you spend will generate a positive ROI for the company (your metrics will tell you whether it was a worthwhile investment).
The fundraising environment has become more challenging in the last couple of months. Try to extend your cash runway as if the last round of funding you raised were your last. Many venture capitalists are looking to fund businesses with sustainable growth that have a clear path to profitability.
Continue to innovate
As an investor, we partner with businesses for many years. During this time, the market you’re focused on will change, and it may be completely out of your control. Be aware of these market changes and be reactive to them. If customers are demanding X, listen to them and consider adding it to your product. Continue to add features that are useful for your customers and disrupt yourself with innovative ideas before your competitors disrupt you.
Focus on your customers
One lesson we learned while investing in SaaS businesses is the importance of having happy customers. Customer retention is key for businesses that have recurring revenue. Even if you are adding a lot of new customers, it is difficult to grow the business if customers are churning out. Spend time with your customers. Listen to them and make sure you’re building a valuable product that fits their needs. It’s a good idea to create a customer advisory board to collect feedback and exchange ideas with your customers. Happy customers also make the best marketers. If they love the product, they will advocate for you and help put you on the path to success in a capital-efficient way.
Finally, stay humble. Every great business we’ve backed has gone through multiple rough periods. Remember to stay humble, get help, and make changes to the company. You will be able to overcome these challenges and put your company back on the path to success.
Originally published May 1, 2016.