Being on the right path
As the manager of Genesis Partners’ The Junction, I get to meet a lot of startups. To date, we have worked with 116 startups. Of those, 54 have received funding (more than $135M combined). Three of our alumni teams have been acquired by leading companies. It is a privilege to meet and assist these incredible early stage startups that are solving problems for a wide array of industries. Working hand-in-hand with the entrepreneurs is truly one of the greatest pleasures of my job.
But it’s not all roses and daisies. Getting a startup off the ground is really hard. There is not one founder who has walked through the doors of The Junction without some kind of existential question about their business. Every founder faces challenges, from small day to day issues, to big picture quandaries. Perhaps the most frequent question I hear is, “am I on the right path?” Followed by, “how do I know what’s the right path?”
From an investor’s perspective, there’s a clear answer to that question. Being on the “right path” means being able to measure, quantify and exceed key indicators of growth. Depending on your industry and customer, different verticals have different indicators. Venture capitalists and other investors look at these metrics when assessing a startup’s value. It could be financial metrics, customer/user performance metrics, growth metrics or something else. When a startup’s meets or exceeds these key metrics, it’s a sign that the company is on the right path.
In a future post, I’ll talk about the specific metrics startups can measure. Before we do that, however, we need to address one of the most common mistakes a startup can make, regardless of how far along the company is.
The mistake is failing to understand what you are doing and why you are doing it. It sounds simplistic, but if you don’t have a compelling answer to “What are you doing?” and “Why are you doing that?” you need to take a step back and work on your value proposition. When a startup fails to answer those two existential questions, it tells me two things. First of all, you’re not ready. Secondly, there’s probably a startup out there doing what you want to do, better than you.
Let’s flush this out a bit. Below are several questions that we might use to assess whether you are ready, and whether you can win the market. When you have answers to these questions, you can build a compelling value proposition, which in turn leads you to answer the WHAT and the WHY I mentioned above.
Why are you a great team?
Does your team have relevant experience or domain expertise in this venture? How is your team’s chemistry? Are you all aligned with your core business and the proposed value proposition?
When you say there’s a huge market with a big pain/problem to solve, what do you mean?
Do you have proof of an existing problem or potential problem? Can you back it up with market numbers, clicks on your landing page, and conversions from viewer to user? Is there any other way to prove there is a big market for your product or service?
How many potential clients do you have?
What is your total addressable market? How do you reach them? What are they generally willing to pay for other similar services? How is the market growing?
What is your competitive advantage?
Who are your competitors? Are the users locked in with a competitor with some sort of monthly or annual contract? Do they prefer to buy online or only from salespeople? Do they need help with setting up your product or can they use it as is? How are your competitors approaching their users?
What is your primary KPI (Key Performance Indicator)?
How do you define success? Is it the number of paying customers? Is it the DAU/MAU metric? Is it user engagement?
Answer these questions, understand your value proposition, and internalize how your startup can provide this value. When you’ve done that, it’s time to launch your MVP. As I mentioned earlier, the next step on your journey is to measure, quantify and exceed key your indicators of growth. Stay tuned for the next post on what those early stage growth metrics look like.
In the meantime, here’s a good place to practice your pitch and work on your answers to the above questions: http://practiceyourvcpitch.com/