While sitting around the proverbial coffee shop with your professional friends, one day you finally stumble on the “leap idea.” You know, that idea that makes you quit your job at iContact or Red Hat or Bronto.
The idea is hatched. The excitement is unbelievable. You are grounded enough to not think about the spoils three years out when Google buys you (the obvious measuring stick). But what about next month? Or more importantly next year? How are you going to measure success over those time periods?
I wrote about a particularly thorny issue a few weeks back regarding local investor advice. Turns out that sometimes investors and the firm founders have different ideas on how to measure progress. Go figure. Surprised? If so, take a few steps back.
You see, when you take someone’s money you also invite them into bed with you. And one man’s high five is another man’s hmmm. This is not bad or wrong and if you can’t understand or live with this then don’t take their money. It’s just the way it works. There are plenty of great examples of local firms who are kicking arse that have done this without professional money (Sageworks and Sharefile come to mind).
So, if you are going to take investor money, you best start setting a framework for measuring progress. Some obvious metrics include revenue and profitability but you are a long way from that point. Typical early-stage milestones may include releasing a 1.0 product or getting your product out on second-wave platforms (browsers, mobile OS’, etc.). These are more milestone-based measuring sticks and they can work for a while but I promise you they will quickly fade in importance. For most web-based applications and mobile apps, your board will want to chart the number of customers acquired (free, trial, paid). These are quantifiable and thus will bring both a comfort to your board as they can be easily articulated but may possibly bring some discomfort for you; shoot, now we have to deliver.
Eric Ries and others in the Lean Startup movement argue that measuring customer engagement, even for a small number of customers, is a much better way of tracking progress in year one. His argument is compelling that in this Build-Measure-Learn software world, you will find your true customers more quickly and ultimately build a more relevant product for the long term.
I like it, but can you sell it to your investors? Because if they don’t buy-in then friction will invariably creep into your board meetings.
The takeaway? Start the discussion early on and outline mutual measurable goals for the next 1-2 years. Consider using user feedback metrics instead of product development based metrics as they are better indicators of future success.