How Startups Measure Success Before They Generate Revenue
Let’s talk about whether or not you can determine a startup will be a success before it actually brings in any money. Because while there’s no good way to do that, there are some cheats.
First, let’s make sure we establish this fact: The only accurate way to measure the success of a startup is by using revenue as the basis of the measurement. In over 20 years of building and working with startups, I’ve learned that while revenue is not a predictor of success, it is the first objective marker. Until money comes into the picture, there’s no way to know which direction the business is ultimately going to go. Period.
Now, no one generates revenue on day one, at least not in a way that isn’t fluky or sketchy. Success takes time. And no one wants to waste their time on an idea that isn’t showing signs of being successful. Investors will all agree, I can assure you.
So while your startup has to get to revenue quickly, there are indeed a few signs that may mean you’re on the right track. Here’s how you read those signs correctly, along with some additional validation I like to see.
Before your startup has paying customers, it will have an audience. It could be a free-tier of customers, or it could be a collection of fans and followers. An audience is just the grand sampling of people who will become your customers once they discover your product, fall in love with it, and hand you money for it.
The sign that matters isn’t how large an audience you have, but how engaged they are. What you need to know is how many of them are using the product, how often, and for how long. If possible, you also want to communicate with them to know exactly how happy are they are with it, but more importantly, whether or not they can live without it.
That’s engagement. It’s hard to measure and easy to mistake. To illustrate how commonplace it is to misread this sign, I’ll relay a story from a founder of a B2B software company I know. Let’s call her Amy.
“I initially fell into the trap of getting as many betas confirmed as I could, but they were…