If Revenue isn’t the True Measure of Start-Up Success, What Is?
You’ve been in business for three months and have reached your first revenue goal – success! Unfortunately, revenue alone isn’t the true measure of business success.
Why Revenue Isn’t King
Perhaps that early revenue was the result of a great sales team. And that’s fine. But if your product isn’t delivering the value it was promised to or truly solving a customer problem – how sustainable is that revenue? What about your potential market? If the business opportunity isn’t as you hoped, strong revenue now won’t help you down the line.
These are just a couple of examples, but already you can see that having more revenue than less, isn’t always a good success metric to shoot for, especially if you’re in start-up mode.
Profit Isn’t a Good KPI Either
Another problem with relying on revenue as an indicator of success is that revenue is only one half of the other equation – the other is profit. Yet, profit isn’t always an ideal indicator of success either. Consider this example. New start-up, XYZ Corporation has just broken even at the nine-month mark, and is finally making a profit. Yet XYZ is experiencing problems with late paying clients which is leading to a cash flow problem. As a result, XYZ is struggling to pay its bills on time and may even need to delay payroll. So, although the company’s P&L statement may indicate that the business is a success, the reality, as indicated by its cash flow statement, is quite different.
As you can see, revenues and profits aren’t always useful measures of success, so what is?
Measuring success begins with goals. Setting SMART goals (Specific, Measurable, Attainable, Relevant, Time-bound) early in your planning won’t just help steer your business towards success, it will help you understand when you’ve got there!
In the start-up phase one of your overarching goals and success metrics will be risk management. But that’s not specific enough, risk encompasses many things and can mean different things to different people.
One of the best ways to compensate for start-up risk is to take deliberate steps to ensure that your product or service is validated. This means knowing your market intimately, refining your product features, and fine-tuning your positioning.
As with any SMART goal, product validation must also be measurable and time-bound. For example, understanding when your product will break-even and you’re able to cover all your expenses and make a profit, is essential to managing risk.
Where do you start? Hopefully you’ve done a lot of market research already, and perhaps you’ve tweaked your product or service based on feedback, but how do you tie this all together to truly measure success? Immerse yourself in your market and quantify what you’ve learned. Then use this data to gauge whether your start-up has scale and is building a solid economic foundation on which to grow.
The following steps can help:
- Get to Know Your Market Extremely Well: Do your research. Know your target audience and understand their purchasing habits, influencers, etc. Who’s your competition? This is incredibly important in helping you position your product and talk to your customers in the right way. Here are some free sources of market data that may help.
- Understand your Costs: This is an essential metric that will help you understand the unit cost of doing business and how much money you’ll make per customer:
- Test your Product and Keep Refining It: Don’t lose sight of your product – keep refining it, testing new offerings, and making sure you always put product first, not the money it brings in.
The outcomes of this SMART goal isn’t revenue – but clear, empirical data that tells you that your business is making progress and on the right path. This data can come in many forms – website traffic data, social media engagement, acquisition and retention data, referrals, and other key indicators, including revenue, but just not revenue alone!
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