Rabbit in the Hat: Early Signs of Success for Startups
This week, I talked with a friend of the founder, who is working on an exciting project in Singapore. It made me realize the dilemma sometimes facing founders when raising their first check from VCs—how to demonstrate traction when the business is still in its early days.
Showcasing early signs of success isn’t just about raising capital; it also helps founders keep the team together when times are tough. However, in the early days of a startup, success is infrequent and takes time. So sometimes, it’s important to find creative ways to demonstrate and articulate back to the team the great work that they are doing. This is especially true when the team is comprised of a group of high achievers, who can sometimes be a curse as they are more prone to becoming impatient at the lack of progress.
During a talk by Nvidia’s founder, Jensen Huang, he talked about how Nvidia places minimal emphasis on commonly used financial figures, as they could be lagging indicators of business development. Instead, they focus on some early indicators for decision-making guidance.
Here, we’d like to compile a list of ways founders can demonstrate progress and early signs of success. With these metrics, showcasing early signs of success will no longer seem like “pulling a rabbit out of a hat.”
Acquiring Customers
Product Market Fit:
Creating a waitlist: Having a fast-growing waitlist could be the whole basis of a pre-seed fundraising discussion. But more than that, it also helps founders gain insights about the pain points for their customers once the gradual onboarding starts. By onboarding different batches of users, the founder can also A/B test different pricing plans and product features.
Customer Engagement:
Social media engagement: This is especially vital for low-touch companies, where customers can self-onboard themselves, and sales cycles are typically short. To be really scalable, the dollars spent on acquiring a new user should at least return the dollars needed to acquire the next two. Therefore, social media engagement, such as being #1 on Product Hunt, raving comments in the YouTube Ads comment section, the number of Instagram followers, and Twitter posts shared, can all be excellent early indicators of potential user acquisition efficiency.
Using a combination of other engagement metrics, both qualitative and quantitative, can also give you a comprehensive understanding of your customer engagement. The metrics include MAU (Monthly Active User), DAU (Daily Active User), Churn & Retention rate (you can refer to our previous blog on early SaaS metrics for more details), and NPS (Net Promotion Score).
Converting Customers
Conversion Metrics:
Traffic-to-lead, Lead-to-sales: These conversion rates look beyond the simple number of visits to your website. They shed light on the quality of your traffic and could ultimately help to enhance your marketing ROI. This is especially relevant for e-commerce or SaaS businesses, where your website serves as the main tool of user interaction.
Expanding Customers
Upsell on Key Customers:
Upselling: For high-touch companies, where sale cycles are typically long and hands-on, demonstrating the ability to upsell on a few key accounts massively is also a powerful indicator of a scalable business.
Operation Efficiency:
Burn rate: This metric measures the capital efficiency of your early-stage business development. Burn rate is one of the best indicators of how efficiently you can scale your business operation.
I was once the founder of a company that is nowhere near the pedigree of companies that I’m fortunate to meet nowadays. Still, at its height, I was leading a team of 20 people. That experience taught me the importance and challenges of keeping a team focused and motivated on a mission. What I’ve learned is that with the help of the metrics mentioned above, bringing small wins to your team and your investors on a regular basis is an incredible way to drive momentum and speed forward.
Let us know in the comment below some unique indicators you use for an early-stage startup!
