What Metrics Are Overlooked When Assessing a Startup's Potential?
In the quest to uncover the next big startup, we've gathered insights from investment professionals, focusing on often-overlooked metrics. From considering customer retention rates to analyzing SEO and keyword research, here are the top six expert opinions, including those from CEOs and managing partners, on the hidden indicators of a startup's potential.
- Consider Customer Retention Rates
- Assess Founder Qualities
- Evaluate Founder's Growth Mindset
- Examine Talent Density
- Review Roadmap and Adaptability
- Analyze SEO and Keyword Research
Consider Customer Retention Rates
One often-overlooked metric when assessing a startup's potential for success is customer retention rate. While many focus on metrics like revenue growth or user acquisition, the ability to retain customers is a strong indicator of a startup's long-term viability and product-market fit.
For instance, we worked with a SaaS startup that initially struggled to scale. By analyzing their customer retention data, we identified gaps in their user experience and customer support. Once these issues were addressed, their retention rates improved significantly, leading to more stable and predictable revenue.
Customer retention highlights not only satisfaction but also loyalty, providing insights into how well a product or service meets market needs. It's a clear sign that the startup is delivering ongoing value, which is crucial for sustainable growth. Investors and founders should pay close attention to this metric, as it often reveals deeper insights into the health and future potential of a business.
Assess Founder Qualities
The ultimate indicator: Founder, and (ideally) founding team. We spend a lot of time on TAM, SAM, SOM; product-market fit; GTM strategy; and building out the ICP and revenue model when looking at trajectory…but nothing, nothing is as important as the quality and clarity of the founder.
Are they working the business full-time? Are they humble enough to take tough feedback? Do they exhibit “relentless resilience” to keep going amid setbacks? Do they have a partner (personal or professional) who can be the integrator to their visionary? We need to be examining these “soft” metrics on founder strength just as we do the “hard” metrics on business viability, because the founder(s) is the beating heart of its future.
Evaluate Founder's Growth Mindset
One critical indicator that is often overlooked when assessing a startup's potential for success is the founder's capacity for growth and willingness to embrace feedback. While factors like the market opportunity, business model, and team are crucial, the founder's mindset can make or break a startup, especially in the early stages.
Look for founders who:
- Actively seek out and internalize feedback, even when it's difficult to hear. The best founders are coachable, using constructive criticism to continuously improve themselves and their business.
- Demonstrate self-awareness about their own strengths and weaknesses. Founders who can objectively assess their own limitations and surround themselves with people who complement their skills are well-positioned to adapt and grow.
- Display flexibility and a willingness to pivot when necessary. In a fast-moving startup environment, being overly attached to a particular strategy can be fatal. Founders need the humility to admit when something isn't working and the agility to course-correct quickly.
Evaluating a founder's openness to feedback and capacity for growth is admittedly challenging in a short pitch meeting. But by diving deep on their self-insight, observing how they respond to tough questions, and referencing how they've handled past mistakes and pivots, you can get a sense of whether they have the resilience and adaptability to navigate the inevitable challenges of building a startup.
While traditional metrics like traction, team, and market size are important, don't underestimate the power of a founder's mindset. Betting on founders who are wired for continuous growth and have the humility to always be learning can pay major dividends in the long run.
Examine Talent Density
One often-overlooked metric in evaluating a startup's potential for success is the “density of talent.” This concept highlights the importance of assembling a team filled with highly skilled and educated professionals who can operate with a high degree of autonomy and minimal need for constant cross-referencing or validation. In such an environment, the collective expertise enables the company to progress at an accelerated pace, significantly boosting the startup's ability to grow and succeed in a competitive market.
Review Roadmap and Adaptability
One indicator often overlooked when assessing a startup's potential for success is the long-term vision and adaptability of its roadmap and business plan.
Startups may begin with a compelling idea, but sustaining success requires a solid foundation with contingency plans (Plan Bs and Cs) and a clear path for evolution. For product-based startups, considering versions beyond the initial launch and how far the product can evolve is crucial.
Many entrepreneurs underestimate the importance of this forward-thinking approach. However, it's vital to view startups not just as a launch but as a sustainable entity from the outset—a reality check often overlooked in the excitement of starting up.
Analyze SEO and Keyword Research
As a growth consultant working with early-stage Web3 startups, one often-overlooked metric I recommend investment professionals consider when assessing a startup's potential for success is keyword research and SEO opportunity.
Diving deep into keyword research using tools like SEMrush can reveal the true market interest and competition for a startup’s products or services. For example, if there's a high search volume for keywords like “uncollateralized crypto loans,” it indicates strong market demand. On the flip side, if the competition for “enterprise blockchain” is excessively high, it might suggest saturation, but don't let that deter you! Instead, look for niche areas or specific underserved problems within the broader market.
This isn’t just about numbers; it’s about understanding the audience’s intent and needs. Combining this insight with the unique dynamics of the niche can provide a solid foundation for assessing a startup’s viability. By understanding what potential customers are searching for and how competitive the landscape is, startups can strategically position themselves for growth.
