Its not about GMV ,Its about CAC,LTV & then EBITDA, PAT & not about downloads or visitors but users & retained users.
Published April 25, 2016 on LinkedIn.
When young startup founders determined to solve real problems gets tons of funding what should be there focus ? What is real metric to measure growth?
1} What is Bullshit metric? — No of app downloads, no. of visitors to your portal or GMV . These metrics may help you in showing initial traction to VCs or Angels & get you initial capital but no serious founder should rely on them to measure growth after funding.
2} Growing to death — Is it possible? Yes, If cost of acquiring customer is greater than lifetime value of customer or If your burn time is shorter & LTV cycle of customers is longer then for sure you are growing your startup to death. i.e. founder may end up burning all the money before reaching positive cashflow & in between investors might loose interest in funding further due to external, internal or n no. of reasons. This is hard mathematical probability. And reason why majority of startups fail. So founders should know where they want to take their own journey & that of all other stakeholders.
3} CAC & LTV — Cost of acquiring customer & Lifetime value of customer is so important that once you create your business model & certain image in front of customers it becomes very difficult to change it later. Also know that it cost almost double to acquire the customer you might have lost. So If you want to build sustainable exponential growth then know that discounting is not differentiation neither it is disruption neither it will help you in creating dominant market position. Afterall when you are discounting there is high mathematical probability that you may burn all cash & acquire dominant market share & then if you cant raise further capital within 30 days you might loose all acquired market share to another player who has got capital. So decide if you want to create your own destiny or if you want to burn yourself out to the end of runway. If runway proves short your flight may never take off.
4} Quality of users — By giving freebies you are not creating entry barrier & if there is no reward to loyalty even fanatically loyal customers may also become disloyal. Know that after raising initial rounds if you want to control your destiny it is important to have retained loyal customers who will be with you always & will give you much required positive EBITDA & Profits to fund sustainable exponential growth. Look @ Apple, this model works & works pretty amazingly.
5} There is cardinal 80:20 rule in business i.e. your 20% of customers will always give you 80% of revenue. In B2C business this no. may vary to even 70:30 or 60:40 but always know who are your best customer with help of data analysis & focus to keep them always happy. Afterall If you are venture capital funded startup then first investors will fund you & then @ some point of time investors are replaced by customers.
6} Employees — Keep your employees happy, build positive culture, dont get into culture of hire & fire . If you dont have satisfied & proud employees its high probability that you will have dissatisfied customers & that is the biggest mistake you can ever do in building sustainable business.
7} To remain profitable @ unit economics level is important. Profitability gives optionality to founders when one has to suddenly Pivot from hyper-growth to profitability as funding tap runs dry due to market situations to keep going. Weather to retain that profit in books or reinvest it in growth is take founders can take with other stakeholders like in case of Amazon but to know that your internal growth engine is self sufficient gives 10x booster on strategy & execution.
Last in the word’s of Warren Buffet build your business in such a way that it wont matter to you even if access to capital is shut down for 10–15 years.