What does success look like before we can measure jobs & fundraising?
Every city with economic development policy focusing on entrepreneurship needs a way to measure and demonstrate return on investment. Every dollar spent on supporting startups needs to be justified to the civic organizations, grant-makers, private economic development corporation boards, and the citizens in that community.
The two most commonly-used metrics are Jobs Created and Funding.
These are good metrics, but they are part of the long game.
Lots of communities have read and subscribe to Brad Feld’s Boulder Thesis, which hypothesizes that it’s going to take our communities 20+ years to develop a vibrant and self-sustaining startup ecosystem. Measuring job creation and funding rounds is part of this long term strategy.
But if your ecosystem is less than 10 years old, your startup landscape probably consists of a lot of very, very, very early stage companies (compared to the ones that are just normal early stage companies — the ones with employees and funding). These companies are too early to have employees. They’re legitimately too early for funding.
So how do we define and measure their progress?
Currently, many startup ecosystems measure the vitality of their community by the number of startups in existence. Some of the more sophisticated communities are probably also tracking which of those startups have increased employee count and/or raised funding.
This is a crude but useful baseline understanding of what is happening in the community. If an ecosystem goes from five startups to 10 startups, they’re making progress!
However, this is not nearly enough information to understand if the economic development efforts being poured into the ecosystem is effective.
What if in the course of one year, three of those five startups from the previous year raised funding and moved to San Francisco while eight new founders launched their startups and are in the process of trying to land their first customers? This gives a much more nuanced view of what is happening in the community — both in terms of “progress” and — more importantly- in how and where the ecosystem should double down on resources.
What we need is a way to assess and diagnose the health of our startup ecosystems.
We need a more fine-tuned metric of startup progress.
At Fluent, I talk non-stop about the usefulness of the Founder Roadmap as a tool for founders to focus and work on the right thing at the right time. It can also be used by economic development professionals to assess the stage of progress for each startup in their ecosystem.
Take a minute and think about your ecosystem:
- How many of your founders attend startup events because they want to start a company, but haven’t done it yet? They are in Stage 1: Get inspiration to start working on a startup.
- How many of your founders have just started out and are either doing customer discovery or need help thinking through idea/market validation? They are in Stage 2: Validate the idea and market opportunity.
- How many of your founders are in the earliest stages of building a product or are stuck, unable to build product because they have fallen into the “need funding to build product, can’t build product without funding” trap? They are in Stage 3: Develop and test solution with early customers.
- How many of your founders are trying to solve the scale problem or are running zombie startups — have a few customers and seem like they should be growing faster than they are, but seem to be stalled out (and again, are probably complaining they need funding but keep getting told they are “too early”)? They are in Stage 4: Accelerate growth by developing predictable, repeatable processes.
- How many of your founders have raised money or have enough revenue to hire their first handful of employees? They are in Stage 5: Scale business beyond early adopters.
Once you have a baseline of raw numbers organized by stage, you can watch and measure progress as they move from stage to stage.
This mirrors the work founders do to measure progress within their company. Once founders have some baseline numbers for how many people learn about their product/service and then convert to customers, they can begin tracking and testing ways to optimize their pipeline for greater efficiency (greater % conversion) and velocity (faster conversion).
Economic development leaders that are committed to helping founders can apply this same methodology to ensure the money and resources invested into the startup community are doing the good work everyone wants them to do.
Here is a very small example of how this can look.
Five startups at the beginning of a program…
And then at the end…
As you can see from these slides, this entrepreneurial program invested economic development funds to help five startups make progress in a short amount of time. Four of the five companies started the program in the Validate stage. One started at the Test stage. By the end of the three month program, 3 of 4 Validate stage companies progressed to the Scale stage (moving through three stages). The other two companies progressed from where they started to the next stage. All five companies are super early, but measurable, quantifiable, reportable progress has been made.
More importantly, it can be optimized. Once we know what results to expect from the community’s current programs and resources, we can evaluate and experiment with these inputs to improve outcomes. We can look for ways to increase efficiency (increase in startups going from idea to growth stage) and velocity (increase in startup moving through these stages faster).
Why does all of this matter?
It matters because our startups need thriving ecosystems that support them through the messy and chaotic process of creating value out of thin air. Lots of people will say startup success is largely driven by luck.
Luck is what it looks like when you don’t know how to measure, experiment, and optimize to get the results you want.
This post was originally published on the Fluent blog on February 20, 2018. Thank you to Lana Zumbrunn, Delaney Keating, Bob Crutchfield, and Yuval Yossefy for reading and providing feedback on the drafts.
In 2018, I am testing the applications of the Founder Roadmap with 100+ startups in accelerators and startup ecosystems all over the world, starting with Velocity Accelerator and Engler Agribusiness Program. If you’d like to chat about integrating the Founder Roadmap into your program, shoot me an email at beth@fluentstudio.co.
