Back to Basics

Unicorns, dying unicorns, valuation markups and markdowns, up and down rounds. With so much volatility and uncertainty in the entrepreneurship space, what are founders and investors to think? It may sound obvious, but the truth is that to create a successful business, you have to create one with strong foundations and fundamentals. And you must evaluate those foundations and fundamentals with a keen and critical eye on an ongoing basis in order to stay on track.

For entrepreneurs, this means focusing on key metrics, like the ones outlined by Guy Turner in “The five steps of startup go-to-market,” where he provides specific metrics you need to measure in going from your first sale to scalable sales. For investors, this means continuing to seek out earlier stage startups with strong teams and ideas, then helping them build those startups into real, revenue-generating companies. As investor Rob Go explains in “The VC Market — 2015 and 2016,” it may be easier to invest only in companies that already have traction, especially as later stage investors are willing to jump on board and prop up or even increase valuations, but sooner or later (i.e. sooner), those later stage investors will want to cash out and will put in place terms like ratchet protection to ensure that they will come out ahead when they do.

Things in the startup space continue to look promising (Square is an example of a truly outstanding business built in a relatively short period of time), but it’s important to recognize when we’re getting ahead of ourselves with valuations supported only by others’ willingness to pay for them rather than actual business foundations. And as an entrepreneur, focus on measuring and improving key metrics so that what you are building is or will become a truly strong business.

-Teddy Lee, Contributing Editor