Measurement helps with investment, management and exit
I realised when I first started to write this blog that I have a bit of an obsession with measurement. About 500 words in, I still had not reach my first point and it was clear that I had at least six articles rattling around in my head. I have decided to spare readers for now and focus on just one thing, the importance of measuring when looking at the investment potential of a startup.
Generally speaking, startup valuations lack any discernible frame of reference. Potential investors naturally fall back on financial projections because this is where they are comfortable or rely more on a gut feel about the product, the market and the people. There is no panacea which can make the future predictable for a new business but I believe non financial measurement should have a place in any startup evaluation.
The basis for this view is simple. The digital revolution has not changed the principles of business but it has transformed a couple of things. Measuring is one of those things. For businesses selling online or in the software and mobile apps world, it is already possible to measure and track just about everything. Without spending any money! Much of what you need and what a business owner could only dream about a few years ago is available in a couple of clicks through a bunch of fee tools, most prominent of which is Google Analytics. If you have a website of any kind go check this out. Number of customers, source of clicks, usage rate, page dwell time, sales rate and much more is just sitting waiting to be analysed.
Over time, as the tools become even better, as the mobile Internet adds location and other context data and as the Internet of Things starts to take a grip, the range of businesses for everything can be measured will grow and grow.
Great but what does this mean for the potential investor? Three main things:
Startups will never be a perfect environment. Even online measures will be based on a small user base and a limited timeframe. Like any measure they will also reflect the past and in the digital world, the future will most certainly be different. However, measurement is a tool that every investor and every leader in a Startup should be using and it can make a big difference to the chances of success.
Kenny Fraser is the Director of Sunstone Communication and a personal investor in startups.