It is a maddening rush in the Indian ecosystem with the rise of startups, and the performance of investment in startups spiked over the years. The rise of these startups is a journey from its embryonic stage and becoming one Unicorn company. Indeed a long journey, yet a fruitful one. Today, the Indian startup ecosystem stands tall and is the world’s second-largest startup-friendly nation.
In the late 80s and early 90s, the best Indian human talents were confined to multinationals and large conglomerates. The fine elements of solopreneurs, entrepreneurs, and startups were not even considered career goals or choices back then. You might be wondering how startups germinated in India. Many of our fellow Indians secured jobs and moved to the West, countries like the USA, the UK, and Europe. The culture of startups and self-driven companies was prevalent there, which made many Indians rethink and plan a career transition.
Have you ever wondered what it will be like if you get the free will and the open culture to explore, build and create something unique yet economical and sustainable for society?
Today owing to your imagination and creativity, Indian startups are prevalent in sectors like Health Tech, Fintech, EduTech, etc.
As per a recent report, 20 new unicorn companies were added in 2022, and the total funding raised stood at $94 billion.
(Source: Startup Online Course Poster – Poster (canva.com))
How to measure the success of a startup?
(Source: Orange Modern Investment Promotion Instagram Post – Facebook Post (canva.com))
If you are a startup founder or a possible startup enthusiast, you might be wondering how to measure the success of a startup. Your startup is always an evolving venture. It is always a journey, and you never finish. It is thus imperative to understand how to measure the success of a startup.
As your venture grows from an embryonic stage to a mature stage, irrespective of the products and services you offer, your customers and their satisfaction is a key. If your customers do not subscribe to your products or service at the initial stage, converting them into repeat customers is very difficult.
Your venture’s success largely depends on how well you encapsulate customer feedback and regularly improve your products and services. Many new features are added as a result of repeat customers owing to their loyalty and feedback. You surely don’t want to find yourself in a situation where you are stuck with only 20 customers. It should ideally serve as a red flag indicating the business venture is stagnant and needs a revamp. As a performance indicator, you can use and calculate the average number of customers you add each week or month. The higher the number of customers added, the better your venture performs.
In a competitive environment, you must stay relevant and ahead of the competition. To a large extent, the race for relevance determines the success of your startup. In a declining demand trend and profitability position, use it as an indicator to introduce new products and services that will accelerate your revenue potential and win over the competition.
Growth metrics
If growth metrics are not built and designed to cater to your business requirements, tracking the performance of your venture and bridging the gap between expected and actual performance will be a daunting task.
An updated and relevant growth metrics will help you fetch investors at a later stage or when you seek funding. Many of these veteran investors look at the company’s growth phase and other profitability parameters before investing.
Here are some of the growth metrics that you can implement into your business model to track performance
- Retention rate: There is always a perennial debate about what is more critical: acquiring new customers or retaining the existing ones. According to a research report, nearly 44% of companies focus on acquiring new customers, whereas nearly 18% focus on retaining existing customers.
- It would help if you kept in mind that there is a cost involved in acquiring new customers and a time lag to onboard a new set of customers. Research and past experiences of successful ventures have shown that there is always a synergy in retaining existing customers wherein the turnaround time and the probability of a repeat sale are higher. Thus it can be rightly said that the higher the retention rate better the growth rate.
- Revenue from customers: As a startup founder, if you have just started, this metric might be a bit tough to implement, but as your venture scales up, it is an important metric to consider. It determines the revenue generated from existing customers. You can perform a trend analysis and compare the revenue earned in the current year versus the previous year.
- Return from marketing and advertising spends: At some point in time, it will be important for you to spend on marketing and advertisement, which will help scale your venture and reach greater heights. However, the return in terms of more customers and better traction ultimately leads to higher revenue. If the revenue earned is not more than the spent, it does not make sense to spend on advertising in the next business cycle.
Key financial metrics for small business
Along with qualitative metrics, you should be aware of the key financial metrics for small businesses. You can implement these financial metrics in your venture on an ongoing basis.
- Break-even point: The break-even point is the state or position where there is no loss or loss of profit. Every successful startup, at least, tries to break even and then think of profit. At this point, you have just managed to cover your expenses, and if you generate revenue beyond this, you start earning profit. The Break-even point is the base case scenario; however, profit is the best scenario for any business venture, irrespective of its magnitude.
- Net Profit Margin: Every business venture established as a going concern, irrespective of its size and magnitude, strives to earn a higher and positive net profit margin. A higher net profit ensures the liquidity and solvency of the venture.
- Cash Burn Rate: In every industry and sector, both domestically and globally, cash is the key. This metric help you understand the amount of cash spent on different activities. It also helps you cut back on your cash spending if there is excessive cash burn. A lower cash burn rate is ideally preferred.
These are some key financial metrics for small businesses wherein you should implement them in your venture and keep track of them.
Key Performance Indicators
Have you ever imagined why some startups are immensely successful while others are not? The idea, of course, is the primary reason. However, many startups fail to set and develop key performance indicators (KPIs) for their ventures. Not knowing what to achieve and when to achieve it is one major setback a startup venture can face.
As the chief executive of your venture, you must define and set key performance parameters or KPIs with well-stated goals and objectives for your startup company.
If your startup venture is into product manufacturing, some of the important KPIs could be employee productivity, the efficiency of resources, turnaround time, etc.
However, if you are a service-led firm, some important KPIs could be customer satisfaction, retention rate, revenue per customer, net promoter score, etc.
It is important to note that you should set KPIs for your employees and overall firm that are realistic and achievable in the short and long run.
Performance of Investment
The biggest investment in your startup venture is the idea and the money you put into developing your business. As a startup founder who has already invested blood, sweat, and money into building the business from scratch, it is important to understand the performance of investment. It takes time for any promising startup to explode and eventually become a unicorn company.
Your initial customers, the KPIs you set, your professional network, and other important decisions will eventually determine the investment performance.
