Growth rate in revenue or active users is the paramount startup metric

From Startup = growth by Paul Graham:

If there’s one number every founder should always know, it’s the company’s growth rate. That’s the measure of a startup. If you don’t know that number, you don’t even know if you’re doing well or badly.

When I first meet founders and ask what their growth rate is, sometimes they tell me “we get about a hundred new customers a month.” That’s not a rate. What matters is not the absolute number of new customers, but the ratio of new customers to existing ones. If you’re really getting a constant number of new customers every month, you’re in trouble, because that means your growth rate is decreasing.

During Y Combinator we measure growth rate per week, partly because there is so little time before Demo Day, and partly because startups early on need frequent feedback from their users to tweak what they’re doing. [6]

A good growth rate during YC is 5-7% a week. If you can hit 10% a week you’re doing exceptionally well. If you can only manage 1%, it’s a sign you haven’t yet figured out what you’re doing.

The best thing to measure the growth rate of is revenue. The next best, for startups that aren’t charging initially, is active users. That’s a reasonable proxy for revenue growth because whenever the startup does start trying to make money, their revenues will probably be a constant multiple of active users.

The number 1 growth hack

From Jason Lemkin, in Jason Lemkin: The Right Sales Metrics for Your SaaS Startup:

Everyone’s got growth hacks – some work well, some don’t. There are a whole group of entrepreneurs that have already had one successful SaaS company, and they’re working on their second SaaS company. You want to know what all of these guys are doing? They’re way over-investing in the beginning in customer success. Most first-time entrepreneurs hire one person for success, and then do it as cost center and hire maybe one customer success manager for every $2 million in revenue. Those of us that have done it before know that making your customers happy isn’t just a good thing to do, it creates all your subsequent revenue down the road – 80% of it. Overinvest in customer success – that’s my #1 growth hack. That doesn’t get you to your first 10 or 20 or 100 customers, but that’s the best way to turn those 100 customers into 1,000.

(1) See Product strategy — retention trumps acquisition and Why retention is the key to growth.
(2) Thank you Andrew Fine for the tip.

Don’t try to learn from failure

Excerpt (edited) from You Can’t Learn from Failure, You Can Only Learn from Success by Jerry Neuman:

Any complicated system is too complicated to learn from failure. Yes, you can learn a few tricks, like: “don’t spend all your money on fancy chairs” or “don’t hire your college drinking buddies as EVPs of Business Development.” But all you can learn from failure is to avoid that particular kind of failure. And so what? There are too many other kinds of failure for that to make any difference. You need to learn from success. You should be spending your time trying to learn from success.

The successful entrepreneurs I have known have had the ability to look at a failure, any failure, and pull out the couple of things that were done right. These are what they focused on.

If you’re going to learn from failure you need to learn how to avoid every possible way you can fail. It’s a waste of your time. You only need to learn one way to succeed.

Minimize internal co-ordination costs

From Blake Masters’ notes on Peter Thiel’s 2012 course on startups at Stanford:

Companies exist because they optimally address internal and external coordination costs. In general, as an entity grows, so do its internal coordination costs. But its external coordination costs fall…

Size and internal vs. external coordination costs matter a lot. North of 100 people in a company, employees don’t all know each other. Politics become important. Incentives change. Signaling that work is being done may become more important than actually doing work.

These costs are almost always underestimated. Yet they are so prevalent that professional investors should and do seriously reconsider before investing in companies that have more than one office.

Severe coordination problems may stem from something as seemingly trivial or innocuous as a company having a multi-floor office. Hiring consultants and trying to outsource key development projects are, for similar reasons, serious red flags.

Three crucial factors in sales success

From How to Conduct a Premortem to Win More Sales by Jill Konrath:

When I think about all the business I’ve lost over the years, 3 main themes come to mind:

1) I overlooked some critical piece of information.
2) I wasn’t working with the right decision makers.
3) My prospect decided it was easier to stay with the status quo.

Knowing that those are my main themes gives me the ability to think about them seriously before I meet with my prospects. If I feel that I’m missing some vital info, I’ll stop and ask about it before I rush blindly forward.

(1) This advice applies to bus dev as well as sales.
(2) Jill’s antidote to “rushing blindly forward” is to “stop and ask about it”. Cf. To sell, ask and listen.
(3) The importance of asking questions and listening comes up so frequently that I’ve now created a separate category for it in my list of posts by topic.

How to help people make introductions for you

Excerpted from Introductions and the “forward intro email” by Roy Bahat:

If you ask me to introduce you to someone, I’ll sometimes say: “Please write me an email I can forward to them.” You’d be shocked how often I get back something unusable. Here’s what I mean when I ask for a forward intro email. A good forward intro email:

1. Says why you want to be introduced.

2. Includes its own context — enough about you or your startup so that the receiver understands what’s being asked. Always helpful if it includes what’s special about your startup, increases the likelihood the person will want to meet you. Attach a file if you think it makes sense (a deck, longer summary, screenshot).

3. Uses only as many words as you need — the receiver is going to glance at the email, and decide whether to talk to you. A recap of other things we talked about when we met distracts.

4. Sounds like you — I really have zero preference about whether you’re formal or loose, so emoticon away.**

5. Starts a fresh chain, with a fitting subject line, for each introduction — if you write a forward intro email as a reply to a long string between us that costs me time. Subject lines like “Forward intro email for Karin” also cost me time to fix.

Are purpose and relationships the key to work happiness?

Edited excerpt from 6 Ways to Recover Joy at Work by Lawrence Chong:

In our decade of work in transforming Asian companies, we found that the solutions to bring joy back to work are surprisingly simple and cost-effective:

Create clarity of purpose: Leaders should explain the rationale and the value of doing things on a regular basis and at all levels.

Design teamwork: Design policies and reward systems that recognize the team that made it happen. Identify moments when departments reached out to each other to solve a problem.

Manage differences: Have people trained in mediation and regularly intervene to address frictions in a calm manner with proper facilitation.

Put relationships first: Helping new employees to get to know others when they join the company, or allowing people to share three minutes on how their week went during weekly sessions can go a long way to establishing an environment that is joyful.

Create relationship-based HR: Create a separate HR department focused on relationship management.

(1) This advice seems to be designed for large Asian companies. Most of it can be applied to startups, with caveats: Training people in mediation seems excessive, as you probably don’t want to keep anyone who needs mediation to function.  And creating an HR department to foster relationships seems overly centralized, as relationships should be built within teams.
(2) Cf. Practical advice on how to raise motivation.

It’s easier to fix marketing than engagement (aka product-market fit)

From Growth is a Commodity by Charlie O’Donnell:

If there’s one thing we’ve basically figured out in the digital world, it’s marketing. It’s table stakes. You spend some dollars to get more dollars out. It’s not complicated.

That’s why I care much more about engagement–do people like what you built, versus whether or not more people used it today than they did yesterday. Plus, the startup world is littered with companies that grew exponentially without becoming successful–Fab, Turntable, Dailybooth, etc.

If people engage regularly with your product, but you can’t get more people to use it, you’ve got a marketing problem. Marketing problems, for the most part, are solvable by a very distinct set of best practices.

On the other hand, if people are coming, but they’re not engaging, you’ve got a product problem. Sometimes, it’s easily fixible. Other times, you’re just so way off on product/market fit that you’ve fallen into “bad idea” territory, and there’s really no timetable for fixing a bad idea.