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.

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.

Notes:
(1) Y Combinator invests in seed stage startups, so growth rate per week is suitable. For more mature companies, month-over-month growth rate, quarterly-over-quarter growth rate might be more appropriate.
(2) Prioritizing growth assumes that you already have a product that your customers love. See The three steps to building a great company, and why most startups fail on the first step.

6 thoughts on “Growth rate in revenue or active users is the paramount startup metric

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