July 3, 2012
Being both an Investor and a Startup Entrepreneur I have come to fully appreciate that holding and being held accountable is a cornerstone to success. What is the key?
Knowing exactly what to hold Management accountable for.
The other day an investor group we work with introduced us to a candidate whom they wished to sit on one of the boards of startup we are building. The prospective board member had a follow up call with one of our partners and it went something like this:
“I would like to see your business plan and projections.”
“What is your detailed revenue plan for this technology on a customer by customer basis over the next 3 -5 years?”
“We do not have a business plan in that detail. The next year is about developing the product and service depending on the customer development work we are doing. The details of the plan you are referring to will come out of our work over the next 6 months. We have a number of best guesses but are not sure even of the exact product specs that the customers will adopt.&”
The call went down hill from there. The challenge with the above type of accountability is that it is not well matched for where the business is at today. If a company knew their exact customers and projections at this stage of the game it is more likely than not that the company is not a startup, or that management is delusional in thinking they do know exactly what is going to happen.
This is a common problem for early stage companies as they are held accountable to a false set of metrics that were mere guesses or “hopes”. The job of a startup is not to “hit the numbers” but to learn what the numbers even are and then to find out how to hit them. Without the ability to fail, pivot and try again, startups get shoehorned into a methodology that may do more harm than good.
As an investor it is important that you ensure you have other investors and directors of the startup that understand this concept and don’t start demanding the wrong metrics to hold management accountable to. Doing this generally sends Startups chasing their tail in an effort to hit early revenue or customers numbers that more times than not miss the mark on the real customer opportunity because Board Members and Investors were impatient. It’s important for startups to build a consumer base, but chances are that as startups begin to iterate their products, their consumer base will continue to evolve and grow. Holding tight to the exact dynamics of the original consumer base will keep startups from growing.
The metrics to hold early stage management accountable to are unique to each startup but they are share two characteristics:
1.) They are not about the “market opportunity”. Market opportunities are obvious and can be measured easily, early stage startups are about doing something different in a “better” way, thus the metrics are not obvious.
2.) They are about customer solutions and the metrics themselves cannot be determined unless you are already working with customers that are giving you real world feedback on your product.