Growth usually requires investment. And when it comes to external investment, founders need to think carefully about how to approach investors.
Revenue growth rate and other key metric growth rates metrics play an important role in convincing investors to commit. This is more difficult for pre-revenue ventures trying to close a ‘friends and family’ or seed round of funding.
When grappling with how to demonstrate pre-revenue momentum founders often make the mistake of presenting one or two metrics that they hope will look convincing to investors.
I’ve heard founders say ‘Facebook only uses two metrics (User Growth and Time Spent On-Platform) to describe their growth’.
The truth is that works one out of ten times.
A two-measure traction story usually only works when ventures consistently achieve product/market fit at scale.
Instead, I encourage founders to move into funding rounds with a revenue growth rate mindset and a collection of traction-related stories using these six themes to demonstrate momentum in their startup.
If you have it, show it. Convincing people to pay for a product or service is one the greatest challenges for new businesses. It’s also one of the strongest lead indicators of growth.
Obviously, customer growth is tied to revenue growth and it may be more important than revenue if the company is pursuing a massive opportunity and charging a small price.
WhatsApp charged 1 USD/user/annum prior to being acquired by Facebook February 2014. At the time they had 430M monthly active users.
User growth and retention, insights about user behaviour and the proportion of users converting into customers are an essential part of showing off a freemium model.
Partnerships are the most efficient pathway to growth today. Ventures that operate single actor business models (i.e. you sell to one customer at a time) benefit from distribution partnerships.
Ventures that generate value through a marketplace model (e.g. inkl which creates convenience and value for news publishers and readers) benefit from both supplier and distribution partnerships.
Founders should use Memorandums of Understanding and partnership agreements as evidence of growth through partnerships.
Although a more qualitative approach, reviews should not be underestimated, particularly if you sell or produce software.
App store reviews and testimonials on websites can send a convincing message that there is a there, there!
6. Experiment Outcomes
This is one of my favourites and in my opinion, isn’t put on show nearly enough by founders. Hypothesis and data-driven founders often discover how to grow their businesses well in advance of those who use less structured approaches.
Presenting insights from key experiments that demonstrate not only progress but a replicable discipline to assess opportunities is very useful.
I also encourage founders to share the number of experiments currently underway when talking to investors.
It often adds an additional layer of depth to the relationship and helps the founders stand out.