What are the Most Important Metrics for a Young Startup to Track?
For any business, understanding revenue, expenses, and profitability are crucial. However, there are more nuanced metrics that companies should track.
Early-stage startups, especially, should measure themselves against certain benchmarks to ensure they are progressing in a positive direction. Many times, founders will focus only on one or two statistics and lose sight of other critical parts of the business. As a result, they discover major problems in their operating or financial model after it’s too late to pivot.
Below, we discuss the 8 most important metrics for early-stage startups to track regularly:
Each of these can be calculated in a slightly different way, depending on the nature of the business. Startup leaders must ensure their teams understand exactly what to measure, what the goals are, and what levers to pull to be successful.
1. Total Addressable Market
Total Addressable Market (TAM) is a measure of how much revenue opportunity exists for a particular product or service. Calculating TAM is important when going into fundraising conversations, as investors want to estimate their potential return on invested capital.
TAM can change over time due to disruptive competitor offerings, new technologies, or government regulation. For this reason, it can be valuable for startups to revisit TAM often.
Anyone with a basic understanding of business knows that monitoring revenue is essential. In the startup world, there are several helpful ways to measure revenue.
Leaders can calculate recurring revenue on a monthly, quarterly, or annual basis. They can track revenue per customer or dig into deferred revenues to ensure cash flow is stable. The most important takeaway here is to fit revenue calculations to fit the underlying business model.
Margin is most commonly calculated by subtracting cost of goods sold (COGS) and operating expenses from top-line revenue. If your startup’s margin is not positive, you either have to increase revenues or decrease costs. Otherwise, the long-term sustainability of your business is in jeopardy.
4. Cash Burn Rate
The Cash Burn Rate (CBR) is a reflection of how quickly a startup uses its cash and cash reserves. In other words, it shows how much money a company loses (AKA “negative cash flow”) over a defined interval.
The burn rate is crucial for early-stage businesses that have yet to turn a cash flow corner. It helps founders understand how much time they have left before they run out of capital.
5. Customer Acquisition Cost
Customer Acquisition Cost (CAC) measures how much money a startup has to spend to win a new paying customer. Businesses typically calculate CAC using the formula below:
(marketing + sales spend) / new customers gained over specified period
Generally, the lower CAC is, the better. For early-stage startups, keeping track of CAC is important because it helps founders quickly assess whether they can attract new buyers easily enough to justify the cost of delivering a product or service.
6. Retention Rate
Retention Rate calculates the proportion of customers that stay with a business over time. Determining retention rate depends on the startup’s business model. However, one broad way to think about the metric is with the following formula:
(total customers - new customers) / customers at the start of the measurement period
Calculating churn may also make sense for startups to measure how frequently the company loses customers. By increasing retention and minimizing churn, startups can boost the lifetime value of their accounts, which is the next metric!
7. Lifetime Value
Lifetime value tells leaders how much value they can expect to earn from a customer or account throughout the entirety of a relationship. “Value” can take on different meanings. Some startups prefer to look at how much revenue a customer generates, while others prefer profitability.
Understanding lifetime value can inform decisions around how much a startup can spend to acquire new customers (re: CAC). Additionally, lifetime value may be an indirect indicator of how much customers value your product. A low lifetime value relative to the product’s price might mean customers don’t think they are getting enough for what they pay.
8. Viral Coefficient
The Viral Coefficient is used to measure a startup’s organic growth. It captures how excited and satisfied users are by quantifying their willingness to share a product or service with others.
Startups that want to calculate the viral coefficient can do so by taking an initial pool of customers, counting how many invitations they send to others, and tracking what percentage of those invitations convert into new customers.
Overall, there are many other ways to measure the financial and operational health of a young startup. However, these eight are essential for founders to understand. Customize them to your unique model and make sure your teams have everything they need to track them successfully!
4 Truths Fintech Founders Need to Know
Financial technology, or “fintech,” is one of the more active niches in the startup world today. According to CBInsights, 12% of all unicorns (private companies valued at over $1B) are characterized as fintech businesses. The third-largest unicorn is Stripe, which is currently valued at $56B.
Entrepreneurs are attracted to fintech for many reasons. It’s an extremely fast-growing space with tons of disruption potential. Fintech businesses everywhere are challenging long-standing models around how money is exchanged, borrowed, and managed in the global marketplace.
In 2020, nearly two-thirds of global consumers use fintech products or services, up from one-third in 2017. And 96% of global consumers are aware of fintech offerings.
Adding an interesting dynamic to the equation is the fact that many non-financial service organizations are entering the sector. Companies like Apple and Uber are offering credit cards, thereby altering our conception of what a financial institution is.
However, being a fintech startup does not guarantee you success. There are challenges to growing a successful business in this area, some of which are out of the founding team’s control.
If you are a fintech startup or are considering starting a fintech venture, always keep the following four realities on your radar.
1. Pivoting is Common
It’s not uncommon for fintech businesses to pivot or tweak their offerings to align with demand. There are many possible areas for disruption, but not all are equal. A founding team might set off to solve a problem for one specific target market and realize there is an even bigger unmet need elsewhere.
Don’t be scared to reevaluate your initial business thesis . As you learn more about the space, technological possibilities, and consumer desires, you may find your energy is better spent in a different, but related lane.
2. Regulatory Changes Can Change the Game Overnight
Government regulation can impact fintech startups significantly. As the global economy adjusts to new dynamics in this field, officials have to update laws to protect private citizens. How officials go about implementing changes can make or break certain business models.
As a founder, you must engage with regulators in your markets to understand their priorities and goals. Build collaborative relationships with leaders and share your expertise in a way that moves the sector forward. Don’t try to circumvent existing laws or design an offering to exploit a loophole that will likely be addressed in the future.
By taking a seat at the table with public entities, you can make sure your voice is heard in any conversation that could impact your business dramatically.
3. Relationships Matter
Because the nature of fintech is to disrupt the status quo, there will be forces actively working against you. Don’t expect incumbents to simply roll over and accept defeat. Be aware of who your business model will affect and how.
Think carefully about how others might respond if you directly threaten their existence. A wall of resistance can come up quickly if established companies with lots of cash work together to keep new entrants out. In many situations, it may make sense to partner with existing players, in which case, you might want to tread lightly when you first enter the scene.
Relationships always matter. In fintech, especially, leaders need to be thoughtful about how they approach the opportunity in front of them.
4. Premature Launches Are Tempting
The iterative software development approach makes it easy to deploy updates and improvements once offerings are already on the market. As a result, it is tempting to launch fintech products prematurely. On top of that, founders want to get to market before a similar, disruptive service beats them to the punch.
As a founding team, you should always set goals and timelines. But, it’s okay to push dates back if it means making crucial improvements to your product so that you can enjoy a stellar launch.
If you come out with a half-baked, buggy application, you’ll quickly lose confidence in your investors, the media, and the public. You only get one shot at a first impression, so make it count.
Prepping for Big Investor Meetings?
For founders looking for funding support, Funded.club provides consulting services to help teams prepare for crucial investor meetings and presentations. We’d love to discuss how we can set your venture up for success, whether you operate in the fintech space or another exciting area.
To learn more about our service packs, visit Funding page.
Is Outsourced Recruiting Cheaper Than Managing an HR Team?
In young startups, there comes a crossroads when business leaders have to decide whether to build out a full in-house recruitment function or outsource to a third-party service.
Founders can’t afford to spend their limited time on recruiting when there are more pressing matters at hand, like building a minimum viable product or finding customers. So, the question becomes what path leads to the best possible candidates for the least amount of money.
By going down the in-house route, founders retain 100% control over recruiting and can ensure that every potential candidate meets their high standards. However, this runs counter to the goal of freeing capacity to focus on other areas.
On the other hand, it can be scary to hand over the reins to an external party. They haven’t been with you in the trenches over the years. They are unfamiliar with your culture and may not fully understand the type of person your startup needs. And given the reality that 90% of startups fail (independent of COVID-19!), there is no room for hiring mistakes. Every new teammate should be stellar without exception.
At Funded.club, we believe the right partner alleviates all of these concerns and more.
Outsourced recruiting can be cheaper and more effective overall than managing an HR team. The challenge lies in finding an agency that specializes in startup hiring, which differs from corporate recruiting in many ways. Those who have expertise around startups recruiting can manage costs well without sacrificing quality.
Below are three economic reasons why outsourced recruiting can make more sense than building an in-house HR team.
1. Optimizing Recruiting Cost Buckets is Hard There are many cost buckets within recruiting.
On top of labor expenses, startups have to pay for job board advertisements, background checks, and technology platforms, like applicant tracking systems. In general, it is difficult for young, fast-growing businesses that have their hands full to optimize performance across these areas. In-house teams typically struggle with duplicative tasks, delays, and premium prices associated with acquiring their own suite of technologies.
Outsourced recruiters will typically offer these features at a price that is less overall than the startup would spend to get a comparable function up and running. Dedicated outsourced firms can achieve lower cost-per-hire and time-to-hire metrics by streamlining recruiting processes in a way that young businesses don’t know how to do.
Additionally, as tech skill shortages persist, recruiting is growing more competitive. Those who choose to build an in-house recruiting function may not realize the ROI on their investment as they are competing with recruiters with extensive experience.
2. In-house Recruiting Can Distract From the Core Business
Anyone who works in a high-growth venture is familiar with the idea of wearing multiple “hats.” When companies are small, employees often have to take on responsibilities that fit in various lanes. Job descriptions tend to be more fluid, and workers have a broader range of influence.
The same dynamic applies when it comes to in-house recruiting. Oftentimes, in-house startup recruiters will be tasked with cultivating a healthy candidate pipeline, in addition to executing essential HR activities. Startups that want to attract the best possible talent can’t expect to do so if their in-house team is distracted by two sets of priorities.
In this scenario, either recruiting quality or HR services suffer, which drain company resources in different ways. Bad recruiting leads to poor hiring decisions, bringing down the long-term potential of the organization. Neglected HR workflows can leave current employees feeling undersupported, leading to increased turnover. With outsourced recruiting, leaders don’t have to choose.
3. In-house Teams Can’t Scale with Business Needs
Startup recruiting needs can expand or shrink rapidly depending on the success of the business. Those experiencing high growth may need to ramp up quickly in certain areas to keep up with demand. On the flip side, a company may need to scale down to cut costs to survive tough times, like what we are experiencing right now.
Startups that have an in-house recruiting team can’t respond to volatility as effectively as outsourced firms can. Fast growth can quickly overwhelm a small team of internal recruiters, which means the business can’t respond to demand and take advantage of valuable revenue opportunities. Stagnant growth, or even contraction, can lead to startups paying for recruiting labor that they aren’t using.
An outsourced firm can easily align resources with need. Startups can take advantage of “pay-as-you-go” pricing, only incurring charges for recruiting activity that is needed at any given time. As a result, businesses don’t miss out on growth opportunities or waste precious resources on underutilized human resources.
Funded.club: the Best of All Worlds
As an outsourced recruiting partner, Funded.club helps startups all over the world build exceptional teams over the long-term. But, what differentiates Funded.club from other agencies is our fixed-fee recruiting model.
Our clients benefit from the efficiencies of outsourced recruiting without having to worry about racking up charges that are independent of results.
Want to learn more about how we work?
4 Tips to Help You Break Into a Crowded Industry
Many founders wrongly believe they have to change the world to be successful.
Yes, some startups like Uber, Airbnb, and WeWork created new markets and changed how millions of people live. However, this doesn’t describe the experience of most successful early-stage ventures.
Even if there are well-established players in a market, buyers always want something better. If you can improve slightly on what the top companies are doing, you become the best. Or, you can zoom in on a specific sub-niche and capture market share that way.
Overall, there are many paths to break into a crowded sector. Here are a few tips to help you assess your market entry strategy.
1. Serve the Underserved
In any industry, there are customers who feel ignored by the existing options on the table. They may already subscribe to services or own products. However, they may still have unmet needs that large-scale businesses are unwilling to fulfill for a variety of reasons.
By serving the underserved, your business can attract a passionate following quickly. You can generate cash flow and start nipping at competitor heels before they even realize you exist.
If your young business is not designed to solve a problem you have experienced personally, interview prospective customers to learn what they think about existing offerings in the marketplace. Doing so will enable you to discover opportunities to differentiate yourself before you enter and spin your wheels on customer acquisition efforts.
2. Be the Best at Something
At first, it can be hard to compete with bigger companies that have presence in many areas across a broader industry. Your competitors may do many things well on multiple fronts, which can be intimidating for those who are just getting started.
Some startups mistakenly think they have to compete at the macro level immediately out of the gates. In reality, new entrants can separate themselves simply by doing one thing better than everyone else. A single point of differentiation can give a business all the clout it needs to get started in a busy industry.
3. Partner with Relevant, Tangential Brands
Another way to gain footing in a saturated market is to latch onto tangentially related brands that don’t directly compete in your space.
For example, an online retailer with a social mission can look for opportunities to work with established philanthropic organizations. A fintech startup that donates a portion of profits to environmental causes could team up with national park services.
By working with organizations that share similar extracurricular interests, you gain exposure to new audiences that would otherwise be hard to find. It’s important to ensure you have genuine intentions if you go down this route, as it will be hard to create meaningful partnerships otherwise.
4. Tell Your Story Well
Even if other startups and founders have similar past experiences, no one has traveled the same path as you and your team. Your story is unique -- guaranteed.
In crowded industries, customers have likely explored many flavors of offerings. Consequently, it can be hard to “wow” them with your product or business idea alone.
The way to stand out is by telling your story incredibly well. Doing so enables people to connect to your brand more intimately. It makes your startup more memorable and approachable.
Capture market share by highlighting who you are. If you share your backstory with pride, customers will gravitate towards your business because they care about you.
Earning a Seat at the Table
It’s easy for young founders and companies to get discouraged when trying to enter a new market, especially one that is full of well-known, established brands.
However, there is a way to earn a seat at the table. Get to know your customers intimately, discover niches that your competitors are overlooking, and be the best at serving those people. On top of that, align yourself with other well-known, related brands and tell your story with tremendous excitement.
At Funded.club, we understand how hard it can be to get started. We offer fixed-fee recruiting services, as well as consulting support to help founders find funding for their ventures.
Interested in learning more?
Contact us today.
Five Employee Selection Methods You Should Implement Today
Even in the wake of the coronavirus outbreak, many European startups are still pushing forward with recruiting. Top talent is almost always valuable, especially for fast-growing, early-stage ventures that are trying to get off of the ground.
The challenge lies in cost-effectively attracting high-quality candidates. It can be hard to find the perfect fit for your organization if you don’t know where to look.
Here, we highlight five recruiting methods you should start using today to keep your talent pipeline active without breaking your budget.
1. Set Clear Goals Around What Gaps You Need to Fill
The first step in hiring top talent is to clarify what your startup needs:
It may not be evident to your entire team what gaps you need to fill. Or, you may not be aligned on what the most important next step is for your business.
Go through the exercise of creating a candidate “avatar” that represents your dream hire:
Answering these questions can help everyone get on the same page, especially when you are still refining your recruiting process.
Then, add metrics to help you measure your progress against these goals. Set benchmarks around cost per hire and time to hire so that you have targets to help guide your efforts.
2. Clarify Who You Want to be When You “Grow Up”
To get people interested in who you are, you need to create a compelling brand that convinces outsiders you are worth their time. Attracting top talent is a competition in many ways. More likely than not, the person you want to hire is in conversations with multiple companies.
If you don’t already, articulate a powerful mission statement and vision for your startup. Think carefully about what reputation you want to build in the world. Doing so will help you define your brand voice, as well as drive much of your promotional efforts.
Additionally, know that every early-stage hire impacts your culture in a significant way. Make sure you are intentional about establishing a culture so that you can bring in new teammates who fit the mold well or help you steer it in the right direction.
3. Find What Works and Double Down
Always keep track of what works and what doesn’t when it comes to recruiting. You want to invest more in the aspects of your talent pipeline that yield top talent while pulling back on areas that don’t.
Gather as much information as possible from interviewees, regardless of whether or not they accept an offer:
It’s hard to know what outsiders think of you unless you ask them for feedback. In many cases, you will be surprised by what you learn when you allow someone else to speak honestly.
4. Be Flexible and Open to Contracted or Part-time Talent
In today’s day and age, it’s becoming increasingly common for companies to work with freelancers or part-time employees before committing to a full-time hire. When your team is small, it can be scary to add a new, permanent face who will be working closely with you day in and day out.
It may be in your startup’s best interest to go the contractor or part-time route to gain clarity on exactly what you need. Think of this approach as a way to trial potential full-time roles or skill sets in a low-risk manner. You can learn if you truly need a new full-time teammate or just an expert to give you 20 hours per month on tightly scoped projects.
If you find someone you love working with and is enthusiastic about your mission, ask them if they would be interested in a full-time position. You already have a strong working relationship, and the contractor is already familiar with how you operate. Overall, this is an excellent strategy for validating potential hires without burning your recruiting budget.
5. Keep Tabs on Many Different Networks
You don’t always have to go through traditional channels to find new hires. Many times, the right person could be an ex-coworker of someone on your existing staff or a former classmate from business school.
If the position you are trying to fill requires significant knowledge about your unique product or service, consider an internal promotion first. Is there anyone on your team who could be successful if given the opportunity to step up to a new challenge?
By promoting someone internally, you can swap out a hard-to-fill recruiting need with an easier one. Your internal talent moves upward, thereby opening up a lower position.
You can also create an employee referral program and incentivize your staff to help you fill openings. Give monetary rewards or bonuses to those who help you qualify and hire exceptional candidates.
Finally, create opportunities to meet people in your community through recruiting events or other company-sponsored engagements that bring people together. You may be one or two degrees of separation away from your next A-level hire!
Why Work With Funded.club
After implementing these strategies, you may still need some help. You’ve exhausted your professional network, built a powerful brand, set clear goals, and tried working with contractors. However, you’re still having trouble finding that perfect fit.
Funded.club partners closely with founders to provide fixed-fee, outsourced recruiting services. We find top-quality candidates according to your needs, review applications, and coordinate interviews so that your team can get back to growing the business.
Want to learn more about how we work?
Contact us today.
Good Communication Can Enhance Your Brand During Quarantine
Maintaining an effective online presence is critical during a crisis. Rather than retreat, startup founders should see circumstances like the current COVID-19 pandemic as an opportunity to expand social influence.
Thoughtful communication at a time like this can increase social capital, generate new business, and attract top talent. In our experience, we’ve seen many companies actually enhance their brands and grow stronger through challenging times.
Consider the following strategies to help bolster your brand image while the world is craving for examples of heroism, purpose, and positivity.
1. Tell Honest Stories
One of the best ways to connect with people right now is to share powerful stories that aim to provide value to others. Without diminishing the consequences of the coronavirus, share original blog articles, newsletters, and more that highlight how your team and business are responding in light of the situation.
Recognize that many people are anxious and concerned about their own lives. Convert inwardly focused marketing to content that is geared towards helping others. Put your campaign about the new business you just won on hold and think about what might be meaningful to someone outside of your early-stage venture.
2. Engage With Well-known Industry Experts
During times like this, people are hungry for advice, guidance, and insight. Dig deep and figure out what you can share that others might find helpful. As a founding team member, you undoubtedly have a myriad of experiences that could be beneficial to someone else.
On top of that, try and get influencers within your space to engage with your content. Even if they disagree with you, the engagement is an opportunity to showcase that you deserve to be in the conversation.
The more you exchange thoughts and ideas in the public sphere, the more people who follow your industry will come to recognize your brand.
3. Invite Others to Participate
Another way to increase your brand’s visibility is to allow others to participate in your content creation strategy. Invite guests to submit blogs, videos, articles, and other content that push the conversation forward around how to deal with the challenges of COVID-19.
The chances are that you are not the only startup that is struggling with certain issues or problems. Bring the idea exchange that happens on social media to your platform and become a go-to resource within your market segment.
4. Share Best Practices and Guidance
Although it may not be directly tied to your core business, share helpful information from health experts and leading institutions around how employers can keep their people safe during this time. Acknowledge best practices for stopping the spread of the virus and point others to loan programs that they might find valuable.
We’re all going through this unprecedented time together. Show that you have more than your own interest at heart by deprioritizing market share and pushing positive messages out there that help everyone in your community.
5. Stay Active
While many leaders choose to pull back on branding efforts during uncertain times, there is value in staying active. Work closely with your marketing leader to design capital-light campaigns that reinforce your brand without breaking your budget.
It may not be an appropriate time to move forward with the large-scale rebranding endeavor you planned for 2020, but that doesn’t mean you should pause all investments in your startup’s image.
Continue to engage consistently on the platforms where your target customers visit often. Radio silence on your end might make it seem like something is wrong when, in fact, you are simply working hard to figure out how you will survive the next few months.
Set aside time to let your audience know you are still here. Make sure others know you are a leader, not a victim.
Find the Silver Lining
Undoubtedly, we are in the midst of an incredibly challenging and uncertain season. Early-stage ventures, especially, are struggling to survive.
We at Funded.club understand that you have a lot on your plate right now. However, we know that there is often an opportunity in crises to invest in your brand voice. Create the capacity to share positive stories with your network. Engage and invite others to fight hard alongside you.
Remember, we will get through this. The future will be tough, but those who communicate effectively will be rewarded after we get out of this storm.
Interested in learning about how Funded.club helps startups recruit top talent, even during tough times?
Contact us today.
Netherlands-based Funded.club helping UK startups recruit through COVID-19 crisis
A company out of the Netherlands is disrupting the startup recruiting world in a big way
Founded in early 2019, Funded.club provides recruiting services for startups and scale-ups on a fixed-fee basis. Rather than charge based on a percentage of annual salary, Funded.club receives only a “success fee” of €2,900 (£2600) irrespective of the salary offered or how long it takes to fill a position.
The company’s model is designed to help fast-growing, early-stage businesses that don’t have the time or resources to invest in an in-house recruiting operation. Whereas traditional staffing firms place an additional cost burden on startups with limited capital, Funded.club offers a viable alternative for sourcing high-quality candidates.
Given the current circumstances, Funded.club’s work is more important than ever.
UK Startups Struggling to Survive COVID-19
In light of the global coronavirus pandemic, startups all around the world are struggling to stay afloat. Many governments are stepping in to help founders with short-term financial aid packages. Germany recently committed €2 billion, and France pledged €4 billion to help startups get through the crisis.
However, the UK government hasn’t moved as quickly. Leaders are evidently exploring ways to support the startup sector with co-investments and state-owned funds. However, it’s likely that any intervention will be much smaller than what other western European governments contributed.
UK startups that were on positive growth trajectories are now wondering if they can survive, while the government figures out what to do next. Funded.club recognizes the pressure these businesses are facing and is ready to partner closely with founding teams to help them grow with efficient fundraising and recruiting.
Founded for Entrepreneurs, by an Entrepreneur
Much of how Funded.club operates is attributable to its founder, Ray Gibson, who is himself an entrepreneur. After 20 years in recruiting and another 5 in startups, Gibson recognized that there was a disconnect between how most recruiting agencies function and what young businesses need to be successful.
He developed a model that provides founders with dedicated, outsourced recruiting services to bring in top talent from all over the world. Gibson emphasizes efficiency through Funded.club’s approach, reducing time-to-hire and cost-per-hire dramatically for the company’s startup clients. The distributed team of recruiters also brings market knowledge to each client to map talent and accurately assess salaries.
Gibson comments, “One of the first reactions I get when talking to founders is that it all sounds too good to be true - that is until they see the first candidates within 7 days of engaging us. Working exclusively on each assignment and developing a close relationship with founding teams has allowed us to maintain a 100% success rate and to keep fees low. We’re passionate about quality and delivering exceptional service whether that’s for a CTO hire for a small team or for customer support in a scale-up operation.”
In under a year, Funded.club has already helped businesses in many countries cut cost-per-hire by 70-80% and time-to-hire to a couple of weeks rather than months. The company has completed successful hiring campaigns on behalf of startups in the UK, the US, Argentina, Ecuador, Czech Republic, Germany, Nepal, the Philippines.
On top of its recruiting services, Gibson’s firm also offers growth consulting through investor-readiness coaching programs and introductions to key investors.
A Comprehensive Recruiting Playbook
Through its outsourced recruiting and growth consulting services, Funded.club gives founding teams the expert help they need without worrying their investors or breaking the bottom line. Thanks to Gibson’s leadership, Funded.club understands the ins and outs of scaling high-growth businesses successfully, which is a challenging balancing act.
At a time when 90% of new companies fail, Funded.club is disrupting the status quo and giving a new class of startups a better chance to succeed.
Know any UK founders who are struggling to recruit in the current crisis?
Refer them to Funded.club today.
Header image adapted from original image https://pixabay.com/nl/users/mattthewafflecat-4607220/
How to Create the Ideal Culture for Your Startup
Culture is a hot topic in the startup world.
In some young businesses, culture develops naturally based on the personalities and working styles of the founding team. In others, culture is an intentional decision.
It can be the reason why startups thrive or why they fail. Culture can also be the difference between attracting top talent and average talent.
Startups benefit from being able to create their cultures from the ground up. In established companies, it can be hard to cultivate a new way of existence after years of operating and behaving in a certain way.
As a fast-growing business, it’s important to decide who you want to be when you grow up early on. You need to create the space for your founding team to discuss what it wants the culture to be and how it will come to life. Otherwise, you’ll find yourself years down the road working in a company that doesn’t look anything like the one you envisioned.
Below are five keys to creating the ideal culture for your unique startup.
1. Choose What to Reward (and What to Punish)
So much of a company’s culture is determined by what you celebrate. If you celebrate effort, you’re more likely to build a company of hard-working employees. If you recognize achievements, you may foster a group of results-at-all-costs individuals.
If you let gossip run freely, you send the signal, intentionally or unintentionally, that it is okay to talk about peers behind their backs. If you discourage pushback or debate, your employees could become “yes” people who agree to everything superiors put forth, even if they don’t support decisions on a personal level.
Think intentionally about what kinds of behaviors you want to encourage on your team. Reward the good and punish (or address) the bad. If you do this consistently, your employees will internalize the culture and orient themselves accordingly.
2. Align Culture and Vision
Your company’s culture should align with the overall branding and purpose of your business. You want to present a united front to the external world that matches what employees experience internally.
When culture and vision don’t agree, it can confuse both customers and teammates. For example, you don’t want to build a serious and stiff workplace if you sell children’s toys. It won’t work. Employees will feel the tension, and many will leave as a result.
Make sure who you are as a startup is consistent starting Day 1. When culture and vision align, powerful brands are born. Southwest Airlines does a fantastic job of this.
3. Create a Culture Scorecard
When building a company culture, it can be helpful to create a scorecard or tool for measuring how well you are doing based on your goals.
Although it may seem silly, put into writing what characteristics you want to define your culture. If you want to establish a culture of openness and honesty, put those “metrics” in a table and grade your startup continually. Evaluate anything below a B for correction.
Revisit your culture scorecard often and distribute it widely. Make sure everyone understands precisely what you are aiming for so that they can support the cause. If you keep your goals or metrics a secret, you can’t expect change to happen. Team members need to know what they should be aiming at if you want them to hit the targets.
4. Evolve Over Time
Startups do change over time. They mature as they discover more about themselves, customers, and market dynamics. As a result, company culture may need to evolve in step.
It’s okay if your business needs to go in a new direction. Be sure to communicate openly about what it will mean for everyone going forward. You may lose some talent as you tweak your culture, but if it’s the right move for the business, it needs to happen.
Your leadership team could also realize one day that one particular aspect of the startup’s culture has produced unintended consequences. For example, rewarding effort may inadvertently entice people to spin their wheels on projects when it would be better for them to seek assistance. An employee may see you celebrate hard work and shy away from asking for help for fear of looking lazy.
This is why it’s so important to keep tabs on your process and check in on your culture regularly. You can catch issues early and address them before they create other challenges.
5. Hire Through a Cultural Lens
There are some things you can teach when it comes to culture. But, not all talented hires will be natural fits for your business.
Sometimes, it might make sense to turn down an extremely experienced person whose personality or values don’t align with your company’s cultural vision. It’s easier to make these decisions if you hire good cultural fits consistently. Discerning a “good” fit from a “great” fit isn’t as hard when your office is filled with other “great” fits.
As a fast-growing scale-up, you likely can’t invest the time and resources necessary to get this right every time. It’s often better to bring in outside help, like Funded.club, to help take care of this critical piece for you.
Our recruiters take the time to learn the nuances of your company’s culture so that they can speak your language and represent your brand well. As entrepreneurs, we understand how important it is to make the best possible hiring decisions every step of the way.
To learn more about Funded.club’s recruiting approach, contact us today.
5 Dangers of Growing Your Startup Too Fast
On a recent earnings call, Uber CEO Dara Khosrowshahi proclaimed that “the era of growth at all costs is over.”
Throughout the 2010s, we saw many unicorn startups grow and expand at alarming rates. Companies like Bird and Desktop Metal reached $1 billion valuations in under two years from the time of founding.
For many investors, growth has taken priority over profitability. However, when it comes to startups, hyper-growth can be as threatening as stagnation.
It’s exciting when you’re ready to deploy or scale your product to an enthusiastic target market. But, doing so poorly can set your business back tremendously. For some companies, expanding too quickly becomes their ultimate doom. They buckle under the weight of their success.
It’s important to channel your ambition appropriately so that you have the best possible chance of succeeding over the long term.
Here are five challenges that can surface from growing too quickly:
1. Poor Customer Service
Your customers are the lifeblood of your startup. Building a good reputation right off the bat can help you maintain healthy revenue streams and enable you to invest back in your operations.
Early on, you take care of each customer like she is the most important person in the world. Eventually, this level of customer service is impossible to uphold. Your customers become tasks in a queue that you have to address to keep the cash flowing. The positive relationship-building that used to characterize your brand evaporates in a matter of months.
2. Inefficient Operations
Needing to bring in new talent is a good sign for any young scale-up. It’s an indication that you’re doing something right. However, if you aren’t prepared for your organization to grow more complex, efficient operations can morph into productivity drags.
All of a sudden, the way you used to run meetings or communicate in the office no longer works. Information takes longer to travel from person A to person B. The flexibility you enjoyed early on won’t work for making sure that everyone has the resources and insights they need to do their jobs effectively.
3. B-level Talent Acquisition
When sales are skyrocketing, your small team will bear the weight of a much bigger business. People will work at burnout levels, sacrificing quality for quantity.
When ramping up, it’s easy to lower your recruiting standards. You need more bodies in the office to help with the massive amount of work on your startup’s plate. The intensive screening process you once had flies out the window to accelerate the hiring process. Before you know it, your A-level leaders are now managing B-level players.
It might make sense to outsource recruiting until you are ready to build a high-powered internal hiring function.
4. Inaccurate Reporting
When you’re an agile team of 5-10, every person typically has a sense of what's happening in the business, especially before products or services launch. Team members have visibility into other lanes and can easily gather information they need. The startup overall is much more straightforward and easy to manage.
During phases of fast growth, it’s easy to fall behind on reporting. If the market demands more than you projected, sales can escalate to the point where your finance team loses sight of key, simple metrics, such as revenues, expenses, and operating cash flow.
When this happens, bad months could trigger the end of your business or the need for an emergency cash injection. With incorrect information, you might make a poor investment decision or overlook a broken process that you could mitigate otherwise.
5. Waning Long-term Vision
In phases of hyper-growth, you are all hands on deck. Everyone is cranking through lists of never-ending tasks. All heads are down seven days a week.
When there’s so much to do, this is little opportunity to breathe. The vision-casting and long-term planning you did each month are easy to replace with the fire drills that pop up more often. When it’s most important to track your progress against your goals, you stop doing it entirely to keep the business running.
Walking the Tightrope
There’s no magic formula for how to balance growth with the integrity of your startup. Every company is different. You have to learn how to walk the tightrope based on your unique team and industry.
Obviously, you need to grow. You want to succeed, and your investors want their returns. But, you need to be conscious of how growth affects your organization. Expanding too rapidly can hurt your operations in many ways and add unnecessary complexity on top of everything else you have to do.
And, as entrepreneurs, we know that’s a lot.
How to get your startup funded
Two years ago, startups raised more VC funding than ever before. Early-stage companies pulled in a whopping $130 billion through almost 9,000 deals.
However, many would be surprised to learn that less than 1% of startups receive any funding from VCs at all. In some cases, founders don’t want to give up control. For others, the market may not be attractive enough to generate sufficient returns.
Before deciding to pursue VC funding, your team must be on the same page. Going after investor capital is a major endeavor.
Once you have clarity, it’s time to hunker down and prove you’re worth the financial gamble. Below are four key ways you can set your business up for fundraising success.
1. Build Relationships -- Lots of Them
Startup financing isn’t typically a one-and-done deal. Founders may raise funding on and off for years while their businesses get off the ground.
Therefore, it’s crucial to build relationships with many investors in numerous settings. Ask respected peers for recommendations on who you should meet. See if VCs are open to you providing updates on your startup’s success.
Perhaps more importantly, don’t burn any bridges. Always treat others in the startup community with respect, as you never know who will help...or hurt your funding efforts in the future.
Even if you write an investor off in your pre-qualification assessment, don’t speak badly about him, as he simply may not be the right person for your particular niche.
2. Get Your Story Straight
One of the most significant factors in a VCs decision around whether or not to invest is the strength of the founding team.
VCs want to know that their money is in good hands. Business models, products, and services change. Startups often have to pivot or tweak their initial ideas to align with market demand. It’s the founding team that gets the company through these transition periods.
Highlight why your background is especially relevant to your new endeavor. Prove that you are the absolute best person or group of people to carry out the vision with real-life examples of the ways you have succeeded in the past.
3. Provide Sound Financial Projections -- But Don’t Get Too Caught Up In Numbers
Obviously, VCs invest in early-stage companies to make money. They want to know what their potential returns are if they are going to place a bet on an unproven idea.
The challenging reality is that it is hard for startups to estimate their financial success. There are so many unknowns. There is also the added pressure of needing to prove you are worth the risk, which can cause you to be overly optimistic.
Yes, you need to prove that there is a substantial growth opportunity and market share available to win. However, don’t get too attached to data points or metrics that describe nascent markets.
Instead, find ways to emphasize the traction you already have. Use data that indicates what you are already doing solves a real problem for real people right now.
4. Practice and Refine Your Pitch Continually
Finally, you have to practice and refine your investor pitch continually. It takes time for you to master how you tell your story, display your passion, and convince hyper-intelligent individuals why your business will be one of the 10% of startups that is ultimately successful.
Practice by yourself, in front of peers, and in higher-stakes settings over and over. The more experience you have, the more confident you will be walking into a meeting with THE person who you want to impress.
As soon as you leave a pitch meeting, positive or negative, go back and evaluate how you performed. The moments immediately following a presentation are when you have a clear perspective on what worked and what didn’t.
Additionally, don’t get discouraged if you aren’t awarded VC money. You must continue to push forward and look for ways to improve. Get feedback from those who turned you down and address their concerns. The way you incorporate past pitch experiences will accelerate (or decelerate) your progress on the startup capital front.
There is no magic bullet out there for VC funding. But, by having a great idea, strong team, conviction, and a broad network, you will increase your chances of hitting a home run.
Ray Gibson is founder and CEO of Funded.club. He brings 20 years of experience in recruiting across Europe, North America and Asia and 5 years running his own startups.