A startup's growth rate can predict its future value and size. The most successful startups of our generation have experienced high rates of revenue and user growth over a long period of time. Investors, employees, and founders all want to know if their startup is capable of sustainable growth that will allow them to build a long-lasting business.
Looking at the top-line growth alone will tell you very little. Both startups with 300% or more users per year could have different long-term prospects. It's almost like comparing two people with the same height, weight and age. You can make better predictions by looking at other factors. Startups are very similar. It is important to look at the health of startups and to work with them to establish the right foundation.
Paid marketing is a great tool to help you accelerate your already-humming flywheel. It shouldn't be the only tool in your arsenal.
Before becoming a VC at Defy I was the founder of two companies, and Eventbrites VP for growth for six years. I have worked at all stages of a startup's life, from its founding to the public company. I also advised many others startups. I discovered five key factors that ensure healthy and sustainable growth. These factors can make the difference between a startup succeeding, failing to get a small exit, or creating a profitable, long-lasting billion-dollar company.
Healthy engagement is key to retention
Any successful product/service delivers more value to customers/users than it costs them (money, time). Ask your customers if they are satisfied with the product and if they have a high level of customer retention. This will help you determine if your product delivers true value. Casey Winters, my friend and growth expert, summarizes this well: Product market fit is retention that allows you to grow.
This can be evaluated by consumer startups through a cohort-based retention analysis that measures how often customers use the service and how long they stay with it. SaaS companies should talk to customers frequently to gauge their happiness. They should also look at logo retention and gross and net revenue retention. Ideally, the business should have early signs of becoming a net negative churn company, meaning that revenue from existing customers actually grows over the course of time even after accounting for churned clients.
Many people mistakenly believe that startup growth is about customer acquisition.
Customers obsession leads to a pull on the market
Customers obsession and organic pull from market are signs of product-market fit early on. These signals indicate future growth potential.
These are just a few ways you can measure it:
Check to see if the growth of your business has been organic, which is usually through word-of-mouth or other viral methods. Your business should be growing at more than 50% organically each year (200%-300%+ annually). This means that you are solving people's problems well enough to have them share your solution with others, creating positive viral effects.