By Rachel Lord (‘13), Strategy and Operations at Clearbit in San Francisco, CA

Overhead looking down at work table with laptops and people sitting around table

Photo from Canva.com

Ninety percent of start-ups fail. With venture backed start-ups, the investor’s business model is to distribute funding in anticipation that a few will produce outsized returns on a relatively short timeline. While this fact could seem daunting, there is so much growth and impact a start-up experience can offer. 

Many have asked me how one knows when a start-up has potential. While there are so many considerations to weigh, the following focuses on information to gather to assess the likelihood of the business succeeding.

When considering a start-up opportunity, I spend a bit of time thinking like an investor. If you are considering joining a start-up, then you are an investor as well. You’re about to invest time and energy into building a business, along with potential equity aligning your work to its success. 

Here are a few topics and questions to understand and assess the viability of the overall business: 

Market and Product:

  • What market is this start-up entering, and is this a growing space? 
  • What is the status quo of the market?
  • To what extent is this start-up disrupting the status quo? 
  • Does the company’s value proposition meet a need in the market?
  • Does the product functionality deliver impact and value?
  • Is this solution a nice to have or a need to have? 

Metrics:

  • What is the runway? 
  • What is the burn rate? 
  • Has the company raised funding and if so, how much?
  • How many customers does the start-up have?
  • What is the average contract value?
  • What are the growth and retention rates? (Retention is especially applicable in a subscription business.)

Team, Culture, and Diversity:

  • What is the founding story and who is leading the company? 
  • In describing the company as a person, how would it be characterized? 
  • How is the company measuring diversity and inclusion metrics? (Aside from indicating the ethos of the start-up, diversity boosts performance and innovation)

Customers:

  • What is the return on investment for customers?  
  • Are there customer testimonials? What do they highlight?
  • What feedback have customers provided? 

Some of these questions are worth asking, and some are for interpretation after a bit of research. Hopefully all of them are helpful as you navigate options in the world of start-ups!

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