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