By Bonnie Crater, Full Circle Insights
Software startups come and go, and there’s little solid consensus on exactly what it takes to succeed — or why some companies fail. Even tech companies with the early advantage of generous venture backing can fail, particularly in a “unicorn-focused” environment that ratchets up the pressure to achieve unrealistic growth targets, which can lead to dissatisfied customers, disappointed investors and staff burnout.
There are better approaches you can take to build a profitable software startup, strategies based on delivering genuine value to customers instead of hype. In a book first released in 1991 that is still considered a tech startup bible, Crossing the Chasm, Geoffrey Moore provides advice on the conceptual origins of success. Now in its third edition, the book outlines how startups can navigate selling to market segments that are defined by their willingness to embrace new products.
Crossing the Chasm remains relevant today because at its core, the premise is that demand for a startup’s products or services must always be on the upswing, and all of the elements within the business need to scale to match demand. That’s a sounder approach than driving growth in a way that outstrips the ability to deliver. But what’s equally important is to track specific performance metrics in business units to make sure you can identify the level of demand and the progress of scaling activities.
To manage for growth in the software environment, it’s necessary to build in metrics so you can ensure your company is meeting the criteria for startup success. The metrics will vary by role. Here’s an overview of what metrics to look for in three key functional areas — marketing, sales and service — to gauge the health of your company:
Sales: The sales process in a healthy company should continuously improve efficiencies so that deals are closed more quickly. The essential metric is velocity, which describes the length of the sales cycle. For planning purposes, it’s crucial to have an accurate measure of how long it takes to close a deal. Seven months vs. seven weeks is everything in terms of calculating revenue. Velocity metrics also can help you identify bottlenecks in the system. If software deals tend to stall at the same stage, that can indicate a need for additional marketing outreach to nudge prospects along — or it may indicate a process breakdown.
Marketing: For marketing, it’s essential to know the cost per lead as well as volume and conversion rates. You have to know which campaigns are producing leads most efficiently to direct spend effectively. Volume is important because you must understand how many leads are needed to generate a response that will help you hit revenue targets. Conversion rates indicate how campaigns perform at every stage of the sales cycle, e.g., 1,000 raw responses to produce 100 conversions to qualified responses equals a 10 percent conversion rate. For growth, the goal is faster velocity or larger deal sizes.
Service: To gauge service success, you’ll need metrics that indicate the level of customer satisfaction and service efficiency. The Net Promoter Score (NPS) is a popular way to monitor loyalty (by asking if customers would recommend your software product or service to a friend or colleague). Service efficiency metrics will vary according to the type of service delivered, e.g., agent call, or chat resolution time is one way to determine how quickly issues are addressed by the customer support team. In that scenario, an indicator of optimal company health is a rising satisfaction rate and declining resolution times.
There’s much truth to the saying, “What is measured gets done.” In software sales, the velocity with which deals are closed matters because it’s impossible to plan effectively without knowing where customers are in the sales funnel, not only for sales but also for marketing, service, finance, etc. Similarly, marketers need to know which campaigns work most efficiently so they can invest in efforts that produce the best results, and they need to understand conversion rates so they can scale up to meet sales targets. And service needs to know satisfaction rates and efficiency metrics so they can find the correct balance.
Startup success depends on many factors, beginning with the product or service and the software company’s position in the marketplace. Company culture is also a critical success factor — leaders who build a learning organization that takes calculated risks and learns from mistakes are better positioned for technological innovation. But it’s hard to overstate the importance of building in basic performance metrics to monitor company health from day one. If you have a reliable way to capture these essential metrics, you’ll significantly improve your chances of startup success.
About The Author
Prior to joining Full Circle Insights, Bonnie Crater was a five-time vice president of marketing and executive at many software companies in Silicon Valley. Bonnie held vice president and senior vice president roles at Genesys, Netscape, Network Computer Inc., salesforce.com, Stratify, Realization, and VoiceObjects (now Voxeo). A ten-year veteran of Oracle Corporation and its various subsidiaries, Bonnie was vice president, Compaq Products Division and vice president, Workgroup Products Division. In 2013, Bonnie was named one of the “100 Most Influential Women” by the Silicon Valley Business Journal, in 2015 the Sales Lead Management Association named her one of the “20 Women to Watch” and in 2016 Diversity Journal honored her as one of the “Women Worth Watching.” Bonnie holds a B.A. in biology from Princeton University.
Guest column originally posted on Software Business Growth.