Vijay Anand | The Startup Guy.

How do you Measure a Startup?

Posted on: May 2, 2008

For the longest time, people used to postpone the act, art or call it science of putting some numbers to a company to the point when it was time to raise funds – mostly in the growth stage, or in the exit stage. We all know that the numbers associated with a startup during the seed or early stage are essentially all based on the future performance and promises shown by the founders and the company, and no one takes that too much to heart.

Lately, thanks to intermediate exchanges like AIM and what Singapore is doing, it will soon be possible for smaller companies – with a turnover of about a crore – to get listed in a limited stock exchange.

So here’s the question, tossed to those who read this blog:

1. Is it possible to measure, and put a metric on a startup?

2. If so, how? And what qualities would you measure?

3. Do know you know of any such attempts happening anywhere?

4. How do you think it will affect a startup, if some metrices can be put on the basis of its performance, perceived image, brand value, and the attention that it garners?

Looking forward to hearing from you.

PS: The Silicon Valley insider is doing something in the same direction.

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11 Responses to "How do you Measure a Startup?"

The measure as far I think should not be one based on mere accounting figures. Even the valuation of an entity’s worth is based on several hypothetical situations and assumptions. The true power of a startup should be its user base. The ability to reach out to the target audience…
Now, thats easier said than done; considering that all these are very subjective items and no amount of research or surveys could ascertain the real value behind a business..
Analysts are the people who make or break a business (esp. a startup) today. The real users should take power into their hands by contributing towards the services that matter most to them..Simply following metrics from number crunching applications would get startups nowhere..In the world of web 2.0; what matters is the user and how much he is satisfied (how much ever fake the satisfaction be…)

Alright, good point, but when it comes to the case of “Web 2.0” startups, userbase is a very easy stat to go with.

I am going to assume that we live in a world where there are startups that are not totally “web 2.0” compliant. Lets keep the discussions around that.

How about measuring user satisfaction ? does the application/startup deliver on what it promises to deliver, and score a 10 on 10 for the consumer ?
I think that will be a good metric to measure a startup.

Shivaas, thats what “Product review” would be 🙂

//Alright, good point, but when it comes to the case of “Web 2.0″ startups, userbase is a very easy stat to go with.

It’s true only in certain cases.. A very good example where it failed was in the case of twitter. Twitter valued its user base much lower than the actual, cos majority of the users use mobile or other clients to send Tweets and it wasn’t possible for them to track it all… I’d say user base should be left out while measuring a web startup

First measure of success for a startup is that how long founders remain motivated to run the startup.

There are few other metrics that could be used for startups:

(1). Burn rate – For all businesses
(2). How does start up compare with projected values in business plan
. Active Users (for Web2.0 companies)
. Design wins and revenue (product companies)
. customer wins (service companies)

[…] How do you measure a startup? Instead of trying to answer in a straight-forward manner, I’d take my usual convoulted way – […]

Vijay, I thought initially of replying to this post inline, but subsequently I realized that the thoughts that I have are suitable for a blog post itself. If interested, please follow the following link as a comment. Though I must admit, this goes way beyond “web 2.0 startups” per say!!

http://oltsm.wordpress.com/2008/05/03/on-startups-and-aims/

More of a question here, would this by any different from the way current valuations take place for early stage companies to evaluate investments for seed/early stage funding.

In that case the common parameters that apply in such case would still apply:
1. Market Size: Critical factor, what is the total addressable market. Is a key factor for valuation.
2. Team/Background: Teams with a background in the space, previous successful records will get significantly higher valuations.

I did not find any standardized approaches for this but there are a few interesting approaches from some companies: http://upcoming.yahoo.com/event/57116/

They use “initial public offerings and acquisitions of similar technologies or operating companies applied to future company cash flows or liquidity events, modified by present valuing techniques” .. for valuation. So compare with others in a similar space. I guess this will not work if it is something really not done before.

The have some good docs on this here:
http://www.cogentvaluation.com/con_services_ESInvestmentValuation.cfm

Nice discussion. Kausik, very good notes.

Gabhijit, fair points.

Will wait for some more responses and will summarize on this.

What do you guys think about what SAI is doing?

The SAI process looks good but i have an issue with such a strong emphasis on financial metrics to be used as part of valuating a startup like they seem to indicate. My question then would be if the companies do indeed have predictable financial metrics when do they stop being a startup and enter the regular space ?? There has to be some additional soft metrics to be taken into consideration ?

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