If you plan your startup’s growth appropriately, you can use the identical process to keep your startup on track after you launch.
The ‘Get on Track’ Process:
1. During planning, select values for 7 key drivers of your company’s growth.
b. Sales Cycle (SC): How many months transpire between your expenditure of marketing dollars and the acquisition of new customers?
c. Average Order Size (AOS): How much revenue do you expect to generate each time a customer makes a purchase?
d. Periodicity (P): How often will each customer make a purchase?
e. Retention Rate (RR): What percent of existing customers will remain customers at the end of each year?
f. Viral Coefficient (VC): How many people will each existing customer attract and successfully convert into new customers? This is a one-time conversion; once a customer refers this many new customers, we assume they no longer refer more new customers.
g. Viral Cycle Length (VCL): How many days will transpire between customers becoming new customers and their referrals becoming new customers?
Note that when planning your company, some of the above (e.g. VC and VCL) will have to be just guesstimates . . . and that’s okay.
However, you should be able to make somewhat more intelligent guesses on CAC and SC based on the type of business and the kind of marketing and sales you expect to conduct. And P and RR values should be much easier to estimate from the beginning based on your business.
2. Before you launch your company, verify that the estimates you’ve selected for the 7 key growth drivers will result in a successful company. That is, there must be significant revenues and profit, and solid returns for all shareholders to be considered successful. If not, adjust the values until the company becomes successful.
3. Launch your company.
The ‘Stay on Track’ Process:
- Every month, compare your actuals to your planned values for the 7 key growth drivers. Enter actual values for CAC, SC, AOS, P, RR, VC, and VCL into your plan.
- Verify that the actual values for these 7 key growth drivers still result in a successful company – i.e., significant revenues and profits, and solid returns for all shareholders. If so, you are on track! If not, you must change your strategy.
Change Your Strategy
Based on which key growth driver you want to affect, different strategic changes are in order. Many options exist in every case, but here are just a few ideas:
- To decrease CAC and SC: Improve your understanding of the target market. Hone your advertisements to the specific pains of your target markets. Focus on the benefits rather than features of your products. Offer better pricing or better promotions to increase close rates.
- To increase AOS: Offer quantity discounts. Improve your product.
- To increase P: Offer frequent buyer programs. Improve your product.
- To increase RR: Improve your product’s stickiness.
- To increase VC and decrease VCL: Offer referral programs, especially ones that incent both the referrer and the new customer. Make products so exciting that they create a buzz. Add features that increase your product’s value to customers.
As you can see, these seven key growth drivers are not only fundamental to planning your startup, they are also fundamental to keeping your startup on track. Not all are easy to estimate, but you can at least determine in the planning stage what values you must achieve to be a viable company.
Once you launch your company, not all seven are easy to measure, but as you progress, they will become easier. Drive your engine towards success!
“On Track” Photo courtesy of Clare Wilkinson (Creative Commons)