Traction — New Book Launch Backed by Exclusive Compass Data Analysis

Justin Mares is the co-author of the bestselling Traction: How Any Startup Can Achieve Explosive Customer Growth, published by Portfolio Penguin, launching October 6th. Get your advance copy in the next 24 hours to get exclusive access to their marketing strategy guide, as well as interviews they’ve conducted with entrepreneurs like Jimmy Wales (Wikipedia), Paul English (Kayak) and 35+ more.

We wrote Traction because we consistently come across entrepreneurs with the same problem: they need more customers!

One of the key findings we found while researching the book (and through our own experience) is that your traction strategy will change as your company grows. What works to get your first $10,000 in revenue or first 1,000 users often won’t get you to your next growth goal.

The story of Dropbox’s growth embodies exactly this phased approach. Early on, they relied heavily on social media and community sites like Hacker News to drive their first few thousand users. Later, once that tapped out, they built a pseudo-viral referral program that drove millions of users. Now, as they’re trying to scale, they’re focusing on business development: partnering with Microsoft, and getting pre-installs on smartphones in emerging markets.

As Dropbox’s story exemplifies, the way you get traction will change over time. After your growth curve flattens, what worked before won’t get you to the next level. On the flip side, traction channels that seemed like long shots before might be worth reconsidering during your next growth phase.

At least, this was our thesis, pulled from many interviews and much anecdotal evidence. And, though we’ve done as much research as we could, we don’t have the hard data that comes from working with thousands of startups and seeing how they’re growing. This is one reason why we’re excited about our emerging collaboration with Compass.

Data Exploration and Analysis

For our first collaboration project, we looked at how revenue is affected by:

- the quantity of functional customer acquisition channels a company has

- how the effectiveness of different customer acquisition channels varies by type of company

- how the effectiveness of different customer acquisition channels varies by revenue threshold

In Traction, we introduce the Bullseye framework, a tool founders and marketers can use to determine what channels make the most sense for their startup. At a high level, the Bullseye framework is a process of brainstorming all 19 traction channels (content marketing, email, trade shows, etc.), running fast and cheap tests in channels that seem promising, and iterating to find the 1 core channel strategy that will propel your business through the next phase of growth.

1. Mapping Traction Phases to Compass’ Startup Lifecycle

Before we dig into the data, we wanted to quickly introduce an important Traction framework and how it relates Compass’ Startup Lifecycle.

In Traction book, we use a 3-phased growth model, as shown below. In Compass’ reports, [1] and [2], originally published under the name Startup Genome, they developed an empirically validated model of a Startup’s Lifecycle, where their first 4 stages of growth are: 1. Discovery 2. Validation 3. Efficiency and 4. Scale.

If we introduce a phase 0 before Traction’s 3 phases, then our two models map seamlessly together, as you can see in the table below:

Traction Phases

Compass Startup Lifecycle Stages

Phase 0 (nothing has been built yet)


Phase 1 (making something people want)


Phase 2 (marketing something people want)


Phase 3 (scaling your business)


Now, on to what the Compass data shows:

Finding #1) Companies with more functional Customer Acquisition Channels have more revenue


Median Revenue in USD













The graph shows Median Monthly Revenue on the Y Axis and number of active customer acquisition sources on the X axis. The X axis starts at 2 because nearly all revenue producing companies have at least two channels: 1) some online channel such as search engine marketing or referral and 2) Direct traffic, which is some combination of “Word of Mouth” + other untracked or uncategorized, non-digital activity that drove traffic to the website such as Public Speaking, a Trade Show appearance, or a radio advertisement.

If you’re an early-stage startup, trying to “focus” on multiple channels early on can literally kill you. If you’re trying to do SEO, PR and paid acquisition all at once, you’re spreading yourself too thin, and removing the opportunity to become an expert in a channel that’s working.

This is confirmed by the second finding from Compass data:

Finding #2) Companies in Phase One grow faster if they have one core channel.

In this analysis, we dug deeper into how the distribution of revenue performance across acquisition channels affected revenue growth over time. A core thesis and hypothesis of Traction is that a company should focus on selecting and optimizing one customer acquisition at a time, rather than diffusing energy and efforts across many.

For this analysis, we segmented companies into two buckets:

  1. Companies with a single core acquisition channel;  which is defined as a channel that generates more than 50% of a company’s revenue.

  2. Companies with multiple acquisition channels with diffused revenue distribution.

After examining the data, we found that companies in Phase 1 with less than ~$12,000 in monthly revenue, that had a single core customer acquisition channel grew faster than company’s that had multiple customer acquisition channels.  

Companies in Phase 1 with a single core channel grew ~19% per year, while those that had multiple diffusely effective channels shrunk by ~19% per year.

This bears out our thesis and experience that focusing on a single channel early on is the best way to ensure success. If you have less than $12,000 in monthly revenue, it makes sense to choose a single traction channel and focus on it until you get it working.

This changes somewhat as you move into Phase 2, where you try to reach a broader market after having found Product/Market Fit.

In the next revenue bracket, the data showed that companies with monthly revenues between ~$12,000 and ~$83,000 grew 52% when they focused on a single core channel.

As for those Phase 2 companies that didn’t have a core traction channel? They grew 49% - almost the same rate as those focusing on a single core channel.

Clearly, in the earlier stages of your company, it pays to focus on a single channel. Then, as your company grows and scales, you’ll go through the Bullseye process we cover in Traction to find the next channel that will allow your company to grow.

Finding #3) Companies in Phase 3 leverage multiple channels

Once a company is at scale (greater than $83,000 in monthly revenue), we find that companies that grow through multiple traction channels grow 30%, while those that still get >50% of their revenue from a single channel grow 23%.

When Revenue is greater than $83,315/month:

Growth with Core Channel


Growth with Multiple Channels


There are a few things that are likely going on here. As we talk about in the book, often a channel will become saturated after you’ve doubled down on it, thus creating the need to look for new acquisition channels.

There’s also the fact that, as a company matures, their marketing gets more sophisticated. In many cases, focusing on a single core channel (like SEO) will involve multiple channels that feed into the core channel strategy.

For example, a focus on content marketing requires getting people to see your awesome content, and some good tactics for doing so are getting publicity, using social ads, and doing search engine optimization (other traction channels). Similarly, viral marketing is often built on email marketing or existing platforms like Facebook (two other traction channels). Yet in both these situations one channel is dominant in that it is your core traction strategy. You’re using these other channels to support that strategy, as opposed to pursuing multiple traction channels at once.

Another explanation is that when companies get more successful they have a lot of extra money, and they are using multiple channels to either a) experiment to find their next growth channel; b) experiment as a hedge on their current stage of growth; or c) fail to get rid of earlier strategies that don’t move the needle, but they don’t care as much since they are less price sensitive and don’t need to focus as relentlessly on a single channel.

2. Channels for Different Types of Companies

Traction makes a strong argument that companies should look for under-utilized channels and tactics because they have the highest potential competitive advantage. If everyone in an industry is using search engine marketing, it is probably best to not use search engine marketing because it will be saturated (and thus far more expensive).

Finding #4) Different types of companies primarily use different acquisition channels.

Here is a short table highlighting the most profitable source of traffic on average for different types of companies:

Company Type

Primary Channel


Organic Search

SAAS, Ecommerce

Paid Search Ads



The data confirms that certain types of companies tend to use similar channels, as one would expect. There are two initial conclusions one could draw from this:

One, that certain channels may be more suited to different types of companies. For example, if the value of each customer is high (enterprise software, B2B, etc.), then paid advertising can be a viable channel. However, if the value of each new customer is low (free mobile apps, many consumer sites), paid advertising becomes much harder to do well.

The second potential conclusion is that there could be a clustering effect, where companies copy one another’s marketing until they’re all using very similar strategies.

This is why Traction strongly recommends you consider all 19 traction channels before deciding which channels to focus on. This allows you to discover channels that are not yet saturated, and build a marketing competitive advantage.

We need to do more analysis to uncover whether companies using under-utilized channels are doing better, as Traction suggests. In any case, this table can serve as an additional data point to support in the prioritized weighting and pruning of the possibility space when considering the channels to actively pursue.

3. Channels for Different Company Phases

As suggested in Traction, we wanted to also see how companies use different channels as they grow. The book predicts that what moves the needle early on will shift at later stages, and so we looked to see if channel use tended to shift as companies started generating more revenue.

Finding #5) Different Acquisition Channels work best at different stages of the Startup Lifecycle

Here is a table that shows what types of channels work best at increasing levels of Company’ revenue.

Company Monthly Revenue

Primary Channel

Revenue less than $5,000 per month


Revenue of $5,000 - $20,000 per month

Paid Search Ads

Revenue of $20,000 - $300,000 per month

Organic Search

Revenue >$300,000 per month

Direct/Word of Mouth/Offline

This table supports Traction’s thesis that at each phase of a company’s growth, the channel that is most powerful and potent changes.

To reiterate, what drives the need for new acquisition channels are variables like channel volume, channel saturation, channel customer acquisition cost, and company resources available. For instance, public speaking may drive sufficient volume in phase one,  but SEO may be required in later phases.

4. Conclusion

Though more data is clearly needed, the data that we did explore tends to confirm the core Traction theses that, when first starting out, you should find one core channel that will get you to your traction goal. The data also confirmed that, as your company grows, you will probably have to find new channels that work to get to reach your next growth goal.

We hope you enjoyed this first collaborative effort between Traction and Compass, and we hope to have some more findings to share with you soon!

If you are looking to get more traction for your business, we recommend getting a copy of Traction: How Any Startup Can Achieve Explosive Customer Growth.

Justin Mares is the co-author of the bestselling Traction: How Any Startup Can Achieve Explosive Customer Growth, published by Portfolio Penguin. As an additional bonus, if you purchase your advance copy of Traction before October 8th you’ll get exclusive access to their marketing strategy guide, as well as interviews they’ve conducted with entrepreneurs like Jimmy Wales (Wikipedia), Paul English (Kayak) and 35+ more.

Making sense of your marketing data with Compass

This is a post about how to make sense of your marketing data using Compass (you can create your free account here). 

This post is written by Ramon Bez, a growth engineer at Tour Radar, a travel e-commerce company. 

1. Why Benchmarking Is Important

We all make decisions about the future every day. The challenge is that so many of our decisions about the future are made under conditions of great uncertainty.

The more data we can find to support ourselves in the decision making process, the better our decisions will be. In a business context, better decisions directly translates to less waste, better results, and greater success.

For online businesses, the newly emergent ability to measure every single customer interaction has opened up unprecedented opportunities for using data to make better decisions..

But even though data are increasingly available to support decision making, this abundance of data has increased the prevalence of gut based decisions relative to data based decisions.

Cardinal Path, a renowned digital agency, published a study showing that the number of projects using marketing analytics has in fact decreased in the last couple years, from 37% (in February `12) to 29% (in February `15).

The reason for this decrease is that companies are simply overwhelmed by the abundance of data and the complexity and training required to utilize it properly. Most businesses are clueless at every step of the analytics cycle. They do not know what they should be measuring, how they should be measuring it, and how to interpret these metrics to make the decision to take one action over another.

And so data often becomes an accessory to arguments in favour of pre-established opinions, and not the basis for creative insights and strategic decisions. As a result, even in the projects where data and analytics are implemented, they are often used by those with management authority to simply back up their previously held opinions.

Greater fluency in analytics would enable businesses to mine their data for golden nuggets of insight, dramatically increasing their chances of success.

A primary cause of this lack of fluency, however, is the fact that most marketers don’t have access to an adequate framework (ie. context) from which they can base their decisions. Without proper context, data is rarely useful in providing new knowledge and, most importantly, new ideas.

At present the primary way marketers obtain context is by comparing their metrics against themselves in the past. What they are missing however, is the ability to accurately and rigorously compare themselves to other businesses who are similar to them, to understand how they stack up.

In so many other areas of society this peer based comparison is a readily available and valuable contextual metric. Students know the percentile of their performance on standardized tests like the SAT, athletes know how their statistics compare to players in the rest of their league, doctors know what normal looks like on a blood panel, yet most business have no idea what good or normal is for nearly all of their metrics.

Compass has been hard at work for many years now to build the conceptual model, analytical framework and API infrastructure needed to enable this kind of peer based context for better decision making.

Context & Benchmarks

The two most common challenges companies face when attempting to find game-changing insights from their data are:

1.1 They don’t know what to measure to track the progress on their primary objective

1.2 They don’t know how to interpret the data they have measured

1.1 What to Measure

For most companies, knowing what to measure is the first challenge in improving performance.  

This is especially difficult when companies are navigating uncharted territories, as is usually the case for startups.

Without the right tools to set the right targets and correctly use data, entrepreneurs often end up with decision paralysis, or worse, “blind” or misguided practices.

Compass helps entrepreneurs and marketers overcome this difficulty by comparing their performance with companies in the same industry and of similar sizes. This provides a framework of standard metrics they can use to start measuring progress and success.

Social networking sites, for example, will probably need to place special consideration on metrics such as number of signups, page views, time on site or returning visitors. These are very different from what an e-commerce business should focus on, where conversion rate, bounce rate and average cart value will likely have a more significant impact on their success.

Even within these two verticals, however, there are several different factors that will influence the decision of what metrics need to be followed more closely than others. These factors might include variables like target market, product prices, customer lifecycle, etc. Very few things are more dangerous to a business than attempting to improve a product by optimizing for the wrong metrics.  

Knowing what to measure will give entrepreneurs and marketers clarity on what they should be focusing on and prevent them from basing business decisions on pure instinct or on metrics that aren’t relevant for their businesses.

1.2. Not Knowing How To Interpret Data

The main difficulty that arises, once businesses have learned what their key metrics are, is not knowing how to interpret these metrics in order to make decisions that improve their business.

Understanding the specific performance indicators that are most relevant to your company is crucial because a successful growth strategy is one that focuses almost exclusively on the biggest obstacles for growth. The best performing companies channel their most precious resources (human capital) towards these important issues.

Intelligent benchmarking allows companies to uncover precious information and accordingly, adapt their behavior. For instance, let’s say you found out that your page view numbers are performing badly compared to the best companies in the industry. Now you can use this knowledge to drive your strategic decisions towards that specific goal.

This type of intelligence is normally unattainable to small and medium businesses, who have to rely on their own historical data and “hunches” to make business decisions that will have a big impact on their future.

Compass’ dashboard makes it abundantly clear to everyone in the company what should be their next biggest focus by comparing thousands of data points from companies in similar stages, industries and characteristics.

Moreover, it draws business insights from the raw data, highlighting where the company needs improvement. This gives the company a significant competitive advantage against businesses with no clear understanding of their own strengths and weaknesses.

2. How To Start Using Compass

2.1. Setting Up Data Sources

Using Compass is extremely easy. You start by setting up your account at and then seamlessly integrating many of the software applications you already use, such as Google Analytics. Compass will securely and privately draw information from GA about your website or application, including metrics like number of visits, time on site, bounce rates, conversion rates, advertising performance, social media presence and much more.

Other popular services that Compass taps into are payment APIs such as Adwords, Paypal, Stripe, Amazon, and Shopify. Compass can use data from these services to calculate benchmarks for revenue, lifetime value and churn.

It’s important to note that Compass doesn’t share your company's data with anyone, and never will.

2.2. Reading Your Dashboard Report

The first thing you’ll notice once you’ve activated one or more data sources, is that your dashboard will be filled with rich, color-coded data about your business. There is a switch on the top of your dashboard that allows you go back and forth between a standard internal report and a benchmark report. You will find that many times metrics that show up red in your standard report, show up green in your benchmark report and vice versa. The benchmark report will help you shift your focus on what really matters. The following points are referring to the benchmark report.

a) How To Read The Color Codes

The color coding of your data points in Compass is very simple:

Green means you are above the median of your peers, which means that, compared to the market, this is a strength of your product.

Yellow: Means you are below the median, though not by much. It demonstrates that this is an area you should be paying attention to.

Red: Means this is a weakness of your product and an area that you should focus your efforts to improve.  

b) How To Read Your Dashboard

The foundation of our assessment of your startup is based on classifying your company into one of 4 stages in the Startup Lifecycle. Our model of the startup lifecycle has been tested, validated and written about extensively in our research reports under our Startup Genome initiative. You can find those reports here.

According to our model, the Startup Lifecycle is made of 4 stages of development: Discovery, Validation, Efficiency & Scale.

It is very important that you conceptually understand these stages and move through them in order. We have plenty of qualitative and quantitative analysis showing that companies who move through these stages sequentially perform massively better than companies who don’t.

Moving through these stages out of order leads a company to incorrectly set goals and priorities, improperly allocate resources, and focus on the wrong metrics for improvement.

Now we’ll walk you through a basic description of each stage.

1) Discovery

In this stage you are searching for Problem / Solution Fit. More specifically, this means you’re trying to investigate whether your hypothesized product is solving a problem that your target market have a strong need/desire to have solved.  

Many startups either don’t do this stage properly or skip straight to validation. They end up spending a lot of technical effort designing and coding a product that, as it turns out, nobody is interested in using.

2) Validation

In this stage you are searching for Product / Market Fit. More specifically, this means you’re looking to build minimum viable products (MVPs) in increasing levels of resolution and completeness.

MVPs help you validate that your identified customer segment is interested in your product. Not just based on what they said in the discovery stage, but now based on how they actually behave and in engage with your prototype.

To successfully complete the validation stage, you’re searching to create a repeatable ‘must-have’ experience for a significant customer segment. This segment needs to be significant, so that you can scale your company around it.

A variety of qualitative and quantitative metrics are used to indicate whether you have reached Product / Market Fit. These are such as Net Promoter Score, User Satisfaction Score, Very Disappointed Score, Retention, Engagement, and Monthly Recurring Revenue.

Many startups move on to the efficiency and scale stages before they’ve reached Product / Market Fit. They waste a lot of time and money optimizing and marketing a product that users aren’t very compelled by yet.

3) Efficiency

In this stage your startup has found Product / Market Fit. You are now preparing your company to be able to handle massive growth in the proceeding scale stage.

This is the stage where you refine your business model, optimize your landing pages and conversion funnels. It’s also when you solidify your technical infrastructure as well identity the values of your company culture.

Startups that skip this stage and scale too quickly after Product / Market Fit are metaphorically similar to an unprepared rocket launch. Their startups inevitably blow up and disintegrate rather than reach the stratosphere.

Scaling before finishing the efficiency stage can destroy startups in many ways. One of the most common way in which Compass can help with is making sure your unit economics are solid. That means you want to make sure for every new customer your startup acquires, the lifetime value is higher than the acquisition cost, and the time to acquire and speed of marketing recovery cost are sufficiently fast.

4) Scale

In this stage, startups are ready to step on the gas pedal and drive growth very aggressively.

Once startups have validated their unit economics, identified a variety of profitable customer acquisition channels, and know that their product can technically handle the increased usage, they are ready to start aggressively pumping financial and human resources to profitably saturating these growth channels.

3. The 4 development stages in Compass

Reading your dashboard from the bottom up, you can identify what stage in the Startup Lifecycle your company is at. Here’s how you can do that:

3.1 Product / Market Fit

A startup still looking for Product / Market Fit is not yet in a position to grow.

The performance indicators in this section will evaluate the importance of your product in the lives of your target market and corresponding key customer segments.

So if your data looks red or yellow in this section, that is a sign that your product isn’t sufficiently compelling to users and you haven’t yet reached Product / Market Fit.  

Here is a more detailed description of each of the metrics in this section:

LTV: Lifetime value is the mathematically calculated monetary value the average user will spend on your company’s products and services during the entire timeframe they remain a customer of your company. The key variables of the LTV equation are the average time length an individual remains a customer of your company, retention rate and profit margin per customer.  

Returning visitor: This is the percentage of users who return to your site or application after their first visit.

Time on site: This is the average amount of time users spend on your site or application per session.  

Pages per visit: This is the average number of pages on a user views on your site per session. The precise pathway of what pages they visited, in what particular order may also be provided.

Bounce rate: This is the percentage of users who visit a single page on your website or application and then leave before taking additional actions.

3.2 Product Efficiency

Once Product / Market Fit is successfully achieved, a startup should then focus on optimizing product performance.

That means making sure that users have the best possible experience with your product. For that, the key metric we measure is Page Load Time:

Page Load Time: Increasing speed has become a fundamental product requirement. People need things faster and more readily. Every second counts when it comes to the time it takes for a page to load, and that has a direct effect on business results.    

3.3 Customer Acquisition Efficiency

If your product is a great fit with your target market and it is performing well, then congratulations! You are ready to start ramping up customer acquisition.

The two main metrics you should be looking at are below. Pay close attention to them and be sure that each of your customer acquisition channels are performing well:

CAC: Cost per acquisition is the most important metric to measure and monitor if you’re doing paid advertising. Benchmarking your CAC against companies similar to yours will help understand how effective your marketing is and how much room for improvement you may still have.

Conversion Rate: The percentage of people that came through a particular marketing channel and signed up or made a purchase.

Bounce Rate: These refer to each acquisition channel. If a particular channel has a high bounce rate, it means that it could not be the right channel for your product. Or it might need optimisation work.  

3.4 Topline Performance

If your Product / Market Fit, Product Efficiency and Customer Acquisition metrics are performing well, you are ready to scale.

So it’s time to step on the gas pedal and watch out for the top-line metrics of your business, which are:

Revenue: Make sure that your monthly revenue numbers are pointing up.

Avg. Transaction Value: Selling more of higher priced products will help you improve your overall business performance.

Transactions: Make sure growth is steady by improving the number of transactions weekly or even daily.

Unique visitors: If all your other metrics are trending up, then watch for your unique number of visitors as well. Just be careful not to pay too much attention to this metric before other core areas of your product are optimised.  

4. How to incorporate Compass in your company’s routine

Compass’ value surfaces when you incorporate our data into the managerial processes of your company.

We recommend using Compass’ dashboard in your next meetings, in the following way:

4.1 Sprint meetings:

Successful companies focus on solving their biggest bottlenecks first. With Compass, your sprint meetings will start with a clear view of your priorities.

By understanding, for example, that Page Load Time is high in comparison to your peers, and that page load time directly impacts conversions, you’ll know to prioritize tasks to reduce Page Load Time.

We recommend you open the meeting by showing Compass’ dashboard to the entire team. Set it for Report mode and select Weekly Report to see your improvement from last week. Then use our colour coding system to identify what are the main metrics you should be focusing on.

Now go to your backlog of tasks and pick the ones that can positively impact red metrics in your dashboard (or brainstorm ideas that can). Then assign these tasks accordingly.

Repeat this process in every sprint meeting until all your metrics are green.  

4.2 Weekly Team Meetings:

If your company starts each week with a team meeting, then use data from Compass to enrich it and ground this week’s focus.

Show your Compass dashboard to the entire team and highlight green and red metrics. Set it for Report mode and select Weekly Report to see your improvement from last week. This exercise will help get your entire team focused on the most important data.

Congratulate the team on the metrics that are looking positive and bring their attention to the metrics that need improvement.

Use that data to focus your company’s weekly efforts in the direction that will have the biggest impact on the business. Then assign tasks and responsibilities accordingly.

4.3 Board Meetings:

Investors come to the board meeting to learn about your company’s performance. Compass’ dashboard will give them a clear indicator of the areas you are performing well and where you need improvement.

Knowing how your metrics stack up against the market will allow them to focus the time of the meeting on what matters most. Once they understand what the most important issues are, they can help you with clear cut advice on how to improve.

Moreover, they will know that the entrepreneur has a deep knowledge of what’s going on in the company. That will reassure them that actions are being taken to drive the business towards

The 2015 Global Startup Ecosystem Ranking is live!

Download the full report here.

Welcome to the Global Startup Ecosystem Ranking. It has been almost three years since the last Startup Ecosystem Report was released in November 2012, and since then the startup sector has grown at a booming pace.

The centerpiece of the 2015 Startup Ecosystem Ranking is our updated and revamped component index, which ranks the top 20 startup ecosystems around the world. The index is produced by ranking ecosystems along five major components: Performance, Funding, Talent, Market Reach, and Startup Experience.

I. The Increasing Socioeconomic Impact of Startup Ecosystems

Twenty years ago, almost all tech startups were created in startup ecosystems like Silicon Valley and Boston. Today, technology entrepreneurship is a global phenomenon, with startup ecosystems similar to Silicon Valley rapidly emerging all around the world. An interconnected, global startup landscape is taking shape and we’ve gathered the data and crunched the numbers that nobody else has to help you understand how to best navigate this brave new economic world.

In September 2011, we wrote a blog post about the coming “Entrepreneurial Enlightenment” and the factors behind its emergence. The era is in full bloom now and there has never been a better time to be a tech entrepreneur, as entrepreneurs are now blessed with the tools, resources, and market conditions to scale a company to billion dollar “Unicorn” status faster than ever before.

The rise of the startup ecosystems all around the world should also be seen in the context of the larger socioeconomic structural shift taking place. Information Era businesses have become the dominant source of economic growth, significantly automating or altering much of the industrial and service businesses of the previous economic era. Many others have described aspects of this structural shift under different names, such as Marc Andreessen’s widely circulated Wall Street Journal essay, “Why Software is Eating the World”, Deloitte Center for the Edge’s semi- annual “Shift Index”, or Richard Florida’s Creative Class Group, which has published numerous books on the topic, such as the “Rise of the Creative Class.”

Given technology startups’ critical role in the information economy, the importance of healthy startup ecosystems only stands to increase in the future. With this report we want to accelerate the development of startup ecosystems around the world by answering critical questions for entrepreneurs, investors, and policy makers that are difficult to answer without the data we have gathered and analyzed in this report, as well as to raise the general populace’s awareness of the increasing socioeconomic importance of startup ecosystems.

One of our main goals with this report is to help various stakeholders answer the following kinds of questions:

a) For Entrepreneurs:

“Where should I start my new company?”

“When I’m ready, where should I open up my startup’s second office?”

b) For Investors:

“How can I find new startup investment opportunities around the world instead of simply settling for solely investing in my local startup ecosystem due to familiarity?”

“Given the lack of information out there about emerging startup ecosystems, how do I evaluate which ones I should focus on for finding new opportunities?”

c) For Policy Makers:

“What initiatives should I prioritize in my startup ecosystem to maximize growth?”

“How should I measure the progress of these initiatives?”

d) For All Stakeholders:

“What is the best way to strengthen the overall vibrancy and entrepreneurial spirit in my ecosystem?”

II. The Global Startup Ecosystem Ranking 2015

Without further ado, here is the ranking, with analysis to follow.

One important caveat to note: Our index does not currently include startup ecosystems from China, Taiwan, Japan, and South Korea. It has been challenging to get survey participants and complete data. We hope to have these ecosystems included in our index later this year. While we have not completed our analysis yet, we particularly expect:
  • Beijing to rank in the top 5
  • Shanghai to rank in the top 15

The following ecosystems all scored highly and were contenders for a spot among the top 20: 

  • Atlanta, Delhi, Denver-Boulder, Dublin, Hong Kong, Mumbai, Stockholm, and Waterloo. 

III. Five Key Findings

1. Ecosystems have become more interconnected and startup teams have become more international:

a) Global average for investments in a startup from outside of its home ecosystem

- 37% of all funding rounds in the top 20 ecosystems have at least one investor from another ecosystem. In North America this is 41%.

- 27% of all funding rounds have at least one investor from abroad. (North America 20%, Europe 38%, Asia-Pacific 29%)

b) Globally distributed startup teams

In the top 20 ecosystems, the number of offices that are 2nd offices from startups outside the ecosystem or headquarters of startups that were founded elsewhere and moved to the ecosystem, rose by 8.4x from 2012 to 2014.

c) International Teams:

The number of foreign employees within a startup is 29% on average for the top 20 ecosystems (Silicon Valley 45%)

2. Exit Values:

Total exit growth across the top 20 ecosystems rose 81% annually from 2013 to 2014 (40% IPOs/60% Acquisitions).

Looking at the relative growth rates of exit value (based on a 2013-2014 2-year moving average), we see Silicon Valley growing at a 47% rate over the last two years, whereas many other ecosystems further down the index are growing at a much faster pace.

London has quadrupled in the same timeframe, and Berlin has grown by a factor of 20 (due primarily to the two big IPOs of Rocket Internet and Zalando).

Full Exit Growth Table: (2013-2014 2-year moving average)









Sao Paulo










Tel Aviv


Los Angeles


Silicon Valley


New York City










Montreal 1x

Europe vs. U.S.

Exit value grew much faster in the top European ecosystems than the top ecosystems in the U.S.: 4.1x Europe versus 1.5x U.S. (2012-2014), yet in 2014 the volume of exits was still on average 82% higher in American startup ecosystems than in European ecosystems.


Over the coming years we expect Silicon Valley to stay in the lead, even while other ecosystems temporarily grow at a faster pace, with the expectation of ultimate convergence towards an equilibrium that looks a fairly conventional 80/20 power law; i.e. Silicon Valley capturing 30-50% of the total exit pie, the next three startup ecosystems capturing an additional 30-50% of the pie and the following top 16 startup ecosystems capturing the remaining 20% of the total exit pie.

3. VC Investment Trends in Startup Ecosystems:

Total venture capital investment across the top 20 ecosystems rose 95% from 2013 to 2014.

a) VC Growth:

The ecosystems with the most growth in VC investments were Bangalore (4x), Boston (3.7x), Amsterdam (2x), and Seattle (2x). Meanwhile, Silicon Valley almost doubled up with 93% growth from 2013 to 2014, with indications from Crunchbase that almost all of the increase in Silicon Valley funding was in late stage Series B and Series C+ capital rather than early stage capital, which was relatively stagnant.

b) Seed Stage Capital Growth:

The startup ecosystems with the fastest annual growth in the number of seed rounds over the last two years were Bangalore (53%), Sydney 33%), and Austin (30%).

4. Ecosystem Ranking Changes since 2012 : Winners and Losers

The startup ecosystems which made the biggest leaps are New York, Austin, Bangalore, Singapore, Berlin and Chicago. New York City made a significant leap among the established players, moving from position #5 to #2 to take the silver medal. Austin, Texas, meanwhile leapt all the way into #14th place, whereas three years ago they didn’t even crack the top 20. Bangalore moved from #19 to #15, Singapore from #17 to #10, Berlin from #15 to #9, and Chicago from #10 to #7. 

The startup ecosystems which made the biggest falls are Vancouver, Toronto, Sydney, and Seattle. Vancouver slipped out of the top 10 from position #9 to #18, Toronto slid from #8 down to #17, Sydney dropped from #12 to #16, and Seattle fell from #4 to #8. Again, all of these ecosystems did grow in the past three years, but not as fast as other environments, which puts them at risk of eventually being left behind.

Three ecosystems fell out of the top 20 completely since 2012: Santiago, Melbourne, and Waterloo. Santiago experienced fast “catch up” growth for several years but is now just a bit above average with a growth index of 2.6 (average = 2.4). The growth of Melbourne likely took a hit due to its close proximity to the larger startup ecosystem of Sydney. Smaller ecosystems with close proximity to larger ecosystems often have a hard time continuing to grow due to new and existing talent and capital migrating to the larger nearby ecosystem. 

Regarding Waterloo, our methodological change of removing Startup Output per capita as a performance metric is the main reason for its lower ranking. It has a Growth index of 2.45, which, while only slightly above average, is significantly higher than most of the lower ranked ecosystems in the top 20.

5. Gender Equality amongst Startup Founders

The lack of gender equality is common across all startup ecosystems. No ecosystem comes close to an equal share of male and female founders, although psychologists and sociologists continue to debate whether 50/50 is the target to strive for [see this article on gender differences by Florida State Psychology professor Roy Baumeister][1]. Overall, the trend for female entrepreneurs is significantly up—the number of female founders in the global startup ecosystem has grown by 80% over the last three years. In 2012, 10% of startups had a female founder, as compared to the 18% global average among the top 20 in 2015. Chicago, with 30% female founders, has the greatest percentage of women entrepreneurs out of the top 20 startup ecosystems. 

IV. How it differs from the 2012 study and why

Having access to a larger volume of data combined with the development of a mathematical model with a high degree of fit drove a few changes in this year’s ranking methodology. The most significant change was the removal of the metric “Startup Density” (number of startups per capita, a measure of density) from the Performance Index. This changes the scoring formula away from density to overall value and size of the ecosystem.

In interviews with many stakeholders (investors, entrepreneurs and others) we concluded that there is an interest for larger ecosystems supported by the availability of more resources. The question was how to compare the performance of different ecosystems. Is an ecosystem with $10 billion in value and 1,000 startups in a city with a metropolitan population of 5 million (Startup Density of 0.2 startup per thousand people) better than one with $15 billion in value and 1,500 startups in a city of 10 million people (0.15 startup per thousand people)? Our intuition, validated by interviews, modeling and correlation between different factors, showed that both higher absolute value and higher number of startups are better, so we scored them separately.  Startup Density was neither correlated with other performance variables nor drove the decisions of entrepreneurs and investors. Therefore we chose to focus the Performance Index on the value and size of the ecosystem. We are conducting more research to allow for more nuanced relationship in future versions.

This change is one reason why Tel Aviv—despite its continuous and well above-average growth rate—and the Waterloo Region in Canada—with its very small population (slightly above half a million)—are ranked lower in our 2015 ranking than in our 2012 one.

Download the full report here:

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Breaking: The 2015 Global Startup Ecosystem Ranking 2015. New Report with Unexpected Results and Insights. #ser15

[1] Baumeister, R. (2007)

About Compass  ( formerly Startup Genome)

We came together for one reason: To radically improve the success rate of businesses.

With 34,000 signups, Compass is the leading solution for automated management reports and benchmarks for small and medium-sized online businesses.

Compass is made for executives who seek visibility on how to improve their ROI without having to rely on analysts or consultants. Compass automatically prepares best- practice reports and benchmarks for your weekly and monthly business meetings.

You get your first interactive report in less than 2 minutes after signing up. Simply connect the tools you use to manage your business and Compass will create your tailored report.

Why we built Compass:

In our research as part of the Startup Genome Project on the success and failure of young firms, we found that most businesses fail not because of competition, but rather due to self destruction. Or in other words, they fail because they execute on the wrong things.

In our search for scalable solutions to this problem we learned that peer benchmarks and industry data were one of the most effective ways to help businesses focus on executing what matters most.

The newest Global Startup Ecosystem Ranking 2015 was a collaborative effort involving:

  • Insights from over 200 interviews with entrepreneurs and local experts from 25 countries

  • Data from 11,000 surveys completed by startups, investors and other stakeholders in the last five months

  • Partnerships with: CrunchBase, Global Entrepreneurship Network, Dealroom, Orb Intelligence, Deloitte Australia and 60 local partners (including incubators, accelerators, VCs, policy makers, and universities)

The Startup Revolution Series Part 4: The Critical Role of the Startup Ecosystem

— by Max Marmer and Cheyenne Richards

In our previous posts (The Great Transition: Industrial to Information Revolution, The Decline of the Blue Chip and The Rise of the Startup), we’ve argued that we’re in the middle of an epochal societal transition from the Industrial Age to the Information Age, that blue chip companies are becoming less and less able to be the primary drivers of the global economy and that the startups rising in their place are the only creators of net new jobs.

So if our entire global economic future rests on our ability to support the growth of startups, how do we help them thrive? With a flourishing local ecosystem.

Wait... what? Aren’t internet businesses inherently global? Haven't tools like Skype and Basecamp made location meaningless? If successful traditional businesses get started every day around the world, why do startups need the special support of an ecosystem?

If you’re an experienced entrepreneur, the challenges described below may seem all too familiar and we invite you to provide your own thoughts in the comments section. For the rest of the world, still trying to understand the complex and unique drivers that either support or suppress startup growth, we hope this provides some additional perspective on the importance of the ecosystem.

High growth technology startups are very different from other businesses.

Read more »

How Much Should You Pay Your Engineers? (Infographic)

by Cheyenne Richards

With the world’s ever-expanding appetite for great engineering talent, hiring is becoming a larger and larger challenge for tech companies. Never has it been more critical to know just how much you should pay that promising candidate. 

If you're a startup -- How do your salaries compete with more traditional IT firms? Where in the world is the cheapest place to source talent? And if you're bootstrapping development, which are the least expensive programming languages to work with? 

If you're an IT firm -- Are freelance or in-house resources more cost effective? What is a benchmark career path for an engineer? 

Whatever your situation, the following insights from the Research October 2014 survey of engineers around the globe, may prove helpful. In addition to data from our own members, for this report we reached across the web for comparison data from oDeskElanceToptalGlassdoorAngelList and Payscale. In the process, we owe a special shout-out to the folks at Elance-oDesk and Toptal, who helped us access and interpret their data. 

The Startup Revolution Series — Part 3: The Rise of the Startup

By Max Marmer, Compass Co-Founder Emeritus and Cheyenne Richards, Compass Writer and Marketer

This is the third installment in the Startup Revolution Series. In the first post, we suggested humanity may be approaching—or have already passed—the tipping point between the Industrial and Information Eras. In the second, we provided data that demonstrates fairly conclusively that Industrial Era-focused blue chip companies have lost significant value over the past 50 years, as defined by return on assets.

So what is rising in their place? This post will focus on the Information Era businesses that are best adapted to this new Darwinian business environment: Startups.

Read more »

CrunchBase and Compass (formerly Startup Genome) Partner to Rank Global Startup Ecosystems in 2015

The survey for the 2015 Startup Ecosystem Report kicks off today — in a partnership by CrunchBase and Compass. Participate here.

San Francisco, CA, 4 February 2015—CrunchBase, the world’s most comprehensive dataset of startup activity, and Compass, creator of the most extensive benchmark data for startup performance, announce the kickoff of a collaborative project that is as critical to the global economy as it is ambitious. Since the groundbreaking results of the Kauffman Study, which demonstrated that “Startups that develop organically are almost solely the drivers of job growth,” there has been an increasing demand for information about how to create thriving local ecosystems.

Beginning today, startups around the globe may access the Startup Ecosystem 2015 Survey to provide their data to help measure the health and growth of their ecosystem relative to as many as 40 others. They will also be able to benchmark their individual results with their relevant peers, providing a highly useful perspective that enhances decision-making.

Read more »

The Startup Revolution Series — Part 2: The Decline of the Blue Chip

by Max Marmer, Compass Co-Founder Emeritus

This is the second post in the Startup Revolution series. The first may be found here.

In the last post, we suggested humanity may be approaching—or have already passed—the tipping point between the Industrial and Information Eras. Now we will delve deeper into why the old wisdom no longer seems to apply and blue chip companies are far from the reliable investments they used to be.

Let’s start with the good news.

Read more »

The Startup Revolution Series -- Part 1: The Great Transition: Industrial to Information Revolution

-- By Bjoern Lasse Herrmann and Max Marmer

For the past decade or more, Max and I have either heard or experienced endless stories of startup failures. We took as a given that more than 90% of startups go bust instead of bang, but we were also inspired by the amazing success stories — from Salesforce to Google to Kickstarter — that built new industries, created tens of thousands of jobs and transformed society.

And so we asked ourselves one day in the backyard of a house in Atherton: What if that failure rate could be reduced by even a small percent? How much could society benefit if 1% fewer startups failed? 2%? We became bolder. If the code could be cracked on what factors led to more favorable outcomes, could we actually help maximize success rates??

The following series of posts is a detailed look at why, at this unique moment in human history, we firmly believe that nurturing startups is critical to the well-being of our world.

So we reached out to entrepreneurs across the globe, and over the past several years have been overwhelmed by the tens of thousands of people who have shared their data in service to the entire startup community. The findings from our communal efforts have been published in reports, articles and blogs, have been incorporated into the curriculums of hundreds of universities and have been referenced by the Obama Administration, Chancellor Merkel and leaders in dozens of countries.

Then we built benchmarking dashboards to help individual companies, partners and ecosystems make more informed choices, given their unique circumstances and peer groups. We continue to refine Compass Benchmark, Compass Monitor and Compass Ecosystem, and have many releases in process.

Does this mean we’ve achieved our mission? Hardly. For all we’ve achieved as a community, there are always more questions to be asked, more data to be analyzed, more algorithms to be refined. So we continue to chip away at the code of startup success, with a special focus on delivering an updated version of The Startup Ecosystem Report in spring of 2015.

In the meantime, here is a look at the series of posts that will lead up to its release.

As we begin the new year, we wish you the greatest possible success with all your ventures.

— Bjoern Lasse Herrmann, CEO of Compass

The Startup Revolution Series Overview

Part 1: The Great Transition: Industrial to Information Revolution

Part 2: The Decline of the Blue Chip

Part 3: The Rise of the Startup

Part 4: The Critical Role of the Startup Ecosystem

Part 5: Startup Ecosystem Report 2015 (coming soon)

Read more »