Navigate Your Startup To Success With Startup Compass

Today we are releasing the first benchmarking application for startups based on the Startup Genome framework. Founders can now assess their type and stage, diagnose themselves for premature scaling and compare themselves to other startups across more than 25 key performance indicators. Try it here.

Entrepreneurs are the consummate explorers of our generation. Every inch of land has been claimed by one of the world’s 204 countries but the world of ideas is expanding ever rapidly into the realm of the unknown. The future of the world was forever altered when Christopher Columbus and the Western World discovered The Americas. Today, societal transformations are triggered by the commercialization of new technology. The world of technology startups is our era’s Great Frontier. Search Engines, Social Networks and Microblogs were delivered to the massed because brave entrepreneurs ventured into the unknown. But as we’ve written before, despite the enormous societal and economic importance of startups the failure rate is still at more than 90% primarily because of self-destruction rather than competition.
The reason the self-destruction rate is so high is fairly simple; the tools and knowledge of entrepreneurship are still very primitive.

Three months ago the Compass team released a groundbreaking research report that spread like wildfire through the startup ecosystem, far surpassing our expectations. To date we’ve had more than 15k downloads, 100k unique visitors, 100+ publications, and entrepreneurs and VC’s all over considering it a must read. Honestly, we didn’t think content would have such an impact on a startup community that is so characterized by its preference for experiential learning over theory. But it turned out entrepreneurs were hungry for a map to make sense of the territory they’d been exploring. The Startup Genome Report was one of the first detailed maps of the entrepreneurial journey, describing the different types of startups and the stages startups move through as they grow from an idea into a large company generating big profits. Little pieces of the map had been floating around Silicon Valley in the form of war stories from serial entrepreneurs and grizzled investors. But the stories illustrated lessons that lacked a structure to unite them and put them in proper context. The first Startup Genome Report was a big first step towards creating a coherent picture of the territory startups explore.

But in order for entrepreneurs to improve their odds of success they are going to need to change their behavior. While maps are an excellent tool to develop a general intuition of a space, it is difficult to change behavior if you can’t orient yourself on the map and receive regular feedback on your movement.


The Startup Compass

Which is why today we are releasing the Startup Compass.

Many startups have trouble figuring out the right priorities to set and measuring their effectiveness once they do, almost always landing in the proverbial grey zone. “Is a 5% increase in retention good? Do I have enough users to declare product/market fit? Is now the right time to step on the gas pedal and scale?” We attempt to help entrepreneurs answer these questions by putting their metrics into the right context.

The Startup Compass is a benchmarking tool for entrepreneurs to reduce this grey zone and make better product and business decisions by automatically classifying them by type and stage and comparing them against startups in the same type and stage across more than 25 key performance indicators

Possible Use Cases of the Startup Compass

1. Measure progress by seeing your key performance indicators in comparison to startups that are similar to you.

2. Avoid premature scaling by identifying whether the 5 dimensions of your startup are aligned within and with each other. The 5 dimensions are customer, product, team, business model, financials and market.

3. Set the right priorities and align your team based on the benchmark your type and stage.

4. Find your weaknesses.  See if your user growth or conversion funnels are good enough to move to the next stage.

5. Explore resources and tips that are relevant for your type and stage

6. Share your report with Mentors and Investors so they can support you better

7. Use the benchmark as a supplement for your monthly board meeting.

Tell us how you end up using the Startup Compass, how you it was helpful for you and where you’d like to see us take the product in the future. feedback@compass.co.


Premature Scaling

In addition to the benchmark, the Startup Compass also diagnoses startups for what our research team has found is the dominant cause of failure: premature scaling.

We have found that startups progress along 5 core interdependent dimensions: Customers, Product, Team, Business Model and Financials. In a startup many of these dimensions are highly uncertain, in many cases, all of them. The art of high growth entrepreneurship is to master the chaos of getting each of these 5 dimensions to move in time and concert with one another. Most startup failures can be explained by one or more of these dimensions falling out of tune with the others. If a startup shows signs of premature scaling on any of the five dimensions we refer to it as inconsistent.

In our current dataset we have detected inconsistency – indicators of premature scaling – in 70% of startups. The difference in performance numbers are pretty astonishing.

1. No startup that scaled prematurely passed the 100,000 user mark.

2. Startups that scale properly grow about 20 times faster than startups that scale prematurely.

3. 93% of startups that scale prematurely never break the $100k revenue per month threshold.

If you want to learn more about Premature Scaling and how it manifests you download our new mini report Startup Genome Report Extra: Premature Scaling. It contains 25 graphs and contributions from Brad Feld, Fred Destin, Michael Jackson, Bill Liao, Saad Khan and many more.

Dimension Examples for inconsistency (= indicators of premature scaling) 
Customer
  • Spending too much on customer acquisition before product/market fit and a repeatable scalable business model
  • Overcompensating missing product/market fit with marketing and press
Product
  • Building a product without problem/solution fit
  • Investing into scalability of the product before product/market fit
  • Adding “nice to have” features
Team
  • Hiring too many people too early
  • Hiring specialists before they are critical: CFO’s, Customer Service Reps, Database specialists, etc.
  • Hiring managers (VPs, product managers, etc.) instead of doers
  • Having more than 1 level of hierarchy
Financials
  • Raising too little money to get thru the valley of death
  • Raising too much money. It isn’t necessarily bad, but usually makes entrepreneurs undisciplined and gives them the freedom to prematurely scale other dimensions. I.e. over-hiring and over-building. Raising too much is also more risky for investors than if they give startups how much they actually needed and waited to see how they progressed.
Business Model
  • Focusing too much on profit maximization too early
  • Over-planning, executing without regular feedback loop
  • Not adapting business model to a changing market
  • Failing to focus on the business model and finding out that you can’t get costs lower than revenue at scale.

 

Sign up for the Startup Compass

If you a part of an Internet startup you can sign up for the Startup Compass here. Every startup helps us get closer to cracking the code of innovation and spreading the magic of Silicon Valley with the rest of the world. All your data is anonymized, treated absolutely confidential and will not be shared.

Finally, we’d like to share a little bit of our roadmap with you. We’d love to get your feedback on where you think we should take the product and what we can do to help you be more successful in making your world-changing ideas come to life.

Our Roadmap for the Product

1. We will give you more relevant content based on an extended typology and substages we have identified, but haven’t implemented yet.

2. We will add tools for more areas of your startup: founder & employee salaries, founder personality types, team composition & culture, how much money to raise and when, estimated valuations for your startup and cloud forensics.

3. We will automate the data collection to make your life easier.

4. We will make it easier to make decisions for you by visualizing and augmenting the data more effectively.

5. We will be able to detect progress over bi-weekly and weekly intervals to give a shorter feedback loop.

6. We will integrate your data with other applications such as fundraising tools, and dealflow management solutions.


Our Methodology

Further reading:

  • Broken link

    The link Entrepreneurship and structural economic transformation” doesn’t work.