Why tracking startups is so hard, but you should do it anyway.

“If you’re at this early stage it is impossible to have selection criteria, and it is just as impossible to track the development of startups over time, as they have no revenue, no sales, and no funding yet. What we’re doing is unique, you need to have a gut feeling, only developed over decades of years in this industry”.

I hear this a lot when I talk with people who select and coach early stage startups (and with early, I mean really early: just two people thinking about the idea) and when I ask them how they select the startups they will coach and how they track their progress over time there is always someone who goes on the magic tour.

Don’t believe in magic

The idea of magic reminds me of my view on sales back in 2012 when I started working at a startup. Trained as an engineer, in my mind sales was pure magic, and you needed years of experience to close major sales deals. I needed an experienced sales manager to help me realise that sales is a lot of things, but definitely not magic. Sales is a structured process, just like any other process in your startup, and if you have this process in place it makes it fairly easy to predict your sales revenue months (and even years) upfront. If there are rabbits appearing from hats, or if you have the feeling you magically lost or won a deal, you’ve missed something in your process, you didn’t select the right customers or you didn’t track them all the way.

Some people like to be a magician. It is their way of feeling unique, of doing something no one else is able to do. They will tell you that what they are doing is not “normal”, and you are not able to copy paste their activities and teach it to someone else. It confirms their unique position in the ecosystem, their (high) salaries, or just their own ego. To some degree this can be true, there are jobs which are hard to learn just from theory (doctors for example, take years of walking along with someone more experienced). Coaching might be the same, but it is definitely not magic.

As a support organization, startups are your customers. Therefore, the same process goes for selecting, coaching and tracking startups. Startup support organizations and their coaches or trainers are selling their services to startups. Ideally, they are selecting their customer. Despite what anyone is trying to tell you, it’s a normal sales process. Therefore you can structure it. The same goes for the coaching process itself. It’s not very different from normal project management. Is the startup delivering on their milestones? Are they on schedule? Do they make progress? etc etc.

Why you need a structure in the first place

There are three reasons to set up a structure:

1. You have to know what you’re selling.
2. You have to share information.
3. Benchmarks are better than opinions.

Know what you are selling

The first one is by far the most important: As a startup support organization, what you’re selling is growth, and fast growth that is. Whether you’re talking to your shareholders (municipalities, regional departments, local governments, universities, or other stakeholders) or to the startups themselves, it always comes back to growth, and as fast as possible. Growth of jobs, growth of the value of the startup, growth of the team, growth of people. As a support organization, it is therefore of the essence to measure the growth you are selling. If you do not measure it, if there is no benchmark, no comparison possible between one or the other organisation, or from 2010 till now, there is nothing to sell. Of course, you can try to sell it anyway, and people will probably buy it for a while because it’s innovative, and hip & trendy, but eventually they will start noticing.

There is another reason why knowing what you are selling is so important. We have not yet found the vocabulary to express success or growth of startups in another way than their valuation and the amount of jobs they create. Especially in the early stages (where you, as a support organization are most active) it is very hard to measure what happens. Therefore, it often doesn’t get measured at all, and you end up with the only metrics available: the valuation of the startup and the team size. The more you measure, the more you can adjust this image of growth, and the more we can have discussions on what actually should be measured in the first place.

Information sharing

The second reason is information sharing. Just as a CRM system is valuable for ordinary businesses it has value for startup support organizations. When you are still six people and three desks, everyone knows and hears everything, but when the organisation grows information leaks away. Especially now that everyone is remote, sharing information becomes crucial. At least all the trainers/coaches should know the current status of a startup: who is the founding team, what is their attitude, how did the last meeting go, how much did they raise, where is their product at the moment, are they already having sales? It becomes even more crucial when you have multiple teams in the organization which both work with the startups (perhaps divided into early and late stage or in industry) or when your organization is spread over multiple locations. When startups make the move from one team or from one location to the other you want to have all the information that there is, available to everyone.

Benchmarking

The third and final reason is that there is value in the benchmark. There is value in building a record for every startup and creating some objective statements on their progress (or lack thereof). This is helpful when the startup needs an investment (your benchmark can basically be the due diligence of the VC), when you want to stop to support one of the startups, or just in regular coaching conversations.

Selecting and coaching on gut feeling is always an opinion, maybe the opinion is shared among the entire team, but it’s still an opinion. The same goes for progress meetings. “You’re doing great!” is still nothing more than an opinion from your coach. But when the coach can show the startup how they are performing compared to other startups (started at the same time, active in the same industry, with the same BM) this opinion becomes a benchmark.

Why is this difference between a benchmark and an opinion so important? Opinions can be set aside very easily if you don’t like them, benchmarks are much harder to ignore. Discussions based on opinions tend to go on endlessly and are full of emotion (often in a negative way), discussions based on benchmarks can be shorter, without much emotion and almost always very valuable.

Change and uncertainty

If you’ve done some selecting and coaching of startups you might know this already: it is not a normal sales process. It is not project management. There is a big difference: In normal sales processes, or projects, the customer or client is mostly static. You’re dealing with the same people, that have the same responsibility, they have the same budget, the same managers, and the same goals. If something changes (someone is let go, the budget changes, etc) it’s usually all hands on deck in the corporate to cope with these changes. The hard part is that an early stage startup is basically defined by two things: change and uncertainty (see chapter 2). Therefore, copy-pasting a standard sales funnel or project management sheet to the startup world will not work out. You have to customise it, be easier on the milestones, more flexible on the deadlines, come up with different goals, or timelines. But this does not mean that there are no milestones to reach, no progress to track, no criteria to set or dealflows to follow at all! Just because it is hard to create and set-up the system does not make it magic! A startup might be in continuous development, but we know that it follows a certain path!

Treat it as a model and be gentle

Building a company is a human effort. An ecosystem consisting of companies which are all in the process of being built is a human effort squared. It is not a linear system. A startup (and an ecosystem) are not meant to be measured at all. Measuring input or output implies that there is an input, and an output and that they are connected in some way. This might not always (or never) be the case in startup ecosystems.

This does not mean that you should stop measuring what you are doing. It just means that you should be careful to draw conclusions based on your measurements.

Let’s say your measurements show that startups founded by two people or more grow faster than startups founded by solo entrepreneurs. Does this mean that you should never support solo entrepreneurs? Or you have found that medtech startups need an additional 5 years to get to market compared to AI startups. Should you stop supporting medtech startups and only focus on AI? Or should you double the effort on medtech? When a startup did not meet their milestones over the last 12 months, should you stop the support? Maybe they had personal issues, a child in the hospital or a nasty divorce. Maybe they pivoted their business model and had to start over. Based on these scenarios you should probably focus even more on the founders!

Your measurements are a model. A representation of reality. It might not be an exact image, it might not be completely right, but if you measure for a certain period (a few years hopefully), the measurements will slowly teach you things about the ecosystem. It will show you certain enforcing feedback loops, or areas where your effort is fruitless. Just because the system is not linear does not mean that you can not measure and model it!

Having a selection and tracking structure will make your organisation more credible, you will be faster, have less discussions, and you are less dependent on the information and the opinions of a few people. Especially when your funds are labelled with a certain development goal, or when you’re scaling whatever you are doing, or competing for funds with other support.