Are you measuring what matters?

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In a recent article by Healy Jones titled “VC Valuation Valley of Death”, Healy argues compellingly that startups go through a period of hyped valuation, followed by a period of depressed valuation and then an eventual return to the original or higher valuation if the startup survives.

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One of the things I love about Healy’s article is that it considers one metric (valuation) over a period of time and shows the fluctuations in that metric over time. At different points in time, startups need to focus on different measures. Healy argues that while in the Valley, startups need to focus on cash.

Once out of the Valley, Startups may switch there focus back to valuation as they seek to access the further rounds of funding they need to scale. I began wonder what other metrics were critical to startups during their trip through the Valley.

The best paradigm I have come across to answer this question was put forth by Steve Blank in an article titled “No Accounting for Startups”. Steve argues that Startups start off searching for a business model, and then move into executing on the business model. At the execution stage, the standard financial metrics are relevant because the business is in the money. At the search phase, the metrics that matter are the underlying assumptions of the business model. The question is not are you making money, but is the business model sound, so if it was a scaled it could make money.

So in summary, if you are a startup that is in the valley what matters is cash flow and the measurement and management of the underlying business model assumptions. Don’t let other metrics that proceed or follow the valley distract you from what matters when you are in the Valley.

If you are interested in reading Steve or Healy’s articles, they are both referenced below.

Steve Blank
Healy Jones

If you are interested in getting some help in thinking through and measuring the right metrics for your startup, drop us a note.

About Brian

Innovation & Strategy Specialist; Focus on Innovation Roadmapping & Business Modeling; Husband, Father, Systems Thinker, Babson MBA, Triathlete. View all posts by Brian →

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