Blank Sheet of Paper: Commitment Happens When It’s Measured

As an entrepreneur pursuing a software product idea or a software-enabled service business, how do you get from a blank sheet of paper to a company with customers and momentum? This biweekly column by Derek Koch, Founder and CEO of Independent Software, focuses on ideas that can help you on your path. 

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Big ideas are seductive. They pull you in. And the entrepreneurs behind big ideas are passionate people. They can make you believe, inspire you to imagine possibilities you hadn’t considered before.

For the casual observer, their brush with a big idea might end with a product download, a small purchase, a story to tell, or just the experience of hearing an exciting pitch.

But for those who truly buy in to the vision and want to make it a reality, one question always comes up: how committed are you to making your idea a reality?

In Independent Software’s work of building new products and teams with early stage ventures, the question of commitment comes up on a daily basis. When you make decisions to risk capital, time, reputation, and ego starting and growing a business, you directly test your commitment to your vision. In the startup community at large, investors, mentors, government agencies, employees, and economic developers observe how entrepreneurs demonstrate commitment to their vision in order to make decisions about whether to support them.

Put a Ring on It

Commitment matters to everyone because it mitigates perceived risk. A study by a Harvard senior lecturer estimates that about 75% of the venture backed companies fail to return investors’ capital. Overall, only about 60% of companies survive to age 3. It goes without saying, startups are risky business for everyone involved.

Of course, entrepreneurs want to be confident that if they fully commit to pursuing their vision, the risk is going to pay off. No one starts a company planning to lose their shirt or to look like a fool. But investors want to see entrepreneurs relentlessly pursuing their ideas because they need to have confidence when they put capital at risk. Economic developers and governments need to invest their slim budgets in growing, tax-paying companies that set down roots and hire locally.

Everyone is thinking about commitment because they need to back a winner.

Why should I invest the money I could spend on a yacht in this company? Is the entrepreneur I’m mentoring in my free time doing what it takes to succeed? Is the team I’m giving a grant to going to stay in our town and build for the future?

If you’re an entrepreneur, how do you show your commitment and build confidence in your company in order to get people to take a risk on you? When do you quit your job and say goodbye to a bi-weekly paycheck?

The answer is that passion is important, but only gets you so far. You are building a business, so you have to act the part of CEO. Taking the time to paint the picture of what success looks like, and then fulfilling that vision with measurable steps, is a crucial ingredient in engaging support.

Building A Management Structure Beneath Your Idea

For passionate, creative people, which many entrepreneurs, developers, designers, and other innovators are, metrics come across like a wool sweater on a summer day. Uncomfortable and seemingly unnecessary.

But when you have a vision you think will completely transform the world, and you want to engage people in it, investors and mentors (and possibly others) want to know three things:

1. How will what you’re doing transform your industry in the long-term, and how will you profit from that?

2. In the short-term, how are you going to get started building your offering and winning customers?

3. How will you know whether the plan is working and respond?

Creating a documented, quantitative framework that evolves as you move from startup to scale-up gives everyone, including yourself and your team, a way to confidently plot a course and know whether you’re making progress.

It also gives you a way to look at complicated business decisions, and to leverage the power of your investors, customers, and teammates’ minds.

Metrics

You can get started by building a tool to track and communicate why you believe your big idea has the potential to go all the way.

Start simple; create a table for yourself with four sections, like the one below. While you can customize the categories and the metrics you capture in each box will change, covering all four categories is important. For some audiences, you may decide to take out sensitive information.

Customer  Financial
Process & Operational  Team & Learning

In the beginning, your metrics table will be simple, but it will still be valuable. For example:

Customer & User

  • 35 customer validation sessions completed
  • 2 non-paying alpha customers; 100 users
  • 20 meetings in pipeline
  • 1 major outstanding feature missing from MVP spec

Financial

  • $0 avg. monthly revenue
  • $5,000 avg. monthly expenses
  • $20,000 cash balance
  • 4 months runway

 

Process & Operational

  • 5 outstanding product defects
  • 10 day avg. resolution time
  • Avg. 2 weeks late in new feature delivery projects
  • At %150 of budgeted cost for new feature projects
Team & Learning

  • Need to hire 1 developer
  • Learned customers want to purchase through existing channels, not direct
  • Need find experienced channel marketing advisor

As you gain momentum, build revenues, and grow your team, the detail behind many of the metrics in the boxes will be stored in systems like Salesforce, Quickbooks, a project management tool, or a defect management system.

Commitment Builds Momentum

More established businesses, those in scale up or beyond, give off a lot more data. There are more conventions around metrics as businesses mature, and more standard reports (like profit and loss reports, process cycle time reports, etc.) that can be leveraged.

But in the beginning, even tracking and calculating subjective metrics in Excel is worth the time. The conversations you can have with your team, your investors, and your customers will be better, because they’ll be based in a better understanding of your business.

And your commitment will grow over time. Think of each win, each action you take towards building the business and measuring its success as putting money in your commitment bank. The more you can deposit into that account, the more you’ll be able to draw from it as you grow and scale.

About derekkoch

Derek is CEO and Founder of Independent Software. Independent Software’s mission is to “help entrepreneurs win”; the company works with early-stage ventures to build new web and mobile software products, place talent through the A100 software apprenticeship program, and access the statewide startup community through the company's online magazine, The Whiteboard. Derek and the company also partner with such organizations as UP Global, Startup America, CTNext, the Grid, and the Connecticut Technology Council, Derek works to create and advance initiatives that help entrepreneurs manage and lead successful startup ventures rooted in Connecticut. Derek holds a master's degree in Management from Northwestern University's Kellogg School. He lives in Connecticut with his wife and their two sons.