Mastering the fundamentals is a key to success in any field. While many people may know about certain solutions or strategies, not everyone consistently implements them. The key is to do more of what already works. Progress often lies in the mundane and underutilized insights.

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Hatched by Glasp

Aug 14, 2023

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Mastering the fundamentals is a key to success in any field. While many people may know about certain solutions or strategies, not everyone consistently implements them. The key is to do more of what already works. Progress often lies in the mundane and underutilized insights.

When it comes to startups and entrepreneurship, revenue is often seen as a marker of success. However, it's important to question whether that revenue is real or sustainable. The best investors, especially at the early stages, focus on growth potential and product-market fit. They want to see evidence that the founders understand the needs of their customers.

Reaching a certain revenue threshold doesn't automatically guarantee the next round of funding. It's not just about the revenue number itself, but the number of customers it represents. Investors are interested in how many people or businesses truly need and are willing to pay for your product. Product-market fit is crucial.

Investors also pay attention to the rate at which your revenue is growing. A high revenue growth rate indicates that you're solving a problem that matters to many people. On the other hand, churn rate is a measure of the quality of your product. A decreasing churn rate shows that you understand why customers are leaving and are able to address their concerns.

Net Revenue Retention is another important metric. It measures how leaky your revenue bucket is. It's helpful to think about three distinct customer cohorts: new customers who don't onboard successfully, customers who stay for some time and then churn, and customers who haven't churned yet. Understanding these cohorts helps you gauge the health of your business.

Average Revenue Per User (ARPU) or Average Revenue Per Customer (ARPC) is an indicator of how much customers are willing to pay to solve their problem. It's important to assess whether the market is big enough and whether your business model is sustainable in the long run.

One metric that investors often consider is the LTV/CAC ratio, which measures the lifetime value of a customer compared to the cost of acquiring that customer. A ratio of 3 is generally considered good.

In conclusion, it's crucial to focus on mastering the fundamentals and doing more of what already works. In the startup world, revenue is important, but it's essential to ensure that it's real and sustainable. Investors look for evidence of product-market fit and growth potential. Understanding metrics like churn rate, net revenue retention, and LTV/CAC ratio can provide valuable insights into the health and viability of your business.

Actionable advice:

  • 1. Consistently practice the fundamental strategies that you know work. Don't underestimate the power of consistency.
  • 2. Focus on understanding your customers and their needs. Evidence of product-market fit is crucial for attracting investors.
  • 3. Pay attention to key metrics like churn rate, net revenue retention, and LTV/CAC ratio. Continuously analyze and improve these metrics to ensure the sustainability of your business.

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