What Makes The Top 10% Of Founders Different? - Michael Seibel & 16 Startup Metrics - Andreessen Horowitz

Kazuki

Hatched by Kazuki

Aug 19, 2023

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What Makes The Top 10% Of Founders Different? - Michael Seibel & 16 Startup Metrics - Andreessen Horowitz

In the fast-paced world of startups, there are certain qualities and metrics that set the top 10% of founders apart from the rest. These founders possess a unique combination of execution and formidability, clear communication skills, and internal motivation. Additionally, they understand the importance of key metrics in running a successful business.

Execution & Formidability

One of the distinguishing factors of the top 10% of founders is their ability to execute and remain formidable in the face of challenges. These individuals never get stuck with execution and are constantly pushing forward to achieve their goals. They understand that success doesn't come easy and are willing to put in the hard work required to make their startup thrive.

Clear Communication

Another characteristic shared by these exceptional founders is their ability to clearly communicate their business in just one to two sentences. They have a deep understanding of their product or service and can succinctly explain its value proposition. This skill is crucial in attracting investors, customers, and employees, as it allows them to easily grasp the essence of the business.

Internal Motivation

The top 10% of founders possess a strong internal motivation that keeps them going even when things go wrong. They don't easily get discouraged by setbacks and instead use them as opportunities to learn and grow. This resilience plays a significant role in their ability to navigate the ups and downs of the startup journey and come out on top.

Importance of Metrics

Metrics are an essential tool for founders to understand how their business is performing and make informed decisions. Andreessen Horowitz highlights several key metrics that can help founders run their business effectively.

Investors highly value companies where the majority of total revenue comes from product revenue rather than services. Services revenue is non-recurring, has lower margins, and is less scalable. By focusing on product revenue, founders can build a more sustainable and scalable business model.

Calculating the Lifetime Value (LTV) of a customer is another critical metric. Many founders mistakenly estimate LTV based on revenue or gross margin, but it should be calculated as the net profit of the customer over the entire customer lifespan. This provides a more accurate understanding of the value each customer brings to the business.

The Contribution Margin LTV to CAC (Customer Acquisition Cost) ratio is also a valuable measure for determining CAC payback and managing advertising and marketing spend. By analyzing this ratio, founders can ensure that their customer acquisition efforts are profitable and sustainable in the long run.

Furthermore, looking at billings can serve as a proxy to measure the growth and health of a SaaS (Software as a Service) company. Billings can be calculated by taking the revenue in one quarter and adding the change in deferred revenue from the prior quarter to the current quarter. This metric provides insights into the company's ability to generate consistent and increasing revenue.

While blended CAC, which considers the total acquisition cost across all channels, can provide some insights, paid CAC is considered more important by investors. Paid CAC focuses specifically on the acquisition cost of new customers through paid marketing. This metric allows founders to determine the profitability of their user acquisition budget and make informed decisions about scaling up their marketing efforts.

Conclusion

In conclusion, the top 10% of founders differentiate themselves through their execution and formidability, clear communication skills, and internal motivation. They understand the importance of key metrics in running a successful startup and use them to make informed decisions. By incorporating these qualities and metrics into their own entrepreneurial journey, aspiring founders can increase their chances of achieving success.

Actionable Advice:

  • 1. Focus on clear and concise communication about your business. Be able to explain its value proposition in one to two sentences.
  • 2. Pay close attention to key metrics such as LTV, CAC, and billings to understand the health and growth of your startup.
  • 3. Prioritize product revenue over services revenue to build a more scalable and sustainable business model.

Remember, success in the startup world requires a combination of hard work, resilience, effective communication, and data-driven decision-making. By learning from the top 10% of founders and implementing these actionable advice, you can position yourself for success in the competitive startup landscape.

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