Customers, not capital: How much should startups be discussing revenue and profitability?
Wednesday, January 31, 2018/
As a startup founder, how willing would you be to bare all about your revenue figures?
It’s a regular discussion between founders, observers, and “armchair critics” of the Australian startup scene: should more focus be put on the revenue and profitability of young companies? Many say yes and call for more insight from companies and the media around these juicy growth metrics.
But when stories of young startups reporting millions of revenue just months after launch are applauded and years-old startups are criticised for having disappointing figures, disclosure becomes a double-edged sword for founders looking to gain recognition.
This leads to founders playing it safe, revealing only flashy and reliable statistics: the number of customers; the percentage their startup has grown (though they are usually non-specific as to what’s growing); and the amount invested in the startup (but often not the valuation).
Startup investor Alan Jones, who works with startups at BlueChilli, KPMG and Queensland University of Technology, believes the Australian startup industry is unlike any other local industry. With an absence of a number of national profitable businesses, companies seek other vanity metrics to benchmark themselves against each other.
And while he’s not keen on vanity metrics, he tells StartupSmart he also doesn’t hold much stock in public disclosures of revenue numbers.
“Key metrics should be in investor pitches as you want to see those metrics as an investor, and startups have got to satisfy stakeholders,” he says.
“But I really don’t think that disclosing revenue helps anybody — startup or investor.”
Digivizer founder Emma Lo Russo admits she is no stranger to speaking financials about her social media analytics startup, revealing and discussing the company’s revenue numerous times throughout its lifetime.
However, she strongly feels young startups should veer away from discussing their turnover.
“There are a lot of people in the startup world, but not many people have actually successfully grown a startup to the stage where you should be communicating things like revenue and profitability,” she tells StartupSmart.
“Startups in an early growth stage don’t share their revenue numbers, as early on you have to communicate when you’re seeing growth, which is the most validating thing starting out. Strong revenue and profitability come after you achieve that.”
A brief survey of Australian founders shows opinion is split, with the majority of those within the Sydney Startups Facebook group telling StartupSmart they do not believe more Australian startups should reveal revenue details. Some agree with the sentiment revenue is “vanity”.
In a comment, 1Scope founder Christina Chun warned: “For startups that are just kicking off (and potentially trying to raise funds), the figure could backfire on them”.
However, a similar poll conducted by StartupSmart on Twitter told another story, with most respondents saying startups should be more open about their financials.
Should more Australian startups reveal details about their annual revenue?
— StartupSmart (@StartupSmartnow) January 30, 2018
What should startups share instead?
Both Jones and Lo Russo believe that startups, at least early on, should be looking to share details around customer acquisition, customer growth, and partnerships.
This goes beyond just the number of customers companies have, they say, with Jones calling for deeper statistics such as the cost of customer acquisition and the marketing channels used to gain these customers.
“This would give us an idea of what channels are more or less effective,” he says.
Statistics like these, published, verified, and anonymised by an organisation such as Startup Muster or Tech Sydney would allow founders to see and compare the costs of customer acquisition between industries, says Jones, and help founders accelerate the growth of their startups by seeing the most efficient place to put their resources.
“For me, the measure of if a company is doing what it says it’s doing is the number of customers paying for what it’s offering,” Lo Russo says.
“You don’t need to share revenue if you can show you have user growth.”
Reflecting on some of the early partnerships Digivizer secured, Lo Russo says she never once revealed financial details about the then-young startup. Instead, she focused on discussing the quality of her customers and partnerships, and discussing how she could help the companies she was pitching to achieve milestones.
But as time goes on, she admits revealing metrics like revenue can give larger partners confidence your startup will be “in the game” for as long as they need.
Reflecting on the industry as a whole, Lo Russo says she sees a disparity between the startups who are “good at getting good PR”, and those actually doing a good job. She hopes more focus on genuine growth statistics could see this change.