By Yimian Wu
Medill News Service
CHICAGO – How can a business journalist tell whether a startup’s early success will be lasting or a flash in the pan? Here are three key metrics outlined by startup investors during a panel discussion at the Society of American Business Editors and Writers annual conference in Chicago Friday.
Accountability means delivering on promises and demonstrating financial responsibility.
“If you go into a startup company and you see the CEO is flying first class everywhere and has a big fancy office, that actually is a big red flag for me,” said John Preston, founder of TEM Capital and CEO of Continuum Energy Technologies.
He gives entrepreneurs leeway early on to miss revenue projections, but “if they start repeatedly missing those projections, then that’s an accountability issue in my opinion.”
Determine whether a company has staying power by looking beneath the surface of any numbers you’re given.
“Sometimes the best companies say they have a million customers, but if you really dig in, they haven’t created value because those million customers have only come once,” said Peter Wilkins, managing director at Hyde Park Angels. “The true value creation is going to be something that is recurring.”
Look for traction, or a company that is changing customers’ behavior and creating demand for a new product or service category (think iPod or iPad).
To determine this, Wilkins says he asks the startup’s management why somebody would stop doing what he’s doing and use the company’s product or service. The answer is usually telling.
Wilkins says it’s a good sign if the entrepreneurs can quantify how many potential users there are for the product or service and how much time users spend with the product or service