“We have $20 million worth of LOI’s with major companies in the space.” Whenever I see a phrase like that, I roll my eyes.
Letters of Intent (LOI’s) are one of a series of what I call “meaningless metrics.” They’re supposed to show that a startup is doing well, but they actually make a company look weak.
When founders rely on meaningless metrics, they are giving a negative signal to investors. Why would you use them if you had something more substantive?
The Metrics That Don’t Matter
Let’s run through a few of these meaningless metrics:
1) Letters of Intent (LOI’s). Angel investor Jason Calacanis calls these “letters of nothing” for good reason.
LOI’s have no legal force. A big company can give you an LOI for $100 million, but good luck ever collecting on it.
An LOI is basically just a press release. It makes a big company look innovative without actually having to commit.
Whenever a startup mentions LOI’s, I assume they’ll never collect a penny of it.
2) Cumulative revenue. Whenever I see this, I suspect the founder is trying to pull the wool over my eyes.
Cumulative revenue is how much money your company has taken in throughout its entire history. It’s a number that always goes up, by definition.
Some founders love this number. It always produces a chart that’s nice and uppy-to-the-righty.
That’s why it’s meaningless. Every startup shows the same cumulative revenue chart.
Any investor worth his salt will pick up on this. And he’ll ding you for trying to pull a fast one.
3) Pipeline. Pipeline is companies you might some day sell to.
I could list 100 companies I might sell a product to someday. It doesn’t mean it’s going to happen.
Tell us about the sales you’ve actually made, not just who’s in your CRM.
4) Startup competitions. You could win 100 startup competitions, but it doesn’t mean you’ll get one customer. It also doesn’t mean you’ll raise a penny in capital.
Your time is much better spent finding customers. The real startup competition happens in the market, every day.
That’s the one you need to win.
5) Forbes 30 Under 30. Please Forbes, I beg of you, get rid of this list!
A magazine putting you on some list doesn’t put money in your company’s bank account. It also doesn’t tell investors whether your product is good or bad.
Win in the market, not in meaningless competitions.
Meaningful Metrics
If these 5 metrics are meaningless, what would be meaningful?
Customers are meaningful. Real customers paying real money for your product.
Team is meaningful. Show investors that you’ve assembled an awesome team perfectly suited to taking on the problem you’re facing.
Product is meaningful. Show me a product with world class design, and I’m all ears.
Focus on those 3: customer, team, product. Everything else is nonsense.
What metrics matter to you? Which ones make you cringe?
Leave a comment and let us know!
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