Users are the only real proof that you’ve created wealth. Wealth is what people want, and if people aren’t using your software, maybe it’s not just because you’re bad at marketing. Maybe it’s because you haven’t made what they want.
Paul Graham
Inside of technology companies we have a whole host of ways we measure our progress. Key performance indicators (KPIs) I’ve seen include page hits, unique visitors, assets registered in the system, and even Google page ranks. The problem with these kind of KPIs are that they are vanity metrics that make you feel good about your “startup” but don’t actually lead to any sales.
Do you want to know how valuable your startup is? Ask yourself how many actual users you have. Investors, acquirers, and even partners will use this metric to determine your value; so you are probably better off using it to measure yourself. Paying customers is an even better! Look at the largest acquisition value multiplier for any tech company in the last decade and they will have one thing in common, paying customers.
The number of paying users is such a valuable metric that whole business spring up around customer acquisition. One of my favorite examples is the home security space…
At my last company, my partner and I were discussing a business strategy that centered around a serial home security startup founder he knew. This particular entrepreneur had sold 3 or 4 companies so far, each for around $10 million. His methodology was that he started a home security company using third party hardware and outsourced call center resources. He would then sell these systems like a mad man. He would go door to door, viral marketing, contract HOA agreements, pitch to builders… anything he could think of, while working 20 hour days, to get customers.
The beauty, from his standpoint, was these were all reoccurring monthly revenue subscriptions on 36 month contracts. If he could get a critical number of contracts (I want to say it was around 10,000 active home security systems) before the 3 year window, he could sell the entire company to someone like ADP who was happy to pick-up, and pay for, these customer acquisitions given the RMR model. He was treating the home security industry as an optimization problem where the primary metric of success was the number of users under contract and he was RIGHT!