Why early-stage investors should be pumping up their startups with data
“Startups are the sum of the decisions made by the people who run them,” Future Simple founder Uzi Shmilovici wrote in a recent post.
Uzi’s absolutely right — the earlier startups begin collecting data, the better their decisions will be. There’s only one catch: Most startups don’t have expertise in analytics. The time startups spend on developing clear success metrics, actionable campaign tracking, and automated reporting is time they DON’T spend developing a minimum viable product and pivoting to find their market — effectively leaving startups with limited or no real ability to compete on analytics.
The Big Idea
What if VCs provided centralized analytics and data management resources as part of their investment in startups? Giving startups the tools and resources they need to compete on analytics would give investment firms and their startups a huge competitive advantage. Startups would grow revenue faster, reducing their level of technology debt, and giving them access to specialized skillsets typically available only to better-funded players. Investors would see a significantly enhanced probability of return.
A/B Testing and Statistical Modeling
Startups that are actively working to find their market niche have a huge advantage with access to statistical modeling and analysis resources. Extreme examples exist — such as Demand Media’s use of machine learning to build a billion-dollar business by beating Google at its own game. However, even a simple A/B test can easily return gains of 10%; a one-to-one marketing model may increase conversion by well over 20%; a price optimization study may return 30% or more incremental revenue. A business rule optimization, gained from detailed analysis of customer behavior, can be a complete game-changer.
Most startups don’t have the resources or bandwidth to kick-start an analytics group. With access to centralized analytics services early in their life cycles, startups can maximize conversion opportunities, conduct site tests with minimal investment in development hours, and bank strategic data-capture opportunities for future returns.
Set Up Databases with Growth in Mind
Startups are anxious to get things done quickly, which frequently leads to setting up an open-source database so they can start throwing records at it immediately. While this works in the short-term, it leads to scalability issues and lost opportunities to store transactional and behavioral data.
It’s at this point in the startup’s lifecycle that it makes sense to evaluate the existing database schemas, identify opportunities for strategic expansion and optimization, and plan appropriately for anticipated growth. This vital investment reduces the amount of technology debt the startup carries and, if done effectively, provides greatly enhanced ability for the startup to identify otherwise-unseen market opportunities and inflection points that suggest a potential pivot.
Offload the Distractions
Startups are beset by distractions that can be a huge drain on productivity. These are activities that experts can provide more efficiently and more effectively. Three prime offenders:
- Web Analytics. Few organizations make tagging a formal or required part of their release process; it often doesn’t get done. Instituting a clear process in the early stages helps integrate a data-driven culture into the startup’s DNA.
- Search Engine Optimization. It’s often thought of as “get your meta tags right and produce a lot of content;” a more strategic implementation purposely directs internal page-rank flow toward specific marketing objectives. This provides a framework for VCs to provide high-level marketing guidance while making it easy for startups to determine “which marketing efforts go where.”
- Database administration. Performance tuning, backup, and data security are vital tasks that require significant, ongoing time commitments. Expert implementation reduces the risk of a data breach or unrecoverable data loss.
Putting It All Together
Startups with the resources, infrastructure, and expertise to effectively compete on analytics will have a significant competitive advantage. VCs have the opportunity to improve their ROI — and to differentiate themselves — by providing these resources. By adding centralized analytics and data management resources as part of their investment in startups, VCs will be positioning themselves — and their startups — for maximum growth and success.
Jeb Stone is a 14-year Internet veteran with depth in database marketing, business intelligence, predictive modeling, and marketing research. He has established and led the applied analytics organizations at leading Web properties including Match.com, Selloscope, Socialyzer, and FareCompare. Jeb holds a PhD in experimental psychology with a specialization in marketing.
[Top image credit: Zurijeta/Shutterstock]
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