4 Critical Components That Startups need to thrive

4 Critical Components That Startups need to thrive

Launching a successful startup is an accomplishment that is extremely difficult to achieve.  Managing this success for long periods of time is even more difficult. However, there are four things entrepreneurs must keep in mind in order to ensure future profits.

Encourage Auto-Renewing Contracts

Auto-renewal software has the ability to increase annual profits by 5%.  Requiring customers to manually renew their payments creates friction between them and the company.  In order for auto-renewal to work enterprises must have strong relationships with their customers. For example, a 90 day termination notice could be sent to consumers that outlines the benefits of auto-renewal.  These benefits include saving time and locking in the same price paid by the customer as last year. Ultimately, this method ensures customer satisfaction and has the ability to increase profits.

Balance Burn and Upfront Payments

Although charging monthly installments might seem like the best payment option the opposite is actually true.  Annual fees provide large sums of money upfront which entrepreneurs can then reinvest into other aspects of the company.  As a result, the continued growth of the company can be funded.

Furthermore, it is important that the life cycle of the payment be longer than what the money is being used for.  For example, if a company receives a payment for a year in advance and plans to use it to increase a salesforce, the project needs to be completed in under a year.  If the effort takes longer, losses will begin to occur.

Monitor Customer Success

Retention is better than acquisition.  Obtaining a customer has the opportunity to be 25% more expensive than retaining an existing one.  Building a satisfied customer base is critical for the success of any business. The more satisfied customers are the more likely they are to return and continue to pay for the service or product provided by a company.  It is important for enterprises to learn the likes and dislikes in order to catch the dissatisfied customers before they leave. This strategy allows entrepreneurs to retain customers and ensure steady long-term profits.

Analyze the Metrics of Success

This method is especially important for software as a service provider.  The first metric that needs to be measured is churn.  This rate is the number of subscribers lost in a given month divided by the total number of subscribers at the beginning of the month.  If the rate is before five and seven percent then customers are happy. However, anything greater than seven indicates customer dissatisfaction.

The second metric that must be analyzed is the payback period.  This period is how long it takes to earn back the money lost from customer acquisition costs.  The average payback duration is approximately 15 months. The longer the payback period, the more companies are paying to acquire their customers.

Lastly, acohort analysismust be performed.  By dividing customers into cohorts based on similar traits, companies can see if their product is popular over time.  In addition, a significant drop-off in users can be measured. This analysis is useful in conjunction with the payback period.  Ultimately, it is critical for that customers outlive their payback periods to ensure profits.

These four keys to success are critical for every business to implement.  If a proper amount of focus is put into these areas companies have the opportunity to develop a strong customer base and grow in the long-term.


Zhuo, T. (2015, November 13). 4 Things Startups Have to Get Right to Survive. Retrieved June 13, 2019, from https://www.entrepreneur.com/article/252761

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