Aziz Gilani, a Partner at Mercury Fund, wrote an article published by VC List that outlines why startups need to have a strategy for collecting, processing, analyzing, and responding to customer data.
Knowing your customers is easy. Interpreting the stories told by their data and product usage, however, is not so straightforward.
Having a deep, data-driven understanding of your customers can make the difference between securing your next round of funding and your company going extinct. When entrepreneurs pitch us their SaaS (Software as a Service) companies, we always ask how they work with and interpret their customer data to improve processes across their business. If the answer is “I don’t know,” that’s a major red flag.
Customer data, properly analyzed, allows you to make intelligent, value-driven product decisions, and a thoughtful product is what keeps your SaaS startup positioned to win. If you haven’t created a customer data analytics strategy, do it now. That data strategy might save you when you start looking for your next round, and more importantly, help you better serve and keep your customers.
Why you need a data strategy
It’s important to build “an economic moat” to protect your business from future failures—a sustained competitive advantage that differentiates you from competitors for years to come.
In SaaS—the type of investments I specialize in—a common advantage comes from network effects. The bigger you are, the harder it is to compete against you. You can’t build a moat, or competitive advantage, without diligently studying your customers. The data will tell you what customers are doing with your product. Their stories allow you to provide a sophisticated service that fosters a loyal, even loving, user base.
In 2015, building that economic moat requires a good data strategy. If you’re not using standard tools to track customer behaviors, you’ll likely develop the wrong features and could also miss out on major opportunities to better serve your customers. Your product roadmap won’t reflect what customers need moving forward, and you’ll build in the wrong direction. Not all features are always used as intended and the data might surprise you.
If you don’t understand what your customers are really asking for and your competition does, it becomes hard to compete and even harder to win. Use data as your compass. Your VCs will see what you’re doing and nod from across the boardroom table. If you and your VC ever disagree, the data will make a more persuasive argument than you ever could.
How we treat data analytics in startups
Today our CEOs run companies and project into the future in a fundamentally different way than we did even five years ago. A large amount of our board oversight involves some kind of interaction with data from our portfolio companies. The data makes the case for when to invest in customer success, when to reshuffle a sales team, scale internal infrastructure or pull the plug on something that isn’t working.
For example, when the CEO of our portfolio company GameSalad wanted to shift their business to a subscription pricing model for their customers, customer focus group data was crucial to getting both the internal management team and the board fully on board with the decision. Pivots are always hard, but basing a decision on true user data feels a lot better than basing a decision on gut instinct, and shows your VCs that you are making an intelligent, informed decision.
VCs have an obligation to help companies grow as fast as possible, and to do that we need to make quick decisions. It’s impossible to really understand what’s going on with our companies without looking at your data in aggregate. We’d be investing blindly without it.