The Importance of Data for Startups

Data plays a vital role in every startup’s journey. Whether determining product-market fit, assessing financial status, or planning for the future, the consistent collection, organisation, and analysis of data is an essential part of growing a startup. 

Why Is Data for Startups Important?Data for Startups

Startups, by definition, are designed to disrupt markets and do things differently than they have been done in the past. To be able to do that, you must start with a hypothesis. You have a solution that you think will solve a particular problem and have identified a market for that product. In order to test this hypothesis, startups need to experiment, and to design and execute good experiments, you need to collect the necessary data to test your assumptions. Once you have analysed the results, then you know whether you need to pivot, start from scratch, or proceed as planned. 

Once you test your assumptions and confirm or adjust your hypothesis, you now need to collect and utilise data on a regular basis as you start to implement your business. How much revenue do you have coming in? How much cash do you have on hand? What are your monthly expenses? How many customers do you have? This data helps you stay on track in the short-term but also prepares you for the types of questions that investors will ask when raising capital. 

What Are Key Metrics to Collect and Track?

1. Product Development Metrics

It's really important to talk to customers — early and often. This cannot be overemphasised. Talking to customers helps you kill assumptions. Your startup could be based on a passion project and be a good idea in theory, but that doesn’t mean it will succeed. Will people actually use what you’re building? Will people be willing to buy it? Is it actually solving the problem or meeting the need? Data from customers helps you to prioritise customer needs, differentiating between what is a must-have and what is a nice-to-have. If you don't talk to customers, you miss out on that nuance and potentially create something that the market does not demand. 

So many good ideas have crashed and burned because customer data was not sought out early enough, often enough, or at all. Talking to potential customers, and analysing the data they provide, serves as a sanity check before you’ve invested too much time and/or money into a product or service. 

2. Financial Metrics

There are some standards in the innovation space around the most important financial metrics to track. The most important one is monthly recurring revenue, which is how much revenue you are able to expect this month based on past trends. The monthly recurring revenue then is used to eventually determine annual recurring revenue. Based on what a startup generated last year, looking at month-on-month revenue for the whole year, they can make an educated estimate of what to expect in the year to come.  

Another very important metric is burn rate. In other words, at what rate are you spending cash? Most startups don't have enough money. Even for the best startups, there will be a point in their journey when money will be tight. So you need to be able to keep track of how much you're spending every month. 

Tied to that, you need to know how far you can go with what's available — your runway. Your burn rate gives you an indication of how much it costs every month to run your startup, then you look at your reserves. Divide your reserves by the burn rate to tell you how much runway you have. This gives you an estimate on how much time you have to raise your next round of funding. 

Another important metric is churn. You're trying to grow a business and you need to be able to project your customer growth, but retention is a big issue. Churn is a metric that is used to determine how many customers you are losing, so you want to keep churn as low as possible.

3. Impact Metrics

As an impact investor, Villgro is also interested in impact-related metrics, such as jobs created (including a gender dimension) and how many lives have been impacted (including customers, employees, users, etc.). As a startup, you may be required to collect this type of data to comply with funders, incubation programs, or investors. 

Tips & Strategies

1. Keep it simple at the start.

While some of these metrics are considered to be standard KPIs, you don't have to start with all of them at one go. Prioritise what you determine are the two or three most important ones and then build your way up from there. And don’t feel like you need a complicated or fancy way of storing your data — start with effective but easy-to-use tools like Excel or Google Sheets.

2. Take it a day at a time.

Spend a few minutes every day focusing on your data gathering and organising rather than waiting for it to pile up and become an intimidating task. As tempting as it may be to start focusing on data only when you need it, the best thing you can do is to give it a little bit of attention on a daily basis, consistently building up data over time. 

3. Consider the investor’s perspective.

If you’re raising capital, what would a potential investor in your company like to see? And don’t just theorise — just like with your customers, speak with investors as soon as possible. Raising capital is a very long process and it’s best to get their input at the onset. If you can only collect data on a few metrics, which ones should those be? Start with those and then as you raise more capital and generate more revenue, you can add different areas of data collection to speak to different aspects of your business. 


Startups don’t always see the value of keeping track of data initially, but if you don’t prioritise it, it will come back to haunt you. And remember, you don’t just need data to attract investors — you’ll need data to keep them! Build the practice and establish your systems from the beginning, starting simple and then growing alongside your business. 


Are you ready to take your innovation to the next level and need support to become investment ready? Learn more about our incubation program and apply here