During conversations with founders, I’ve noticed how frequently the topic of setting milestones has come up. We are continuously asking founders: “What are your milestones in the next 6 to 12 months and what will it take to get there?” To simplify further, “if you could only do 1–2 things in the next 6 months to make your business successful, what would they be?”
These questions seem to be universal across different stages of engagement between founders and VCs: whether it’s the first pitch meeting, within diligence before signing a first term sheet, preparation for a follow-on round, or in board meetings of long standing portfolio companies. At company maturity, which I saw in my previous role at Facebook, milestones were even more important as our quarterly metrics were monitored regularly by public shareholders and analysts, adding further complexity and weight to milestone setting. While it may seem obvious that defining milestones are important, it’s surprising to see how hard it can be to do really well.
The definition of a milestone is “an action or event marking a significant change or stage in development” (thanks, Google). Seedcamp has a great resource on setting milestones for young companies in which they define them as “points in time along the company’s timeline prior to a future event or goal.” A goal may define a desired end state or outcome, for example “world’s largest and fastest growing open source marketing automation platform.” Milestones are markers of the most important steps along the way to get to that goal.
For a founder, defining milestones sets the roadmap and creates focus. For an investor, milestones both a) identify where an investor should give support and attention, and b) provide indicators of the company’s ability to execute, which also signals levels of risk, thus informing investment decisions.
I’ve noticed in various conversations with founders in the past few weeks that while the specific milestones are incredibly important (for the reasons stated above), the ability to articulate clear milestones is almost as important of a signal as hitting the milestones themselves — particularly given that milestones can change.
A clear articulation signals to investors that a founder can identify, communicate, and focus on what matters most to hit the key business objectives.
Types of milestones
Milestones will vary by company, stage, and industry, but some common buckets may include:
- Key hires (this is most common milestone discussion I’ve seen from investors and arguably the most important)
- Product launches or version upgrades
- User validation (e.g. number of developers in community)
- Customer traction (number of customers, paying customers, repeatable customers, increasing deal size, upgrade cycle time or upsell dollars generated)
- Operating efficiency (marginal cost of customer acquisition, gross margin %, churn rate, dollar renewal rate).
A great read on indicators of business traction and positioning for scale is my teammate Michael Skok’s WSJ piece on The Deliberators Dozen. This piece has been a helpful learning for me on how to identify signals of real progress and thus, value creation.
Milestones matter to more than just startups, and getting good at setting them will benefit a company at all stages of growth. At Facebook, we were rigorous about goal setting and the measurement of those goals. For the product teams, we set objectives every quarter that fed into our goals for the half. These objectives were usually quantifiable, i.e. number of new users, number of deals closed, number of product experiments shipped, and always measurable, i.e. no SEVs open more than 14 days, no top 10 partners churned, etc.
It should be indisputable whether or not you have hit your milestone. In past companies, I’ve sometimes used the stoplight system (green, yellow, red) for milestone tracking, and I was always frustrated with the “yellows” because they teach us the least. Ambiguity can be an ultimately debilitating crutch.
If you’re building a business, build it one block at a time, one milestone at a time. As investors, we want to be your partners in business building, so don’t just look at milestones as important for securing funding. They should help you decide where to focus your time (your life) and what steps to take in order to move forward.
Let’s continue the conversation. When it comes to milestones, where have you experienced difficulty or success? Comment below, tweet me at @lilylyman.