Setting milestones that create value
Not all milestones, or achievements, will create value for a company. When an investor asks a founder for their milestones, what they mean are value inflection milestones, or those that create value.
A startup’s valuation does not increase linearly over time. Rather, it can sometimes plateau or lurch up (or sometimes down), based on achieving (or missing) key milestones.
For a pre-revenue company, value inflection hinges almost entirely around risk reduction.
Startups are bundles of risk at every layer: strategic, technical, operational, regulatory, legal, market, financial, people, systemic and so on. In general, the fastest path to risk reduction – and therefore valuation uplift – is to mitigate the following risks:
Problem: Evidence that you can build a solution to a problem
Customer: Market validation proof that this is something people want and will pay for in sufficient numbers
Channel: You know how to reach your customers and what it will take to achieve traction
Revenue: You can make enough money in the right timeframe to scale the business
Operations: Your team can deliver on these milestones and implement sound business processes
People: You can attract talent that will drive growth
With risk reduction in mind, apply goalsetting techniques to craft clear and compelling milestones. Do not focus on achievements, or create a to-do list, instead focus on value creation (risk reduction) from an external viewpoint.
1. Start with your vision – A broad, ambitious statement that crystallises what you hope to accomplish
Value inflection milestones should get you demonstrably closer to achieving this vision.
2. Identify the most significant risk -reduction milestones toward achieving this vision - Make sure milestones are specific, measureable and timebound
Specific: who, what, when, where, why and how
Measurable: you need to be able to know that you’ve achieved your goal
Timebound: when you hope to have achieved the milestone
3. Clear & trackable progress benchmarks
Difficult and challenging enough to motivate but without being overly complex
Clarity so all stakeholders understand, can commit to and buy into it
4. Feedback – seek advice throughout your pursuit of the goal
Here’s an example of applying the above goalsetting techniques to craft powerful value inflection milestones
Common milestone statement:
Before: MVP of pregnancy complication wearable device
With goalsetting techniques applied:
After: Develop clinic-unit prototype by December 2018 that detects and provides real time alerts to common pregnancy complications (blood glucose, anaemia, dehydration, blood pressure) via noninvasive wearable device
Milestone Crafting Advice from an Investor Viewpoint
- Your milestones should focus on what matters most
- We want to see your milestone map through to liquidity – but the team should only be focusing on 1-2 major milestones at a time
- Evaluate your ‘Use of Funds’ based on whether it is getting you closer to achieving your next value inflection milestone
- The management team should be able to explain a clear relationship between time, capital and these milestones
- Consider the resources required to reach these milestones and whether the value uplift is worth the resources and whether the company is properly capitalised to achieve them
- Missing milestones sometimes happens – reflect on this and be able to clearly communicate these learnings
Template 1: Value Inflection Milestone Planning
Using the above goalsetting techniques, structure your value inflection milestone against the actions and deliverables, in a progress benchmark framework.
Template 2: Milestone Mapping
Communicate what milestones you will be working toward over the next 120 days (recommend max of 2, denoted in red below) and key progress benchmarks (recommend max 4-8) across key risk categories. The goal here is to be able to present on one slide the critical path to de-risk your innovation. To take it to the next level, incorporate an indication of the cost of reaching the benchmarks and milestones.
Value inflection milestones are the most concise way to clearly communicate your commercialisation strategy – to your team, to your advisors and to both current and future investors. Taking the time to craft clear, compelling milestones leaves you well prepared to execute against them and reflect on successes and failures. Your milestones send strong signals to potential investors – with a bit of careful thought and attention, those can be positive signals that support an investment decision.