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As competition has grown ever so fierce among sectors in our economy, businesses have begun to seek ways by which to gain an advantage over other market participants.
In doing so, many C-level executives have turned to data collection and management. Once an ancillary function driving companies forward, analytics is now a prerequisite for startup growth. While far from a novel concept, harvesting data today is easier than ever before with the emergence of new technologies.
A paradox, however, is often present. As we adopt the latest platforms to accelerate our growth, competitors are forced to as well. Therefore, it may seem impossible to retain superiority in the long run, but keep in mind, the insights derived from data are different for all and it is who can analyze the best that wins.
Related: 8 Ways Data Analytics Can Revolutionize Your Business
Fundamentally, analytics is the expression of trends, actions and interests. It is not only a way to thoroughly understand your customers, but your overall business as well.
As we’ll discuss, studying data offers many benefits. While it is possible to grow without analyzing current behavior, proper analysis will better direct your startup by:
- Reducing the risk of unknowns
- Enhancing decisions that lead to profit
- Improving your interpretation of the market
- Segmenting customers to drive acquisition efforts
Organizations can harness data in a variety of ways; however, successful businesses are often aligned on the manner in which they use analytics. If you are unsure where to start as an entrepreneur, outlined below are a few common use cases.
1. Find the right audience
The first step to launching a startup is identifying a group of individuals who will be interested in the product or service that you have to offer. Ideally, proper research should lead you to a market that’s relatively underserved and ripe for disruption.
As you land on an appropriate sector and look to proceed, the optimal route forward is to find a niche by which to exploit. Initially, it may seem rather unobvious as to the best target for your offering, however, you must start somewhere.
Many of today’s leading companies were once addressing the wrong audience:
- YouTube: Launched as a dating site to upload videos and browse matches.
- Netflix: Delivered DVDs to your mailbox that would need to be returned.
- Groupon: Helped fundraise for charitable causes through its platform.
- Instagram: Allowed users to check in and meet up at their favorite spots.
What is often the case is that the customer whom you believed would be best suited for your product or service is radically different than the current user. Acknowledging the data, you as a founder can double down on your efforts to attract the “right” crowd.
Related: 4 Steps to Become a Data-Driven Business
2. Make informed decisions
Beyond reaching product-market fit, analytics should be an ongoing priority for startups. While some organizations have flourished on nothing more than a gut instinct for years, most of us would be wise to consult data prior to making any decisions.
Generally speaking, analytics can benefit top-level management in various ways:
- Marketing: Analyze previous campaigns in order to improve overall engagement.
- Sales: Refine current processes to increase conversion and grow company revenue.
- Finance: Forecast cash flow to plan for acquisitions or investments at a future date.
- Product: Identify patterns in usage to make adjustments that better suit customers.
There is a never-ending list of areas in a startup that can be improved by data. The difficulty, however, often lies in proper analysis. Without the ability to generate meaningful insights, any information you collect will likely be of little use.
As with anything in life, balance is key. Overanalyzing data can damage a business on many different levels. Not only could it steer you in the wrong direction, but this behavior can also lead to decision fatigue or paralysis.
Related: 3 Ways to Utilize Data to Boost Your Bottom Line
3. Track performance
Another key function of analytics is the ability to monitor the performance of your business over time. By tracking certain indicators, you as a founder can identify the areas in your marketing or sales funnel leading to lost conversions.
Fortunately for entrepreneurs today, there is a suite of analytics tools at their disposal. What was simply a game of trial and error many years ago has now been refined. Data is the future, and without it, you will likely forego a competitive edge.
Some of the best resources for startups currently available on the market include:
- Google Analytics: Track website traffic, average stay time, bounce rate and more.
- Hotjar: Generate heatmaps to see how users interact with pages on your website.
- Hubspot: Evaluate marketing efforts using open and response rates among others.
- Salesforce: Recover lost leads and potential customers who abandon a purchase.
Ultimately, analytics is all about finding what is working and what isn’t. Using the tools above and evaluating data, founders can expedite their growth by quickly pinpointing subpar areas and initiating a plan to bolster performance.
Related: Why Businesses Should Take a Cultured Approach to Data
4. Increase profitability
Finally, startups can look at data to improve overall profitability. With the cyclical nature of our economy, businesses must be ready to weather any storm. As such, companies should continuously monitor various metrics that affect their runway.
Among the most commonly examined figures, those of great consequence are:
- CAC: The amount you spend to gain one new customer for your business.
- LTV: The total revenue that a customer will deliver to your company over time.
- Churn: The percentage of customers who do not return during a given period.
- Burn: The rate at which your business is spending the money that is available.
Analytics can be used to identify ways by which to reduce CAC, increase LTV and lower both churn and burn to enhance profitability. Through data, startups are able to evaluate areas that have the largest effect financially and improve accordingly.
From marketing and research to risk assessment and performance monitoring, analytics should be a core discipline in every area of your business. What previously came from years of experimentation is now made possible through efficient analysis of data.