Dylan Salisbury’s weblog

Fourth post in a series on applying Balanced Scorecard concepts to start-up companies.

Many BSC measures for investor perspective use traditional financial accounting metrics such as net profits or return on equity employed. However, many start-ups have success in early years that results in only meager financial results. Revenue growth may be accompanied by even larger expense, resulting in growing losses year after year. To make matters worse, many legitimate start-ups have a strategic plan that includes no revenue at all during the first years of the company’s existence.

Experienced venture investors understand this situation, so the dilemma can be resolved by considering other objectives and metrics important to the company’s investors. In fact, it is not uncommon for investors to define nonfinancial milestones which must be met before additional funding is supplied to a venture (Quillen, 2003).

In an ideal situation, the Minimum Winning Goal for the internal process perspective will also be agreed-upon goals between the key investors and the management team. This will eliminate the temptation for management to make poor strategic decisions to placate investors. This can also result in more productive discussions about corporate strategy in the boardroom. Venture investors often bring a wide network of business connections and other resources as potential assets to their portfolio companies, but these resources will not be effectively deployed if the investors and management have different views of the company’s short-term strategic goals.

Unfortunately not all important milestones to investors will also be useful internal process goals. An extreme example may be the investor-focused goal of hiring an experienced CEO who can lead the company through a growth phase that the current management team is not prepared for. This is a valid goal of strategic importance that venture investors should rightly care about, but it would not be appropriate to focus internal process efforts throughout the company on CEO recruitment.

Corporate venture capital organizations have certain interests not always shared by other venture investors. Accel Partners, a firm that operates traditional venture funds as well as assisting with CVC activities, defines the following unique goals for CVC units: Discovery of innovative technologies, creation of relationships with entrepreneurs, and expansion of markets for existing products (Accel Partners). The latter goal in particular may be appropriate for any Investor perspective scorecard but not found on the Internal Process scorecard.

References in this post:

Accel Partners. (n.d.). Corporate Venture Capital: An Untapped Weapon.

Quillen, J. L. (2003, February). Creative Use of Milestones Can Unlock Venture Capital.