Why VCs Should Require Net Promoter Score (NPS)
VCs and angels invest billions of dollars into startups across every industry imaginable. These startups are at all different stages of product development and customer experience development. Some are at the conceptual phase, some are in beta testing and some are fully delivering products or services to live customers.
Once a startup has at least 50 customers it should begin gathering NPS metrics. Here are five reasons VCs should collaborate with portfolio companies to calculate NPS, measure customer loyalty and begin to predict organic growth.
First, the NPS will quickly tell the VC whether end-user customers find the product or service to be valuable. This metric will serve as an early predictor of customer loyalty and word-of-mouth marketing opportunities.
Second, qualitative data gathered during the NPS data collection process provides valuable insights into improving the overall customer experience. While customers may love the product, they may have negative feelings about other parts of the experience such as customer support or product packaging. Identifying these areas for improvement rapidly provides protection for the investment made by the VC.
Thirdly, an NPS score can be used to determine whether a startup deserves additional rounds of investment as it grows. Most startups require additional funding in the first few years but many investors often struggle with the decision of whether to provide that additional investment. While plenty of financial metrics will guide that choice the NPS score can also be used as a valuable predictor of company success.
Fourth, an NPS score can be used to hold company leaders accountable in the evolution of their company. Financial metrics can be misleading in the short term but an NPS score gives a real-time and accurate measurement of the company's products or services based on the feedback that matters: from the customer.
Fifth, an NPS score can be used to benchmark the company's products or services against those of its key competitors. While a larger company with a low NPS score may hold strong market share in the short term a smaller company with a higher NPS score will inevitably steal some of that market share.
There are a variety of other reasons for a VC to require that its portfolio companies implement net promoter score methodology. As a proven indicator of future success, the NPS score can help many complex decisions needing to be made by VCs to become more clear.