

Financial Indicators for Startups at Different Stages - dmor
http://mattermark.com/important-financial-indicators-for-startups-at-every-stage-of-growth/

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birken
This doubles as a good lesson for somebody considering joining a startup, and
kudos to them for being fully transparent about it. You should always ask to
see the graph they've presented here, a graph with historical burn, revenue
and months of runway left. Otherwise it is very difficult to figure out how
much risk you are taking by joining. Because if the runway starts getting
short and the startup need to "control expenses", that means laying you off.

> Generally, I think controlling expenses is a lot easier than figuring out
> how to make more money.

A key point. If your salary is coming out of future predicted revenue growth,
and that growth doesn't happen, your expense is going to be controlled.

I'm not suggesting startups shouldn't be aggressive with spending, nor
suggesting employees shouldn't take risks when joining startups. But you
should ensure that, as an employee, you are compensated for the risk you are
taking. And this graph is a great way to see exactly how aggressive the
startup is being with their spending.

~~~
7S-ymVNwEwE-

      > But you should ensure that, as an employee, you are 
      > compensated for the risk you are taking.
    

"Oh no I lost my job" risk is already priced into current market-rate
salaries. A startup may have a greater chance of laying off an employee, but
the risk to the employee must also consider how quickly they're able to get
another job at market rates. If the job market is tight, the risk is much
lower.

What is unwise is to accept less than a market rate salary plus deferred
compensation without thinking like an investor. At the very least one should
consider how much their time is worth relative to the cost of investing, i.e.
"H hours of my time at market rates is worth $D, therefore if I were investing
$D of my time into this startup I'd receive C common shares."

~~~
ketralnis
> "Oh no I lost my job" risk is already priced into current market-rate
> salaries.

Well that's up to me, as the risk-taker. Isn't it? Why should I let
7S-ymVNwEwE- decide that?

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santiagobasulto
Challenging read from a software guy like me. But really thankful for you
publishing it. Where can I read more about these things? We're starting our
own company and as money starts to flow in, we're worried about not being
prepared enough to draw all this numbers. I'd prefer to know all of this
instead of hiring someone and blindly trusting her/him on these things.

~~~
dmor
Thank you, I am afraid there isn't enough published on this, which is part of
what motivated me to write it. I know the content is a bit dense, I hope it
was at least palatable enough to get to the end.

For further reading I highly recommend SaaStr.com which is a blog on SaaS and
helpful for most recurring revenue type businesses. I also think it is
wonderful to work with an accountant, and once you start getting revenue it is
worth it. We waited a long time to do this (which is part of why I know as
much as I do about this stuff) and that was probably a mistake, as it made a
lot of cleanup work for us later on. Hope that helps, good luck with starting
your company!

~~~
santiagobasulto
Thanks!

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fitzwatermellow
Thanks to MM for clearing up the subtleties between revenue and run rate in so
rigorous a fashion. Will be pointing people to this link for some time to come
I imagine. If we really want to get sophisticated, I guess we'll have to start
modeling startup run rates using differential equations akin to rocket fuel in
a spaceship approaching orbital velocity ;)

Which brings me to an interesting point. What happens if your SaaS offering
explodes and it appears you should be charging much more for your product?
Perhaps even 2-3x with no appreciable loss of customers. For the example of
MM, the $500/mo recurring may start to seem low in the coming year as the
amount of data and ai features increase. Furthermore, the market is somewhat
finite (dealmakers). Can they get away with increasing fees by a large
multiple year over year? And if not where will additional revenue come from as
its concievable they will need to add more (expensive) data science talent to
grow.

~~~
dmor
Love this question, I think most SaaS companies underprice (including us!). We
have raised our prices once since we started, and probably will continue to do
this yearly. We make most of our money on expansion revenue (additional seats
or services like our API), so the per seat pricing isn't that limiting. But
why collect $600 when you could collect $1000? We try to price at the highest
point where people will complain but still buy.

~~~
syedkarim
"try to price at the highest point where people will complain but still buy"
\--Probably the most elegant pricing advice I've yet to come across.

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seekingcharlie
Would one say that these metrics should be reported on by founders to
employees throughout a startup's lifecycle?

As an employee, should you know your own company's burn rate each month for
example?

~~~
mjbellantoni
Absolutely. This should also be on the list of questions you should ask before
you go to work at a startup. You probably wouldn't ask these on a first
interview, but as you get close to the offer stage asking questions about
money in the bank, burn rate, cash out date and such are fair game.

If the company will not answer those questions, that in itself is useful data
for guiding your decision making. :)

~~~
seekingcharlie
I get that one should ask before they interview to determine their risk.

But what about if you're already working at the company? Should you
periodically ask this information or should founders be sharing it?

~~~
mjbellantoni
Management should be sharing it with you at least quarterly if not monthly.
Typically, I've seen it done the day after or the Friday after the most recent
Board meeting.

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reillyse
This is really only relevant to Startups that are trying to raise VC money.

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JacobAldridge
I disagree. This is really only relevant to Startups who are seeking to not
die.

Cash on hand, burn rate / break even point, revenue growth, and I believe even
Valuation metrics are relevant to all companies all the time - even if you're
two guys in a truck building fences and wondering what one comma on your ATM
slip might feel like.

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jacques_chester
On the question of when to recognise revenue, I'd hope that serious investors
know the difference between accrual and cash accounting.

In particular, that bookings come before sales come before cash, and that the
three are reported independently.

~~~
iamshadowbanned
Could you expand on that? How are you differentiating between a 'booking' and
a 'sale'?

My interpretation of this was that bookings == 'contractually agreed upon
commitments to buy' (basically, sales), and then revenue flows thereafter, so
if I sold a million dollars, and had $200k of churn in june, my June bookings
would be $800k.

Are you referring to a 'sale' as some sort of 'customer has stayed past a
probation period and the salesman is eligible for a commission' point? I'd
love to have this cleared up.

~~~
jacques_chester
Sale and cash are well understood in accounting circles. "Forward booking" is,
I understand, much fuzzier. What may count as a sale (eg, I receive a purchase
order) may differ from the forward booking (someone scribbles on an MoU).

Depending on the organisation, sales staff can be paid at different times in
that pipeline. And unsurprisingly there's dropoff at each stage.

I guess I should end by pointing out that I am not an accountant and this
isn't accounting advice.

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solve
Extremely bad title. This is about one startup, not startups.

If they do want to do some properly backtested analysis of the predictive
value of various financial indicators versus expected value across many
startups though, that would be great.

~~~
JacobAldridge
I'm genuinely not sure if you're trolling, or just unaware that sourcing and
analysing various financial indicators against valuations across multiple
startups is what Mattermark does?

~~~
solve
That's exactly why I'm surprised that the title of this post suggests that
they would be doing this, but they didn't.

