
Startup Metrics - webmasterraj
http://a16z.com/2015/08/21/16-metrics/
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BillFranklin
My colleague Ed made a cheat sheet for SaaS metrics [pdf]
[https://chartmogul.attach.io/NkqgtF8H](https://chartmogul.attach.io/NkqgtF8H)

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BinaryIdiot
This is handy; thanks!

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snake117
Just curious, did something happen during Demo Day presentations that made
both Sam and AH write a blog post about this problem?

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randall
I don't think so... I think a lot of people screw it up though.

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evolve2k
> "How and when revenue is recognized is governed by GAAP."

Being a CPA & coder this statement really annoys me, GAAP for those that don't
know simply means "Generally agreed Accounting principals" and there is really
no acceptable reason for this acronymn to be used outside of the (accounting)
profession. Maybe it wasn't the authors intent but it smacks of those people
who use jargon to help aggrandize their position when a simple inclusive
explanation would have been more appropriate.

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rahimnathwani
You're talking about two different issues:

1) Whether or not people outside the accounting profession should use the
acronym 'GAAP'.

2) Whether people use the term as jargon to help aggrandize their position.

I have no comment on point 2. On point 1, though, my position is the polar
opposite of yours. Business people in general (and especially CEOs!) should
understand the principles of accounting, the ways in which transactions are
recorded etc. If they don't understand these things, how are they meant to
understand their company's financial statements? If they can't understand
their company's financial statements, how are they meant to manage the
company?

BTW - I am also a qualified accountant, although this is not related to my
current job. I feel so strongly about these issues, though, is that I
periodically run an 'Intro to Accounting and Finance' course for interested
colleagues, and have delivered similar training courses at other large tech
companies in the past.

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evolve2k
Actually I agree with your points, my comment was made in a rush and on
reflection is full of hubris. My complaint was with the article which is
attempting to define terms for newcomers not defining this term. I didn't mean
non accountants shouldn't use the term, I meant that use of this term as an
acronymn without definition in a definitions of things article seemed
inappropriate.

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okabat
As an engineer turned PM who might start a company some day, I've always seen
financial literacy as one of my weaknesses. Companies are ultimately judged
for their finances. Ignoring this subject is dangerous for a company's
prospects, and illegal if it causes you to make misleading statements to
investors.

If anybody is looking for further reading on this subject, I enjoyed
"Financial Statements" earlier this year([http://www.amazon.com/Financial-
Statements-Step---Step-Under...](http://www.amazon.com/Financial-Statements-
Step---Step-Understanding/dp/1601630239)). Quick and straightforward, it
starts with the vocabulary and explains the major financial statements
(Income, Cash Flow, Balance). The majority of the book follows a company from
inception to dividend disbursement, explaining how various business activities
(e.g. signing a lease) hit the financial statements.

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z3t4
I would recommend a course in micro economics. Learning micro economics really
changed how I think about finance. Anyone who plan to start a company some day
should know how markets work, marginal return, opportunity cost, sunk cost,
etc.

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paskster
I really like the fact that this post first distinguishes "#1 Bookings vs.
Revenue".

I hear it almost everyday among startups, where they talk about bookings,
revenue and incoming payments interchangeably. And sometimes even in the same
sentence such as "We made 100 k in the whole last year [meaning revenue], we
currently make about 50 k per month [meaning bookings] and just last week we
made another 30 k [meaning incoming payment]."

This makes it way to hard to properly communicate with founders. So great
stuff this post.

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webmasterraj
Does anyone have an estimate on the average burn rate for a startup in San
Francisco? Seems important these days, given talk of the end of easy money
(see @bgurley)

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presty
[https://medium.com/@DanielleMorrill/is-my-startup-burn-
rate-...](https://medium.com/@DanielleMorrill/is-my-startup-burn-rate-
normal-882b2bd20f02)

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btown
It's abnormally risky to raise only enough money for 17 months of runway. I
wish Mattermark the best, but this level of burn is not the most confidence
inspiring.

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dmor
From what we understand from investors, it is actually pretty typical to raise
enough money for 18 months of runway. Additionally, we still had ~1.5m in the
bank when we raised.

I will certainly report back on how it goes though!

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jakozaur
I believe one of the tricker question is whether your revenue is truly
recurring.

E.g. you may say consulting services or just charge monthly support
subscription.

Especially in short term it is easy to convince yourself that it is recurring
(e.g. monthly access to tutorials) when really churn is so high, since people
use it on-need basis rather than long-term.

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nirmel
Two questions:

How do you deal with refunds? Let's say a customer buys a product, for
whatever reason their expectation not met, and a refund is issued. Do you
adjust revenue in the month the revenue was recognized? Or do you add negative
revenue to the month in which the revenue was received? Or something else?

And for average monthly growth rate, that can vary a lot for the same company
depending on where you start. If a company has monthly revenues of 1, 6, 10,
12, 14, 15, 16, it has an average growth rate of 58% over the past 6 months,
but 10% over the past three months (and 7% over the past month). I see
startups using arbitrary start dates to inflate average growth rates, and am
wondering if there's something standard when presenting this metric.

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paskster
1.) Refund: Yes, I would adjust the revenue in the month it was recognized.

2.) Monthly growth: It is actually really simple, you just caculate:

(16/1)to the power of (1/6) which equals: 1.58 This means the average growth
rate was 58 %.

16/1 is the total growth rate for all 6 months. And to the power of (1/6)
because it is calculated among 6 months

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nirmel
1) For a business with consistent refunds in prior months (e.g. money back
guarantee), this has the odd effect of always being able to show growth
compared to previous months, even if revenue is constant.

2) Right, that's how I calculated 58%, but does it really make sense to
calculate the base off of some arbitrarily low first-month revenue? Does it
make sense that a company with strong first month sales should have a much
lower growth rate than a company with abysmal first-month sales, given a
certain current monthly revenue?

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paskster
1) If you expect a certain refund quota, lets say 20 % within 6 months, then
you should already account for it: only account 80 % of the actual revenue and
adjust this number after 6 months when you now the actual refund quota. This
makes it more complicated but it would be the right thing to do and will help
you get a somewhat decent financial plan.

2.) If your growth curve flattens out than this approach obviously does not
really give you a good representation of how well you are currently doing.

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mikeknoop
> Active Users

What is a typical or good (active users)/(total signups) rate for a SaaS
company?

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idlewords
This is sensitive to your definition of "active user", and what service you're
selling.

It's normal to see a lot of attrition right after users sign up, especially if
the lowest tier of the service is free. More interesting is how many users you
retain after the initial kicking of the tires.

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rokhayakebe
While great, this seems like not-so-easy work. Perhaps this is an opportunity
for a company to charge a couple of hundred dollars monthly and create semi-
automated reports for your investors.

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aacook
Totally agreed. I've been consulting in this area for the past year now and
it's a very common problem. One of the most powerful things you can do with
these metrics is pull them on a regular basis and write updates. For example,
write about how the week went and send it to the team. Or write about how the
month went and send it to investors. Even if no one reads the updates, the
exercise of just looking at the data and explaining yourself can really help
you focus on what matters.

Tools like BareMetrics and ProfitWell do a nice job pulling revenue data via
Stripe. Out of the box, tools like Mixpanel and Amplitude do a good job
pulling giving you product and engagement metrics. It's up to you, though, to
send all of the data over to those packages correctly and learn how to
understand and interpret their reports. Other data, like burn rate, is often
calculated back-of-the-napkin.

I'm working on a tool called Growth Report and shipped an MVP a little over a
month ago. Hit me up if you want to check it out. aacook@aacook.co.

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rokhayakebe
I do not have a product, and I have not raised any money, but if you have an
MVP you should definitely post it here. This solves a real problem both VCs
and entrepreneurs currently have. To the point where YC CEO and partners at
A16Z (both leaders in their categories) have to write about it.

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philadelphia1
unpopular amongst hackers, but really it takes a couple years of business
school to learn real accounting, finance

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mr_green_tea
Regarding ...

> #5 LTV (Life Time Value)

Shouldn't the calculation factor in the time value of the money over the
estimated life time?

[https://en.wikipedia.org/wiki/Time_value_of_money](https://en.wikipedia.org/wiki/Time_value_of_money)

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jacques_chester
It's a pure summative estimate, as I understand it.

I imagine that it's taken as the input for a net present value calculation by
many investors.

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Eridrus
Two equal LTVs could results in pretty different NPV results depending on the
expected lifetime, and using both averages for the discount definitely has
some error.

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jacques_chester
That's a good point. I'm reminded of von Neumann's quip that "with four
parameters I can fit an elephant, and with five I can make him wiggle his
trunk."

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imrehg
Since there's so much accounting in these metrics, anybody has a
recommendation for good accounting software, or knowledgebase? Especially for
hardware startups (e.g. building physical stuff, inventory, keeping track of
component and parts)...

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t23
great response to sama's blog post from earlier today

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DrNuke
Thanks for that, brilliant. Sticked!

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barely_stubbell
This is Entrepreneurship 101

