Mr. Altman is talking about the basic misunderstanding of these terms and it's surprising to me that he didn't take a bit of time to define the terms himself. Maybe I'm naive and those terms are a lot harder to define than I'm imagining, but even then some references linking to other sites could have been provided.
I really enjoy reading Sam's posts and I'm usually bookmarking and/or forwarding his articles to a ton of friends. This one is a nice amuse-bouche but I guess I'm use to getting a full meal from Sam. Maybe a quick update with some links is all it needs? Good read otherwise.
I agree. I'm a CPA and some of these terms (GMV) I've never heard before (must be because I'm in a different industry - payments, and we use TPV - total payment volume), and others (burn) are ambiguous to my accounting brain.
Is that cash flow used to fund operations? Is that the accrual based operating expenses? Is that the difference in cash between this month and last month?
I think the point is less these particular terms and more the general responsibility to know and use the accounting terminology properly. Sam probably has a dozen examples of financial terminology errors, of varying seriousness and intent, and startup models, by definition, are going to raise still more questions. Sam can't possibly lay out a definitive vocabulary -- the applications of these terms is always dependent on the particular business. He can raise a flag that founders have to take this stuff seriously.
Whether this is exactly the best post for that is maybe another question. It definitely raises the question of how, exactly, founders without any accounting are supposed to navigate this stuff. Accounting is a language of its own, whose conventions make sense once you understand the various problems it must solve, but absent that knowledge it is very easy for people to make innocent but very important mistakes.
I think the more important thing is to make sure that a company clearly defines exactly what it means by certain financial terms. Someone correct me if I'm wrong, but IIRC during the original .com boom Priceline counted the entire sales price of an airline ticket as "revenue", which should clearly be considered GMV. More recently, I've seen terms like "gross revenue" and "net revenue" used by the financial press to describe total booking volume vs the cut a company takes.
Isn't it also surprising that investors aren't taking the time to define and clarify these terms as well? I feel this shouldn't fall entirely on a founder's shoulders unless they're intentionally lying.
I really enjoy reading Sam's posts and I'm usually bookmarking and/or forwarding his articles to a ton of friends. This one is a nice amuse-bouche but I guess I'm use to getting a full meal from Sam. Maybe a quick update with some links is all it needs? Good read otherwise.