You’re walking down the hallway at work from one meeting to the next. A colleague or report stops you en route, asks for a minute and presents an important problem. It’s easy to respond with “let me think about it.” In that half-second, all the responsibility of the decision has been transferred. Unlike a minute ago, you have the monkey on your back."
One way of measuring the efficiency of a company's revenue model is to benchmark revenue per employee. Google and Facebook, the two most efficient companies, generate $1M per revenue per employee per year. Setting aside those exceptional cases and focusing instead on SaaS companies, the typical average revenue per employee is about $190k to $210k per year. The histogram above shows the ranges for publicly traded SaaS companies.
Financial statements are a Rosetta Stone for startups. They reveal the strategies and the tactics of how to bring a product to market. These are the ten metrics I look at when sifting through a startup's operational model, whether when considering an investment or in a board meeting.
On January 8, 1966, the New Yorker profiled Buckminster Fuller for the first time. During a trip to a Maine island with the journalist Calvin Tomkins, Fuller said something tremendously prescient:
The initial phases of a startup revolves around discovering product market fit (PMF). One way of declaring PMF is to have enough data to sketch a reasonably accurate price/demand curve for a product. Tactically, these means identifying customer segments, estimating the the demand of each segment, quantifying the investment required to build the right product, and uncovering the costs of acquiring and servicing customers within that segment."
Raising money for a startup is expensive. The typical legal fees for a Series A are about 1% of the total money raised: roughly $40k on $4M. Of course, this doesn't factor in the time for the process and the dilution of the investment. But if your startup is considering an IPO be prepared to pay eight times as much in fees. Across 360 venture backed technology IPOs in the last 10+ years, 8.8% of the dollars the startup raises in the initial public offering is paid to investment banks, accountants and attorneys.
When startups are acquired, there are many considerations in accepting an offer. Does the vision of the acquirer fit the startup? Will the startup operate independently or be integrated? What is the price and structure of the transaction? Most of these questions have to be answered through extensive conversations with suitors. As for the structure of the acquisition, there's data that can be used for benchmarking. I've assembled about 2400 M&A events of venture-backed technology companies since 2000 to compare the fraction of the total consideration which is stock and cash.
Bitcoin has captivated the imaginations of many with its quasi-anonymous, hyper cost-efficient payment network. The potential for Bitcoin to change foreign exchange is hard to overstate. In the same vein, the technologies that enable the internet of things (IoT) like Bluetooth Low Energy and Apple's Beacons and Electric Imp's infrastructure will transform the way we interact with the physical world to something akin to the mall in Minority Report.
I was lucky enough to spend some time with Monica Adractas, a former McKinsey partner who is now Churn Czar at Box. She and I chatted about the challenges in managing churn and her view on how to handle it. I thought she had some terrific insights and a clear understanding of the methods to reduce churn from her experiences. These are my notes from that conversation.