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.
Sam Altman argues in How to Grow Huge] that the only way for a startup to grow really large is to create products that people love and promote. As the user base grows, users attract ever larger numbers of users to the product, producing compounding growth. The point is a terrific one and I think it can be generalized. To grow really large, startups have to create proprietary distribution channels.
A key component in a startup's formula for success is educating customers about the product and driving sales. The sales and marketing teams of a startup are responsible for this. There are many ways to structure sales and marketing teams.
For retailers of any size from startup to Fortune 50, the tablet application has become more important than the mobile application. IBM's annual Black Friday ecommerce report, which tracks 800 internet retailers proves the point.