2/ Founders obsess with revenue as a vanity metric. Some even grow "bad" revenue just to show growth. As a founder I'd take healthier revenue (higher GM, faster paybacks) any day of the week
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1/ From vantage point of being able to see hundreds of companies, good & bad I have some advice for founders - Get to know and love "gross margin." Revenue doesn't pay your bills, GM does
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3/ Stop obsessing about LTV/CAC ratios. Payback periods on customer acquisition way more important to you in the near-term. Get paybacks wrong and you're out of business
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4/ LTV/CAC is to impress investors. Ultimately it matters a great deal. But in short-term you know that LTV is based on optimistic future assumptions and payback periods on acquisition are based on flying into a brick wall if you get them wrong
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5/ Unless you're scaling rapidly don't hire staff too quickly. More people aren't the answer if your core business isn't already productive. Hire when it feels like you're bursting at the seems or missing a critical skill on existing team or have figured out how to scale growth
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6/ Raising capital at very high prices helps avoid short-term dilution. But if you raise at too high a price you make it harder to raise next round. Be sure you can grow into your valuation by next fund-raising or your last raise could become existential or extremely dilutive
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7/ If you know an employee is a negative energy in the office don't delay parting ways. Negative employees affect others like a disease and you can't ever turn them around. There's never a perfect time - except now.
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8/ Don't spend undue time advising other people's startups until your business is successful, scaling & stable. Founder focus is the single most important resource that needs to be spent wisely
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9/ Don't spend undue time at conferences. Networking & relationships are important so some events are fine but if you're addicted to being out of the office that should tell you something. Or at least your employees will tell you what it means
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10/ Communicate to board early & often. Getting through hard times requires investors willing to spend time, to spend internal political capital & to be willing to go to bat for you in tough times. Strong relationships & trust based on transparency helps a great deal
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11/ Venture debt has its places (timing of AP vs. AR, inventory purchases, etc) but should be used very sparingly as a replacement for venture capital except at later stages of your business. Usually a terrible idea as runway extension. Debt comes home to roost
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12/ As you scale you should think about redundancy in every key role in the company - including CEO. Things happen, people tire, sometimes tragedies. You wouldn't build a single point of failure in your code - shouldn't in your company. Tech, product, sales - all need redundancy
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EBITDA much more meaningful as a metric than GM
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I disagree - especially for a startup. GM is a function of unit economics. EBITDA is a function of volume. If you have good GM you can scale, if not you're toast. If you have bad EBITDA there could be many causes and possibly solutions.
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Cash on Cash Gross Margin is a great metric as long as you are very straight about what goes into cost of sale and service. Too many startups artificially boost GMs by diverting some costs below the line.
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True...ergo my comment about cost accounting
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There seems to be a lot of focus on on top line numbers in VC investing (i.e user numbers, revenue etc. ). Are (some) VC's driving this behavior you think?
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One of the standard requirements of Series A investors is £XX of revenue. You never hear any mention of GM.
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Partly to get a sense of traction and partly because most VCs don't know how to build a lasting business.
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I agree. By the time you get to Series A, your revenue needs to be profitable, even if your business isn't. Series A funding is the fuel that drives faster revenue generation. If you're not producing +ve GM by that stage, then Series A will be the fuel for a rapid bankruptcy.
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I think different measures apply at different times. On day one it's about revenue (do people want what you've got), then GM proves it's a viable product, but ultimately an improving EBITDA tells you how successful you are at scale. No one size fits all.
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