IDEA Network Workshop 2 - Financial Concerns(Sam Keightley and Xue Angela Li)

Start-up Metrics

What are Metrics?

• A type of measurement used to quantifiably gauge performance.

• Any business data that is collected and analysed periodically.

© IDEA Network 2013

Metrics in Business

• In business, metrics include:o Return of Investment (ROI)o Sales revenueso Expenditureso Customer loyalty and retentiono Operating productivity etc.

• Used to help make strategic business decisions.


The Problem

• Metrics used in large business are not useful or effective at gauging start-up performance.

• This is because start-ups require different information, at more frequent intervals to make rapid changes if needed.

• The context in which the information is used is also different.


Start-ups vs large Companies

• These problems exist because there are significant differences between what a Start-up is and what a large company is.

• Specifically objectives and priorities.

• Therefore the required information to make strategic decisions is completely different.


Focus of Start-ups

• Start-ups are still figuring out a business model to adopt.

• Capabilities o Management/Staff Talento Execution Capabilities

• Revenueso New customer growth/customer retentiono Price optimisation


Focus of Large Companies

• Operating marginso Development/Production Efficiencyo Logistic Efficiencieso Customer Interaction Efficiency

• Asset Efficiencyo Inventory Efficiencyo Receivable and Payables Efficiency


Start-up Metrics vs Accounting

• Start-up metrics provide information that is generally provided by accounting departments of large companies.

• These metrics also simultaneously represent company performance.

• The metrics then gradually change as the start up transitions into a large company.


Another problem.


• You can collect data about anything.

• There are a large number of tools that can be utilised to gather tremendous amounts of data about your company.

• Essentially, the problem is information overload.

What makes a useful metric?


• Firstly, one that answers an important question. metrics are most often paired with questions for this reason.

• One that enables clear goal creation and progress feedback.

• One that focuses the entire company.

What makes a useful metric?


• One that is a ratio instead of a cumulative value (time inclusive). New users per year instead of total users.

• Provides a percentage value of change periodically. Revenue increased 2% compared to this time last month.

• One that is easy to understand.

Important Metrics for Start-ups


• Metrics that represent:o Distributiono Engagemento Revenue

Distribution


• New users added last month, last six month growth rate: How are well are we growing the user base?

• Total user base, last six month growth rate: How important is our monthly growth compared to our total user base?

• Cost of customer acquisition, lifetime value, pay back period: Can we grow faster through paid acquisition? Are we acquiring customers profitably? How much can we afford to spend on new customers? How is this changing over time?

Engagement


• Active users, growth rate: Are we getting better at giving our customers what they want/need?

• % of users using top 3 key features in a given month: Are our product initiatives the right ones?

Revenue


• Revenue , Last six month revenue growth: Are we growing our revenue?

• Conversion to paid rate in that month/by cohort: How many users converted to paid? Are we improving our ability to convert customers to paid?

• Average spend per paying customer vs solo account: What is the impact of the account management team?

• Last month churn rate, Last six month churn rate: How well do we retain our customers?

• Burn rate: When are we profitable? When do we run out of cash? When do we need to raise?

Useful Links


• http://blog.kissmetrics.com/single-startup-metric/

• http://tomtunguz.com/your-startups-10-most-important-metrics

• http://www.forbes.com/sites/dailymuse/2013/04/18/3-metrics-that-really-matter-for-your-start-up/

• http://www.jagannemani.com/2011/11/29/why-innovation-metrics-need-to-be-different-from-other-business-metrics/

• http://www.slideshare.net/andreasklinger/metrics-for-early-stage-startups

• http://www.slideshare.net/sblank/why-accountants-dont-run-startups-041410?from_search=16

http://blog.kissmetrics.com/single-startup-metric/



http://tomtunguz.com/your-startups-10-most-important-metrics

http://tomtunguz.com/your-startups-10-most-important-metrics

http://www.forbes.com/sites/dailymuse/2013/04/18/3-metrics-that-really-matter-for-your-start-up/



http://www.jagannemani.com/2011/11/29/why-innovation-metrics-need-to-be-different-from-other-business-metrics/



http://www.slideshare.net/andreasklinger/metrics-for-early-stage-startups

http://www.slideshare.net/andreasklinger/metrics-for-early-stage-startups

http://www.slideshare.net/sblank/why-accountants-dont-run-startups-041410?from_search=16




Ways to Finance your Start-up

Before we begin…Starting a business is a big commitment, not just financial:- your time - your energy - your team

So, have an exit in mind before you start: - how long am I in this for? - why am I doing this? - what level of risk am I comfortable with?


The Start-up Funding Path...


Non-equity Financing1) Crowdfunding

2) Bootstrapping

3) Loan (Debt)


1) CrowdfundingIndividuals provide monetary support to start-ups who put

their ideas online.


2) Bootstrapping- Moore’s law - Psychological kick (effective money spending)- Business decision freedom - Easy exit options

- Cashflows are a must…

- Investment constraint (opportunities missed)

- Time restraint


3) Loan (Debt)- family & friends

- bank

- KIVA, etc.

- limited funds

- banks need predictability and knowledge

- Bankruptcy


Equity Financing 1) Seed funds

2) Seed incubators

3) Angel investors

4) Venture Capitalists…………………………………………………………………….5) Pre-IPO/buyout

6) Private Equity © IDEA Network 2013

1) Seed Funds- grant-funding- university seed funds- friends and family- angel investors - (venture capital)


2) Seed Incubators - seed funding + mentorship- 3 months program - launch event- usually $20K for you to launch your prototype, validate

and gain traction


3) Angel Investors - HNW individuals- successful entrepreneurs and technologists- work individually and invest their own money

4) Venture Capitalists- can exist in every stage of the start-up cycle (seed, early

stage, growth) - professionally managed team- invests for 3-5 yrs into a start-up- experience, contacts*crucial during exit/sell stage*

- stuck in a business for 3+ years - less control over business- VCs have an exit timeline


Question Time

Thank You

• This Week: o Jobs Movie at Southbank Cineplex starting 12:30pm

on Sunday. o Registration for UQU Entrepreneurial Competition will

open.

• Next Week: o 09-211 Professor Tim Kastelle, 6pm, Monday 2nd

September. Lean Startup and Business Models

IDEA Network Workshop 2 - Financial Concerns(Sam Keightley and Xue Angela Li)

Business

total user

month churn

month growth

seed funds

seed incubators

venture capitalists

angel investors

large companies