“Startups that are searching for a business model need to keep score differently than large companies that are executing a known business model.
Yet most entrepreneurs and their VC’s make startups use financial models and spreadsheets that actually hinder their success.”
As a former “bean counter”, I understand the need for GAAP compliant statements for reporting to the tax man. However, as an entrepreneur and coach to multiple startups, I also realize how futile “getting the numbers ready” for board or VC review is. I’ve witnessed a company nearly die because they fretted so much and spent all their time working on “the numbers.”
The key here is FOCUS. Yes, someone needs to keep the statements up-to-date, but these standard statements are next to useless in helping the entrepreneur or its VC track progress. Think about it, what’s the point of tracking income month-to-month when…um…there is none? And, even worse, everybody in the room knows and agrees that there will not be any in the near future!
The focus of metrics for a startup should be to see if the concern is growing and moving in the right direction towards profitability. Track things that matter to this goal and adjust the business model to move towards profitability. Track things like whether there are more paying customers every period, the customer retention rate, how fast you’re burning through cash reserves/months of cash left, cost to acquire and keep a customer, web metrics, etc.
Check out Steve Blank’s post. It is a worthwhile read whether you’re a entrepreneur or a VC.
Snaps from around the office