Two Things Needed To Get Funding
MRR & DDP — The three letter acronyms of traction and planning.
Traction is a business buzzword, especially in the VC universe. It has a simple enough definition, doesn’t it? Of course, it really isn’t literal. It is metaphorical. But it is a metaphor that could be taken a bit deeper. In doing so, we can tie together the two most important things for a young company to get funded — MRR & DDP. Monthly Recurring Revenue (MRR) is synonymous with traction in the VC universe. Data-Driven Planning (DDP) is less so… but this article will show you why that needs to change.
The definitions above share a less obvious common element, one that is often ignored in our obvious metaphor. I guess it is the road less traveled. Being more direct, you want to show your investors that you have traction. You also want to show them the road! If it isn’t clear yet, the road is a metaphor for a plan.
Sitting through numerous pitches, I have watched quite a few founders stumble when their revenue model was called to task. In their mind, they were presenting robust (if early) growth. But investors were quick to notice that some of their revenue seemed out-of-place. It was revenue that appeared outside the true business model. It wasn’t on the road.
Off-roading is a great hobby, it is a tremendously risky way to build a business. If you want to get the most from your MRR, you want to show your investors that it sits firmly on the road you are following.
Stepping away from the metaphors, you want to combine solid recurring revenue with a clearly defined data-driven plan (or road map). This adds better weight to your traction and builds the perception of maturity. Remember, investors are buying into your future. The road map is the best tool you have to show just what your future can be. Coming back to the metaphor — your traction speak to the speed you are likely to get there.
So what exactly is Data-Driven Planning?
At the risk of over-simplifying, DDP is simply the act of recording how you got your MRR and projecting it forward. It is an exercise in data collection, quantification, and forecasting. It ties together customer discovery, your sales pipeline, your investment plan, and your financial… when you do it right.
Data-driven is a buzzword for companies of all sizes. It is interesting that again — driven is highly illustrative of our road metaphor. I have written a lot of article helping people understand the true nature of data-driven. Summing it up — it is a discipline of learning and a plan for excellence.
Do I need a highway infrastructure budget to build it?
When you do it right… if you get the right support… the answer is clearly no. Data-Driven Planning is not a process that takes weeks and months. It does require some very targeted discussions. If you don’t have the right experience, you are liable to waste significant time falling into potholes (keeping without metaphor). Either get help or endure a rough ride.
The better question — will investing in a data-driven plan really help?
Once again — done right — right support — absolutely. In my experience, a start-up with a good DDP is about 3x more likely to be funded. Now that is very “lose” claim. Recognize that DDP is no substitute for traction. It can be in some situations, but by-in-large DDP amplifies MRR. If your business has traction, having a plan matters a lot!
Bringing this to a close, MRR and DDP are highly related. This is especially true for funded and fund-able companies. But beyond funding, both are also the cornerstones of future growth. DDP is where you are headed. MRR is how fast you will get there. Focus on traction, but invest in a plan.
For help consider:
This story is published in The Startup, Medium’s largest entrepreneurship publication followed by +398,714 people.
Subscribe to receive our top stories here.
