Are You Telling the Right Financial Story About Your Startup?

Also shared on Startups.co.

One big critique of today’s startup environment is the heavy focus on valuation, on users, and downloads, and not enough clarity on the actual numbers that underlie the health of a company.

But one thing is undebatable: Companies with a very clear financial story succeed. Gillian Munson, CFO of the XO Group, sat down with the SheWorx community and discussed how you should be thinking about financials and how to best use numbers to tell the story of your company.

BE MILESTONE-DRIVEN

Young companies often get mired in the smaller day-to-day details that can overwhelm and overtake the bigger picture. Make sure to take a step back and assess your milestones. Ideally, you should be able to say to any investor: “Here’s where we’re going, we plan to have the company grow 20% month over month, and when we get there, here’s where we’re going next.” Use the story of your numbers to motivate your team as well. Make sure everyone in your organization down to your secretary is on the same page and knows that when the company gets to X, then the next phase will be to get to Y.

ACKNOWLEDGE DIPS IN YOUR FINANCIALS

Some companies, due to seasonality, market shifts, or any other number of factors, will inevitably experience dips. Because we’ve become accustomed to seeing the popularized hockey stick growth curve, it may feel demoralizing when you can’t model out this kind of growth in your own company right away. Realize that this is okay, and weave it into your numbers story. If your company peaks during only a few points in the year, then own that seasonality. Acknowledge the dips, but focus on maximizing the peaks.

HAVE PEOPLE PLAY BACK YOUR FINANCIAL PITCH

While your pitch may be very clear to you, you’d be surprised what other people actually hear. Before going to an investor, practice giving someone your financial pitch, have them repeat the big takeaways and poke holes in your financial model.

SHOW A REASONABLE AMOUNT OF GROWTH THAT IS REALISTIC YET INSPIRING

Always round up, but the best way to lose credibility is if you say $5M but only do $2.5M. It may be passable if you say $2.5M and you do get $1.75M, but regardless, have a realistic financial story, and goal. When you follow through and make it happen that’s how you build credibility and gain trust.

FIGURE OUT WHAT YOUR REVENUE STREAM IS AS SOON AS POSSIBLE

If you don’t know what business you’re in, you won’t have a business, especially when shit hits the fan (in the market). Cash flow is king in any business.

FINALLY, NOT EVERY BUSINESS NEEDS TO RAISE MONEY

Know what your company can actually do, and ask yourself if you really need to raise money right now. An ecommerce business that is making $1-$2M in sales organically may not need the additional infusion of investor money immediately. When you take money you are giving away a big part of your company early on and you will have to grow your company to a level that will allow your investors to get a return from their investment. Look at the story your numbers are telling you, and decide if the story arc really requires an outside narrator.

STUDY COMPANIES THAT HAVE DONE IT WELL

For those interested in legacy tech companies, Dell and Cisco are great case studies to examine. Dell focused clearly on:

1.) Liquidity

2.) Profitability

3.) Growth

…and framed everything the company did under these three tenants. They realized asset velocity mattered and created what is known as a negative cash conversion cycle; in effect, they figured out how to collect cash for their computers before they had to pay for the cost of building them. Cisco is a prime example of successful milestone driven strategies. They focused on very clear growth goals in a given time period and based every next step on achievement of these goals. For recent examples, study how Grubhub and LinkedIn have positioned their products for successful growth trajectories.

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