This is a follow up to my prior post ‘Do you need a Financial Plan to Raise Seed Capital?’
I had a number of entrepreneurs ask me what I meant when I described investors wanting to see that the entrepreneur understands the levers of their business. Specifically, people have asked about the “levers” of your business. Simply put, the “levers” are the critical factors that make your business run.
In an Internet media or SaaS company, they might be:
- Arrivals (consumers or B2B prospects who land on your web site)
- Conversions (number of people who sign up for your site)
- MAU, DAU (Monthly active users, Daily active users)
- Monetization- How do you (plan to) make money from your users? advertising (CPM, sponsorship), premium subscriptions (% who subscribe, price point). What are the assumptions here? Are they reasonable given other similar businesses?
- Churn- how many users leave the service
- Marketing Costs- how do you get users to know about you? Paid advertising? SEO? Social media? Costs of development? Costs of advertising?
- Sales expense- If you’re a SaaS business, do you plan to use sales people or are you freemium? If you use sales people, what will you pay them? How long will they take to ramp up? What quota will they carry? Will you upsell these customers? David Skok of Matrix Partners has written some great, in-depth blog posts about SaaS scaling here.
There can be a ton of complexity if you allow it. To reiterate a point from the prior post, the point is NOT that you have a complex 5 year financial model. It will certainly be wrong, and investors know this. The point is that you have a handle on the KEY metrics that will allow your business to grow rapidly.