SlideShare a Scribd company logo
Financial modeling for
startups
Gaza Sky Geeks - January 2017
Julie Robles - Program Coordinator at Campus London, a Google space
1. Why
2. What
3. How
4. Examples
5. Demo
6. Tracking and testing
1. Why
2. What
3. How
4. Examples
5. Demo
6. Tracking and testing
Why are we creating a financial model?
Compare different revenue models (subscription, one-time purchase, ads…)
- Visualise the break even points
- Understand the effort you have to reach break even
Identify your growth key metrics
- What is directly impacting your revenues
Identify the hypotheses you should focus on
- What are the impact of a modification
- What is the cost of that modification

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Growth hacking and Growth Channels for Startups Murat Aktihanoglu - June 2018
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144 pages on Growth Hacking, Growth Channels, Acquisition, Conversion, Retention and steps to Organic Growth for Startups.

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This document provides guidance on writing an effective business plan for a startup company. It outlines key elements that should be included in a business plan, such as an executive summary, product or service description, management team, market analysis, marketing and sales strategy, organizational structure, implementation timeline, opportunities and risks, and financial projections. Checklists of questions are provided for each element to guide startup founders in developing a comprehensive yet concise plan that will convince potential investors or partners.

Focus on what matters
A few revenues models and their growth key metrics
Ads: fee per page print
- Number of pages viewed
Subscription: fee per week/month/year
- Number of customers
- Customer Lifetime Value
Marketplace: commission/fee per transaction
- Number of transactions on the platform
- Value of the transaction
1. Why
2. What
3. How
4. Examples
5. Demo
6. Tracking and testing
What is a financial model
- Be broad, to get a better understanding of the company you will build
- It helps investors visualise your business plan and its key metrics
- It is NOT your cashflow sheet
- You can start from scratch and design your own
- Great understanding of the mechanics behind it
- Take more time
- You can use a template
- Quick and easy start
- Have to customise it to your business

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The document discusses the importance of defining and managing startup metrics. It recommends that startups track 7 key metrics: cash, product, marketing, sales, customers, support, and team. Tracking these metrics through a management dashboard allows startups to inspect their progress and address issues early. The document provides examples of specific metrics to measure under each category and guidance on building and using a dashboard to monitor metrics that matter and guide the business.

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The questions you will work on
- How do you acquire customers?
- What is the sales cycle like?
- What is the cost of acquisition of your customers?
- What are your unit economics? Do they improve with scale?
- What is the path to profitability?
- What could go wrong with this approach?
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scale?
1. Why
2. What
3. How
4. Examples
5. Demo
6. Tracking and testing
Step 1 - Hypotheses
List the hypotheses
- Initial number of customers
- Growth (% or units)
- Revenue channel
- Price
- Churn (how long a customer will pay you for)
- Cost of customer acquisition
Build your model so you can change those value only in one place
Hypotheses in one place only

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It is a workbook proposed for performing an exercise for designing a business model during the pre-event workshop of Startup Weekend Surat held on 04-07-2107 at BMEF Seminar Hall, Vesu, Surat (Gujarat, India)

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Step 2 - Conversion metrics
Where you should spend your money
Acquisition is key, but retention makes more money
To estimate hypotheses (% growth…):
- You can start with sample values, and look for your industry trends
- Look at your competitors
- But your first goal is to validate those with real world data
Source: Startup metrics for Pirates
Step 3 - Play with it and draw conclusions
Monthly view: helps to understand the operations of your company
Yearly view: gives an long term overview
Have a low scenario (conservative) and a high scenario (ideal)
- The ideal scenario is what you estimate will happen
- The conservative scenario is when everything go wrong
Monthly overview

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Yearly overview
1. Why
2. What
3. How
4. Examples
5. Demo
6. Tracking and testing
Example 1 - “ The Napkins Maths” - Hypotheses
Self-organised meetups for students: 20-min meetup, 5 students, $5 per participant
A student would go to 3 meetups in a year and leave the platform
Revenue model
- 20% commission = $1 per student per meetup
Objective
- Make $2000 of monthly revenue in 6 months
Example 1 - “ The Napkins Maths” - Conclusions
Objective = make $2000 of monthly revenues in 6 months
20% commission, a student would go to 3 meetups in a year and leave the platform
- Customer Lifetime Value = $3
- Monthly value = $0.25
They need 8 000 active students on their platform which means at least 16 000
signups if we consider that 50% of the user base is active (really high)
And that is ignoring all the costs (website, marketing…)

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The document discusses key metrics that startups should track to measure success. It recommends tracking 7 top metrics: 1) Cash/burn rate/runway, 2) Product progress and user feedback, 3) Marketing metrics like qualified leads and viral growth, 4) Sales metrics like productivity and conversion, 5) Customer metrics like growth, acquisition cost and lifetime value, 6) Support metrics like satisfaction, and 7) Team metrics like alignment and performance. Startups should create a management dashboard to regularly monitor these metrics, and use monthly reports to facilitate accountability and learning. Tracking the right meaningful metrics flexibly is important for validating and scaling the business model.

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They wanted to compare two revenue models
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Example 2 - “The Marketplace” - Hypotheses
Example 2 - “The Marketplace” - Monthly overview
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2. What
3. How
4. Examples
5. Demo
6. Tracking and testing
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http://bit.ly/2jhKGjS
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Hypotheses
Hypothesis = assumption
“ I assume my user is a mom with 5 kids”
“I assume my user is going to spend 10 minutes on my app everyday”
“I assume my customer is ready to pay $10 per month for my service”
Test your assumptions, validate your conclusions
You know what has an impact on the business, now go validate the values
- Revenue model
- Price
- Channel
- Growth
- Retention
Track data and update your model
See if you go in the right direction

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Dive deeper into you Customer Life Cycle
5 big steps of your Customer Life Cycle:
1. Acquisition
2. Activation
3. Retention
4. Referral
5. Revenues
Choose 5 (max 10) metrics you estimate are key to your business and track them
Tracking KPI
Source: http://bit.ly/kpi-sheet
A. What do you track
B. How do you test
Infinite testing options
Analyse
- Quantitative (analytics)
Ask
- Qualitative (interviews)
Observe
- Qualitative (focus groups)
- Comparative (A/B test)

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Building a test
Tracking is monitoring the evolution AND validating/invalidating the test
- What is success for you?
- It could be growing, but not fast enough
- Define a budget and a deadline
When you don’t have data/userbase, look at your competitor
- How did his pricing evolve?
- How did his marketing messaging change?
Test everything, but not at once
Drawing conclusions
Source: http://bit.ly/kpi-sheet
What does it costs to focus on the wrong metric?
[Yes I’m looking at you guys, Pages Views and Number of Downloads]
- Hosting a website
- Marketing campaigns
- Community Manager/Business Developer
- Producing content
- ...
BUT ALSO
- Bad reviews (lower tolerance for free stuff)
- Conflicting feedback (they want features they will not pay for)
- Founders’ time: time you didn’t spend growing your business
$1 spent should help you make $2
(at least)

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Your model is a compass
Update and see if you go in the right direction
Thank you, any question?
Resources
My financial modeling template: http://bit.ly/2jhKGjS
More detailed financial modeling template: http://bit.ly/2iqT64e
Answer These Important Questions Before Fundraising
Startup metrics for Pirates
Why traffic doesn't always matter (and what to focus on instead)
Tracking template: http://bit.ly/kpi-sheet and its explaination

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Financial modeling for startups

  • 1. Financial modeling for startups Gaza Sky Geeks - January 2017 Julie Robles - Program Coordinator at Campus London, a Google space
  • 2. 1. Why 2. What 3. How 4. Examples 5. Demo 6. Tracking and testing
  • 3. 1. Why 2. What 3. How 4. Examples 5. Demo 6. Tracking and testing
  • 4. Why are we creating a financial model? Compare different revenue models (subscription, one-time purchase, ads…) - Visualise the break even points - Understand the effort you have to reach break even Identify your growth key metrics - What is directly impacting your revenues Identify the hypotheses you should focus on - What are the impact of a modification - What is the cost of that modification
  • 5. Focus on what matters
  • 6. A few revenues models and their growth key metrics Ads: fee per page print - Number of pages viewed Subscription: fee per week/month/year - Number of customers - Customer Lifetime Value Marketplace: commission/fee per transaction - Number of transactions on the platform - Value of the transaction
  • 7. 1. Why 2. What 3. How 4. Examples 5. Demo 6. Tracking and testing
  • 8. What is a financial model - Be broad, to get a better understanding of the company you will build - It helps investors visualise your business plan and its key metrics - It is NOT your cashflow sheet - You can start from scratch and design your own - Great understanding of the mechanics behind it - Take more time - You can use a template - Quick and easy start - Have to customise it to your business
  • 9. The questions you will work on - How do you acquire customers? - What is the sales cycle like? - What is the cost of acquisition of your customers? - What are your unit economics? Do they improve with scale? - What is the path to profitability? - What could go wrong with this approach? - Can you walk me through the supply chain? How does this optimise with scale?
  • 10. 1. Why 2. What 3. How 4. Examples 5. Demo 6. Tracking and testing
  • 11. Step 1 - Hypotheses List the hypotheses - Initial number of customers - Growth (% or units) - Revenue channel - Price - Churn (how long a customer will pay you for) - Cost of customer acquisition Build your model so you can change those value only in one place
  • 12. Hypotheses in one place only
  • 13. Step 2 - Conversion metrics Where you should spend your money Acquisition is key, but retention makes more money To estimate hypotheses (% growth…): - You can start with sample values, and look for your industry trends - Look at your competitors - But your first goal is to validate those with real world data
  • 14. Source: Startup metrics for Pirates
  • 15. Step 3 - Play with it and draw conclusions Monthly view: helps to understand the operations of your company Yearly view: gives an long term overview Have a low scenario (conservative) and a high scenario (ideal) - The ideal scenario is what you estimate will happen - The conservative scenario is when everything go wrong
  • 18. 1. Why 2. What 3. How 4. Examples 5. Demo 6. Tracking and testing
  • 19. Example 1 - “ The Napkins Maths” - Hypotheses Self-organised meetups for students: 20-min meetup, 5 students, $5 per participant A student would go to 3 meetups in a year and leave the platform Revenue model - 20% commission = $1 per student per meetup Objective - Make $2000 of monthly revenue in 6 months
  • 20. Example 1 - “ The Napkins Maths” - Conclusions Objective = make $2000 of monthly revenues in 6 months 20% commission, a student would go to 3 meetups in a year and leave the platform - Customer Lifetime Value = $3 - Monthly value = $0.25 They need 8 000 active students on their platform which means at least 16 000 signups if we consider that 50% of the user base is active (really high) And that is ignoring all the costs (website, marketing…)
  • 21. Example 2 - “The Marketplace” Marketplace for startups to hire technical talent They wanted to compare two revenue models - Subscription based - Success fees
  • 22. Example 2 - “The Marketplace” - Hypotheses
  • 23. Example 2 - “The Marketplace” - Monthly overview
  • 24. Example 2 - “The Marketplace” - Yearly overview
  • 25. 1. Why 2. What 3. How 4. Examples 5. Demo 6. Tracking and testing
  • 27. So, what the connection with the real world?
  • 28. 1. Why 2. What 3. How 4. Examples 5. Demo 6. Tracking and testing
  • 29. A. What do you track B. How do you test
  • 30. A. What do you track B. How do you test
  • 31. Hypotheses Hypothesis = assumption “ I assume my user is a mom with 5 kids” “I assume my user is going to spend 10 minutes on my app everyday” “I assume my customer is ready to pay $10 per month for my service”
  • 32. Test your assumptions, validate your conclusions You know what has an impact on the business, now go validate the values - Revenue model - Price - Channel - Growth - Retention Track data and update your model See if you go in the right direction
  • 33. Dive deeper into you Customer Life Cycle 5 big steps of your Customer Life Cycle: 1. Acquisition 2. Activation 3. Retention 4. Referral 5. Revenues Choose 5 (max 10) metrics you estimate are key to your business and track them
  • 35. A. What do you track B. How do you test
  • 36. Infinite testing options Analyse - Quantitative (analytics) Ask - Qualitative (interviews) Observe - Qualitative (focus groups) - Comparative (A/B test)
  • 37. Building a test Tracking is monitoring the evolution AND validating/invalidating the test - What is success for you? - It could be growing, but not fast enough - Define a budget and a deadline When you don’t have data/userbase, look at your competitor - How did his pricing evolve? - How did his marketing messaging change? Test everything, but not at once
  • 39. What does it costs to focus on the wrong metric? [Yes I’m looking at you guys, Pages Views and Number of Downloads] - Hosting a website - Marketing campaigns - Community Manager/Business Developer - Producing content - ... BUT ALSO - Bad reviews (lower tolerance for free stuff) - Conflicting feedback (they want features they will not pay for) - Founders’ time: time you didn’t spend growing your business
  • 40. $1 spent should help you make $2 (at least)
  • 41. Your model is a compass Update and see if you go in the right direction
  • 42. Thank you, any question?
  • 43. Resources My financial modeling template: http://bit.ly/2jhKGjS More detailed financial modeling template: http://bit.ly/2iqT64e Answer These Important Questions Before Fundraising Startup metrics for Pirates Why traffic doesn't always matter (and what to focus on instead) Tracking template: http://bit.ly/kpi-sheet and its explaination