This is an anonymous post from an Elpha member.

I have no idea what I’m doing. Please offer perspective.

Adella211·Sep 04, 2022

Posted in:Advice

I’m the CEO of a startup. We are a portfolio company with a local Venture Studio. We have $300,000 of revenue in the bank. I don’t have cofounders. My burn rate is $10,000 a month. $2,000 revenue. Launched in June. Here’s the problem.

I have no idea what this means. Is this early stage company I’ve been asked to grow in a good position based on those numbers? Or is this a company that they are pretty sure is going to fail?

I know that I’m lucky to be affiliated with this venture studios but this is the most honest I’ve ever been. I’m having sever imposter syndrome. I have no idea what I’m doing.

Please offer perspective.

Lucile76·Sep 05, 2022

I'd say:All startups are likely going to fail :)It seems like you're in a good position though because you have 30 months of runway.Next up:– I'd want to try and get to profitability to give you as much flexibility as possible– I'd also look at growth and retention for your product. Are you acquiring new customers? Are those customers sticking around?I'd also encourage you to talk to your investors about what success metrics they want to see from you to raise your next round. Good luck!

Reynalda7·Sep 05, 2022

I'd add to what Lucile76 saidThere are some additional metrics you might want to considerYou have 300k revenue in the bank. With what looks like 24k in annual recurring revenueWhat is the cost of acquiring customers and is that scalable?What are the growth rates of your revenue and your expenses?Do you have a resource on financial modeling?On the imposter syndrome (which everyone I know faces), are there skills or knowledge that you feel you don't have and could close the gap on? You didn't get to 300k in the bank and a recurring revenue model by luck. You do know something.If you put some more context around those numbers, you may feel the picture is more clear.

Tillie207·Sep 06, 2022

Your burn feels extremely high compared to what you bring in every month (and that's usually the case but in this case you spend 5 times what you make), and that's a cause of concern in my opinion. I'd probably dig in more into what is the biggest source of spending to date. And where you can cut off (some ideas, salary cut across all and perhaps a bigger cut for you the CEO which I know is not ideal, have everyone report what they're doing and how it's considerably moving the needle for the business, anything that's not immediately additive should probably be paused for now) As for the venture studio: it is hard to tell how they fill or where they see you in the portfolio, but one way to think about it is the market in which you currently play: if it's something that businesses continue to pay for, then you're in a good place, however if it's something most businesses will start cutting, it might be time to think about a pivot, onboarding new customers, or focusing on existing one via upselling.

Filomena21·Sep 06, 2022

Congrats on having recurring revenue! Your objective right now should be to grow revenue rapidly and/or to figure out if you can make your unit economics work, which will determine whether larger investors will find your business compelling enough to invest more money into for a seed round (you would be perceived as preseed right now).You want your Customer Lifetime Value (CLTV) to exceed your Customer Acquisition Cost (CAC). Ideally, disciplined investors look for your ratio of CLTV/CAC to be at least 3x. It's even better if a customer's YEAR 1 revenues exceed their CAC. If you can do this, or even just get to a stage demonstrating that this is highly likely, then investors will be interested and they will only look at your burn rate in order to understand how large your next round should be.To give you an example, let's say that you are a B2B SaaS company selling software that customers pay $105/month for, and let's say that the marginal cost of the software for each extra customer is $5/month. So your net margin per month would be $100, and then you'd want to look at the average total number of months that your customers keep using the product. If there's a monthly churn rate of 5%, your CLTV would be $100 divided by 5%, or $2,000 (there are a variety of formulas — you can Google to find other examples).So then, using this same example, your CAC would be calculated based on salaries of the salespeople, which in this case is just you. So maybe you are paying yourself a $50,000 salary, and it took you 3 months (June, July, August) to sell to 20 customers. You'd divide $50,000 by 80 (annualized number of customers, or 20 customers/quarter x 4 quarters/year) and get a CAC of $625. That said, you are paying yourself a below-market salary, so you'd have to factor in what the market salary is for a salesperson in your area. Keep in mind also that salespeople can make lower salaries and can have some of their On-Target Earnings (OTE) tied to how well they perform and how much they sell.Finally, given this example, you'd calculate CLTV/CAC as $2,000 divided by $625, or 3.2x. Those would be excellent unit economics! The idea is that you could raise a bunch of money to hire salespeople, and for every $1 million paid to sales people, the business would make $3.2 million in profits (which could be used for infrastructure investments into engineers to build/improve your software, for example).The calculations are a bit different if you are running a B2C business rather than a B2B business (if you want an example of that, let me know in a reply and I can give you one).Everything I've just described is assuming things are running smoothly, but almost no startups actually do this on a linear path. Part of what you are supposed to do with the $300k is to work your way to figuring out these numbers. Some companies don't figure out their unit economics until they are a Series C company. In the case of WeWork, no one even pointed out that the unit economics didn't work until they were TRYING TO GO PUBLIC IN AN IPO. So you can also use a big personality (like the WeWork founder) or super-high revenue growth to raise more money even if you haven't figured out your profitability yet.I'd suggest that you apply to Y Combinator. If you are a female founder with revenue, hopefully they will interview you, and even if you don't get in, just try to get to the interview so that you can get free feedback from smart people on what to work on in your business.It sounds like your Venture Studio potentially sucks, because they should be giving you advice and resources, or at least access to networks of smart people. It's possible that it is a vanity project for them and they just want to be able to say that they are investing in female founders for PR reasons without actually doing anything helpful. So you have to take the money and run!p.s. Keep in mind that what I wrote is what "disciplined" investors look for. There are also tons of undisciplined investors just throwing money around who aren't going to ask about this stuff. Unfortunately women don't always get the benefit of the doubt, so it's good to at least brainstorm answers to these types of questions.

ChelsieHall·Sep 06, 2022

At the end of the day, realize you don’t need to be profitable yet. There are lots of metrics that you can obsess over right now depending on what type of business you have, but you are in the early stage and really just need to find product market fit. I’d fine tune my metrics soon, but start out laser focused on understanding and focusing on who you are building for, and solving a real and valuable problem for them with a big market size. That’s it. I am a startup CEO just finding product market fit, and a lot of the advice I got I wish I hadn’t listened to.

Filomena21·Sep 06, 2022

100% agree with this! (Also a startup CEO.) I don’t like some of the advice from others here about OP cutting spending ($10k per month is INCREDIBLY lean), or about expecting to fail (self-fulfilling prophecy).

costanzacarissimo·Sep 06, 2022

As a VC, fully agree with this advice! Do ask explicitly the venture studio what they expect for a new round to happen, as they know your business well and will have more specific advice.

rachelserwetz·Sep 06, 2022

@Adella21, I'm a bootstrapped first time solo founder of almost 5 years now. I'm curious why there's so much revenue in the bank but the burn rate is 5x higher than monthly revenue? At first glance without understanding the 300K, I'd focus on getting revenue higher so you're not burning 5x more than you bring in. If you'd benefit from thinking out loud and having some coaching support let me know - I coach entrepreneurs as well as professionals dealing with any career goals or challenges. My profile has info on where you can get in touch with me!

Filomena21·Sep 06, 2022

I’m guessing OP mistyped that and meant $300k of cash on the balance sheet rather than actual revenues?