How Startup Founders can Effectively Manage Your Burn Rate
A lot has happened in the last couple of years. We’ve learned a lot of hard lessons. This mark is crazy. I mentioned a little bit about it in my compliance video. I want to go a little bit deeper. A few case studies from some things I’ve seen in the market in the last 24 months.
One, your numbers are growing fantastically well. You’ve struck gold in your target demographic. But, you weren’t aware that the incumbent, whether it be a bank or a telco, is launching the exact same product and doing a massive marketing campaign. And overnight, you go from 100,000 MRR to 15,000. You didn’t anticipate the power of the competition.
Another case study. You have a channel partner. In order for your product to be delivered to your end user, it has to go through a third party. For some reason, that platform shuts down your access, whether they perceive you as a potential competitor, or they just don’t like how much traffic is running through your platform. Worst yet, they decide to quintuple their expenses because they realize you need them in order to get your product to your consumer.
Here are a few things that founders miss as they’re going about focusing on the gold. Just because you have consistently growing core metrics does not mean you are entirely safe. That’s when you need to be most alert. How is my competition doing? How is the product getting into the hands of my target consumers? Do I have channel risk? As in, do I only have one service provider who’s getting my product to the end user? Always make sure you are diversifying your suppliers or your marketplace partners.
Are you paying attention to your churn and your burn? I can tell you as an investor, Just because you have incredible new growth does not mean we are going to move forward. I want to see organic growth in this market. Is your product is so good that other people are recommending it? As in, you don’t have to pay for your new users to come on the platform. Your CAC, or Customer Acquisition Cost, makes sense. It’s lower than your LTV, as in what it costs to get a consumer is less than what you make from that consumer. It’s really great. Say you have a B2C Syntech and your adoption is high and people month over month are attracted to and downloading your product and maybe even funding their wallets or using the product in whatever capacity. But 3 months later, what’s their balance? Have they churn? Are they dormant? Are they still referring you to other players? Those are what’s most important to manage your burn, especially in this market. Decrease your marketing expenses. Invest in product and your team. Make sure you have the right people in place to stabilize your customer base and defend and protect your brand.
Also, so important, something that early stage founders miss. Make sure you are building out your financial models, and accounting for all of your potential expenses. And monthly, you need to be reviewing your financial statements. What is your gross revenue? What is your net revenue? What are your expenses, and are they growing month over month?
Do you have the requisite team in place to scale your business? Do you have at least 18 to 24 month runway in this market? If not, how can you decrease your burn? That means decrease marketing, take non-essential hires out of the organization, maybe decrease to an equal quality but lower cost server. Make sure you’re considering all these things. In a down market, we remove non-essentials.
If this was useful, I’d love it if you could use your tips and tricks and leave them in the comments so others can learn from you. And also apply at www.ingressivecapital.com for funding now, thank you and happy saving.
