Gaza Sky Geeks 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

16. Monthly overview

17. Yearly overview

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

26. Demo
http://bit.ly/2jhKGjS

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

34. Tracking KPI
Source: http://bit.ly/kpi-sheet

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

38. Drawing conclusions
Source: http://bit.ly/kpi-sheet

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