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The start-up metrics you must know, not to please VCs, but to keep your business afloat!

Andreesen Horowitz partner Benedict Evans has released a list of 16 start-up metrics that will help founders understand more about what to look out for when running their business. Whilst paying close attention to the metrics may also help to make start-ups more appealing to investors, Evans is at pains to point out, like Paul Graham before him, that rapid growth, not ability to raise money, is the hallmark of a real startup.

Amongst others, Evans discusses:

The difference between bookings and revenue; a booking represents the value of a contract between company and customer, however revenue is only recognised when the service has actually been provided or “ratably over the life of the subscription agreement”. For complete guidance, Evans advises that revenue is recognised by GAAP (generally accepted accounting principles), and that letters of intent and verbal agreements can be counted neither as revenue, nor bookings.

Pay close attention to your burn rate; otherwise defined as the rate at which your cash is decreasing, obviously a company cannot survive for long if they are running out of cash and haven’t set aside sufficient time for a fundraising. A simple way to calculate cash burn is to subtract the cash balance at the beginning of the year from the cash balance at the end of the year, and divide by 12. But don’t forget net burn; revenues including all incomings you have a high probability of receiving – gross burn; gross burn should be calculated as your monthly expenses plus any other cash outlays. Net burn helps investors understand how much longer you can continue to run the company based on your cash at bank.

Don’t try to pull the wool over investor’s eyes with chart tricks! These include (but are not restricted to) not labelling the Y axis, describing percentage gains without revealing the underlying numbers (100% growth in users sounds impressive, but what if you have moved from 1 user, to 2?). According to Evans, almost all cumulative growth charts go “up and to the right”, but this is not in itself an indicator of a company’s health. Very often charts go up and to the right even while growth is shrinking.

Find the full list here: http://a16z.com/2015/08/21/16-metrics/

 

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