Do You Know How Your Business Is Performing?Back to home
One thing that’s more common than most people realize is early-stage founders not having the data they need to understand how their business is performing. For example, I talked with a real estate founder with multiple properties. I asked how he knows how each property is performing. He doesn’t, he said. He does back-of-the-napkin math on rent and expenses. I’ve talked with other early-stage software founders who don’t have a great handle on their customer conversion rate, customer acquisition cost, or, sometimes, how much runway they have left.
Early-stage founders have limited resources, so it’s not realistic to expect them to precisely measure and understand every data point in the business. But it does make sense to pick two or three that really matter. The highest-priority one should be financial. Businesses fail because they run out of cash. You always want to understand your cash position and its trajectory. For nonprofitable or pre-revenue businesses, understanding your revenue is critical. Knowing how many months you can plan before the bank balance hits zero is key. For profitable businesses, review your profit and loss statement and balance sheet monthly to understand what’s contributing to (or detracting from) your profitability and how much net cash you have on hand. If you’re not a numbers person, there are plenty of firms who can help pull these numbers together and explain them to you.
As we head into 2023, early-stage founders should be mindful of what numbers tell them about how their business is performing. Hint, hint . . . every founder should keep their finger on the pulse of their cash.