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Startup Revenue Models and Forecasting- WTIA

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Washington Technology Industry Association Startup Cohort. July 18, 2019. Chris Dishman, Denali Financial and Dave Parker, WTIA Startup Program Chair

Veröffentlicht in: Business
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Startup Revenue Models and Forecasting- WTIA

  1. 1. Copyright DKParker, LLC 2018 Revenue Models and Forecasting Dave Parker @DaveParkerSEA www.dkparker.com/blog Dave@dkparker.com Chris Dishman chrisd@denalifc.com www.denalifc.com
  2. 2. Copyright DKParker, LLC 2018 Agenda ¤ Outcomes for the day: ¤ Template w/ Key Inputs ¤ Use Cases ¤ Key Metrics ¤ Common mistakes ¤ Rolling up your sleeves!
  3. 3. Copyright DKParker, LLC 2018 About About Dave ¤ Context – Dave ¤ Use Cases ¤ Marketing Funnel ¤ 16 Startup Revenue models - with metrics ¤ Inc 500 Data About Chris ¤ Models – Chris ¤ Telling a financial story ¤ Mapping your model to your deck (and keeping them in sync) ¤ Financial models ¤ Forecast vs. actual ¤ Common Mistakes
  4. 4. Copyright DKParker, LLC 2018 Business Model Breakdown Creating Value - Product or Service Delivering Value - Marketing & Sales Capturing Value - Reasonable to Exceptional Profit
  5. 5. Copyright DKParker, LLC 2018 Use Cases Why do a financial model ¤ Scoping the business – should you do this? ¤ Fundraising requirements ¤ Pre-Product Market Fit/Post-Product Market Fit
  6. 6. Copyright DKParker, LLC 2018 Key Metrics ¤ Assumptions ¤ Staffing ¤ Timing ¤ Product Pricing ¤ Timing ¤ Pricing ¤ Sales ¤ Scaling past founder ¤ Time to close ¤ Marketing
  7. 7. Copyright DKParker, LLC 2018 Marketing Funnel Breakdown ¤ Time to Close ¤ Marketing Activities ¤ Channels ¤ Monthly Spend ¤ Attribution ¤ Marketing Qualified Leads (MQLs) – Conversion ¤ Sales Qualified Leads (SQLs) – Conversion ¤ Customers
  8. 8. Copyright DKParker, LLC 2018 OrganicSearch PaidSearch WordofMouth SalesCalls PR Miracles! TimetoClose Month1 Month2 Month3 Month4 $ Spen d # Conv # Conv # MRR Time
  9. 9. Copyright DKParker, LLC 2018 Revenue Models– Pick One or Two • Fee for Service 1. Commerce 2. Subscription 3. Transaction Fee/Rental 4. Productize a Service 5. Combinations 6. Marketplace 7. Lead Generation 8. Gaming 9. Advertising/Search 10. New Media 11. Coins & Tokens 12. Multi-sided Marketplaces 13. Big Data 14. Panels 15. Licensing
  10. 10. Copyright DKParker, LLC 2018 Top Templates ¤ Subscription ¤ Recurring revenue, churn, ARR/MRR, LTV:CAC ¤ Transaction Fee/Rental (can be used for Commerce) ¤ Avg transaction amount, % fee, # transactions/mo, LTV:CAC ¤ Productize a Service – people required to deliver some portion of the service ¤ Split % between product services, avg revenue, GM by segment ¤ Marketplace ¤ Two funnels, avg trans, % fee, 2X LTV:CAC
  11. 11. Copyright DKParker, LLC 2018 2. Subscription ¤ Example: Salesforce , Box, Spotify ¤ Use: B2C & B2B ¤ Key Metrics ¤ Average Revenue Per User (ARPU) ¤ Conversion ratio – e.g. trial to purchase ¤ Churn ¤ Challenges: MVP won’t be enough to be Kick Ass Product ¤ Notes: Highest multiple, forecastable revenue
  12. 12. Copyright DKParker, LLC 2018 3. Transaction Fees/Rental ¤ Example: 99Designs, KickStarter, Elance, Chugg ¤ Use: B2C & B2B ¤ Key Metrics ¤ Average transaction revenue ¤ Fee % per transaction ¤ Number of transactions ¤ Challenges: Margins are small (15%), need efficiency ¤ Notes: Don’t start too low
  13. 13. Copyright DKParker, LLC 2018 4. Productize a Service ¤ Your offerings is generally complex and requires services to deploy ¤ Gross margin on Services >35% ¤ Product development comes with services ¤ Use: B2C & B2B ¤ Examples: Moz, service company convert to tools. ¤ Challenges – difficult to make the transition away from services
  14. 14. Copyright DKParker, LLC 2018 6. Marketplaces ¤ Example: eBay, Alibaba ¤ Use: B2C & B2B ¤ Key Metrics ¤ Average Transaction Amount ¤ Number of Monthly Transactions ¤ Commission % ¤ Challenges: two sided market places require you start with one side, value to seller & Product market fit (x2) ¤ Notes: critical mass or marketplace required
  15. 15. Copyright DKParker, LLC 2018 Inc 500 Data Quiz ¤ How much revenue do you need to do to land on the Inc 500 Top 10?
  16. 16. Copyright DKParker, LLC 2018 Inc 500 Data Quiz ¤ How much revenue do you need to do to land on the Inc 500 Top 10? ¤ Data from Top 10 Companies over eight year span ¤ Avg $50.64M ¤ High Average $147.78 ¤ Low Average $20.44M ¤ All from a minimum first year revenue of $1M
  17. 17. Copyright DKParker, LLC 2018 Inc 500 Data https://www.inc .com/inc5000/lis t/2017 2017 2016 2015 2014 2013 2012 2011 2010 Average 1 $54.20 $116.20 $118.20 $195.60 $117.90 $59.50 $195.60 $325.00 $147.78 2 $37.40 $55.00 $34.40 $82.60 $49.60 $26.90 $38.00 $15.60 $42.44 3 $48.80 $33.50 $33.60 $85.10 $25.50 $21.80 $20.90 $37.50 $38.34 4 $26.80 $30.70 $83.70 $35.30 $1.9b $14.70 $17.10 $14.40 $31.81 5 $49.10 $33.40 $44.60 $77.70 $87.00 $55.00 $16.40 $17.90 $47.64 6 $19.70 $17.70 $32.90 $138.00 $45.70 $55.60 $14.20 $249.80 $71.70 7 $23.20 $15.70 $37.20 $27.30 $25.50 $12.40 $15.10 $26.20 $22.83 8 $59.60 $15.60 $30.50 $159.90 $23.90 $21.80 $15.20 $131.40 $57.24 9 $41.70 $42.40 $32.10 $26.30 $33.10 $31.70 $14.90 $19.10 $30.16 10 $17.20 $25.90 $31.10 $32.90 $18.60 $14.20 $12.40 $11.20 $20.44 $50.64 $37.77 $38.61 $47.83 $86.07 $42.68 $31.36 $35.98 $84.81 *Normalized for $1.9B outlier
  18. 18. Copyright DKParker, LLC 2018 Telling a Financial Story ¤ Finance is the “language of business” ¤ The story comes down to numbers, and the model validates the story – only numbers go in cells ¤ Investors want to see your model, and stress test it ¤ Models serve multiple purposes: ¤ Fundraising - Pitch deck storytelling ¤ Budgeting and forecasting ¤ Cash flow forecasting – “Runway”
  19. 19. Copyright DKParker, LLC 2018 The Model Supports the Deck ¤ The pitch deck provides a 5-year summary of the model ¤ You have to know how to manage the model in Q&A ¤ The summary includes, at a high level: ¤ Revenue, cost of revenue, and gross margin ($,%) ¤ Operating expenses ¤ Profitability and cash flow breakeven ¤ Headcount ¤ Key drivers (e.g. customers)
  20. 20. Copyright DKParker, LLC 2018 Financial Models – Best Practices ¤ The success drivers (metrics, KPI’s) are simple and easy to understand. Avoid complicated formulas. On one tab. ¤ The revenue categories map to one or more of the 15 revenue models ¤ The 5-year revenue ramp is realistic. ¤ Cost of revenue is complete, so gross margin is correct: ¤ Hosting, fulfillment, shipping ¤ Labor (customer service) ¤ Production costs
  21. 21. Copyright DKParker, LLC 2018 Financial Models – Best Practices ¤ Operating expenses are complete: ¤ Expenses grouped by department (fixed versus variable) ¤ Headcount - Roles, compensation and benefits ¤ Contractors - HR, Acctg., Engineering ¤ Travel expenses ¤ Marketing- Reflects go-to-market strategy ¤ G&A – Facilities, insurance, other operating expenses ¤ Investments are reasonably estimated: ¤ Intellectual property, equipment
  22. 22. Copyright DKParker, LLC 2018 Financial Models – Best Practices ¤ GAAP/Accrual-based accounting ¤ Revenue Recognition ¤ A great model answers the burning questions: ¤ When does the company become profitable? ¤ When does cash flow breakeven occur? ¤ How much investor capital is needed? ¤ Will more than one round of funding be needed?
  23. 23. Copyright DKParker, LLC 2018 Forecast Versus Actual ¤ Four dimensions of financial reporting: ¤ Actuals – QuickBooks (Accrual) ¤ Operating Plan – Budget (“Roadmap” for the year, quarter) ¤ Forecasting ¤ Variance Analysis: ¤ Actual to Plan ¤ Actual to Forecast
  24. 24. Copyright DKParker, LLC 2018 Common Mistakes ¤ Complex and confusing assumptions ¤ Confusing model design ¤ Metrics and success factors are not defined ¤ Overly aggressive revenue ramp ¤ Improper revenue model ¤ Underestimating expenses and cash needs ¤ Key milestones are not clearly defined
  25. 25. Copyright DKParker, LLC 2018 Templates ¤ Choose one ¤ Orient ¤ Start with Assumptions ¤ Move to Compensation – people ¤ Revenue next ¤ Forecast
  26. 26. Copyright DKParker, LLC 2018 Revenue Models and Forecasting Dave Parker @DaveParkerSEA www.dkparker.com/blog Dave@dkparker.com Chris Dishman chrisd@denalifc.com www.denalifc.com

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