Problem Relevancy

How Relevant Is The Problem You Are Solving?

Probably, in your own life, you’ve faced the problem you’re trying to solve—in your work, with your husband, your wife, your kids, your hobbies, etc. And for that problem, you didn’t find a good solution in the market.

Maybe you are familiar with a bad situation that happens with other people and you feel compelled to help them with your knowledge on solving that issue.

You know this problem quite well. Right?

However, when you decide to build a business based on a solution you’ve created to address a problem, it is not about you and your thoughts anymore; it’s about your customers’ lives.

Continue reading “How Relevant Is The Problem You Are Solving?”
Cash Flow Forecast

Startup Cash Flow: Your First Forecast In 20 min. [spreadsheet inside]

Tell me the truth: have you already built a cash flow forecast for your startup?

Hum… probably you’re just waiting a little bit more…because you have so many things to do…

But, I bet you are postponing it because you think it is:

a) Boring;
b) Complex;
c) Useless in the beginning;
d) All of the above.

I know many startup founders struggle to build their first cash flow forecast. But, if you’re serious about building a successful business, you can’t just ignore it.

WHY? Many reasons…

  1. Cash is king: without cash, everything ends. It won’t matter how many visitors you have or if you’re profitable or not. If your startup doesn’t have cash, it’s over. So, you need to wisely manage your cash flow since day 1.
  2. Forecasting is understanding: when you build the first cash flow forecast for your startup, you’ll start understanding basic principles of your business. What are your revenue streams? How much do you need to sell to produce a positive cash flow? How much are you able to invest? Etc…
  3. Well-informed decisions: a great cash flow forecast will make most of your key decisions clearer. Is investment “X” worth? Hiring someone for a higher salary is sustainable? How a sales commission affect my cash flow?
  4. Your investors will love it: if you’re thinking of getting money from investors, having a cash flow forecast will help you on showing them you know what you’re doing. A great founder knows what he/she will do with the money and how that will impact his/her startup’s cash flow.

Startup Cash Flow

I know you may be bored just to think about the cash flow forecast complexity and the several hours you’ll need to dedicate to get something useful…

But, I have a surprise for you: an extremely simple and objective free template that will automatically generate a 24-month flow for you:

blank cash flow forecast template.

Yes, I’ve invested a lot of my time, so you just have to insert your startup’s information.

To download it for FREE, you just need to subscribe below:

Okay, it’s time to generate your first cash flow forecast! (drum roll…)

In the following paragraphs, I’ll guide you through the steps of building your cash flow forecast using the spreadsheet.

Step 1: Finding The Fields

To insert your startup’s information, the first thing you need to do is to open the hidden fields.

Just click on the “+” signs that are above and in the left of the spreadsheet.

Find the fields to fill in your cash flow forecast

Form Columns “B” to “G”, is where you’ll insert the information about your startup’s cash flow.

The cells you'll fill in to generate you cash flow forecast.

Step 2: Inserting The Info

Now, it’s time to input your startup’s information in the right fields.

You’ll find 4 big categories: “Fund Raising”, “Revenue”, “Costs & Expenses” and “Investments”.

Now, it’s when the magic starts to happen. The spreadsheet will automatically generate the flow, as soon as you’ve inserted the information.

An example of a cash flow forecast with some information.

FUND RAISING

In this first category, you’ll fill in the information regarding your fundraising sources. Here you have the following fields:

  • Source (blank cells): the source of your funding. E.g.: partners, family members, friends, angel investor, seed funds, loans, etc.
  • Amount ($): the amount of money the source provided to your startup.
  • M/Y (Month/Year): the month/year you expect funds to become available for your startup.

For example, if you and your partner will invest $30,000 each, in January, 2020, then you’ll have:

"Fund Raising" fields.

REVENUE

Now, it’s time to forecast the revenue flow you expect to receive from your customers. Fields:

  • Product/Service Name (blank cells): for each line insert the name of a product or a service your startup will sell;
  • Type: select among three types of revenue: “SaaS”, “Sales” and “Commission” (% of volume). The model will generate the flow based on the type you’ve selected.
  • Price/%: how much you’ll charge for 1 unit of your product or, in the case of “Commission”, the percentage you’ll charge as a fee (%).
  • Volume: the volume of items you expect to sell in the first month of revenue. For “Commission” type it is the volume on which the fee will be calculated.
  • Starts In: the first month you expect receiving revenue for each product.
  • Increase (%): the monthly increase you expect your revenue will grow (if you let it blank, no increase will be considered)

For example, if you are working with a SaaS revenue model and you intend to sell a $40 subscription, expect start selling 100 subscriptions in Apr-2020, with a monthly increase of 1%. Here is what you should inform:

"Revenue" fields.

COSTS & EXPENSES

For this category, you’ll find three different sections:

% OF REVENUE: You’ll use this section for any cost that is dependable on your revenue. E.g.: taxes, sales commission, COGS, etc.

For instance, if, in your country, any revenue is taxed in 15%, you should insert:

"% of Revenue" fields on the cash flow forecast.

FLAT + ANUAL RAISE: You should include in this section any cost or expense that have a regular flow. This costs will happen whether you have revenue or not. E.g.: Salaries, rent, energy, services, subscriptions, etc.

For example, you contracted office rent for $1,500/month and expect a raise of 5% in oct-2020:

"Flat + Annual Raise" fields on the cash flow forecast.

SPORADIC/CUSTOM: In this last section, you may include any cost or expense that the flow doesn’t fit properly to the above categories. E.g.: an expense with an irregular flow.

For instance, you have a 3-month service from jan-2020 to mar-2020, with a variable amount. In this case, you’ll need to insert the amounts directly in the cash flow area:

"Sporadic/Custom" fields on the cash flow forecast.

INVESTMENTS

Here, you’ll insert the investments you plan to do in the next 24 months. E.g.: marketing campaigns, new equipment, app development, etc.

For instance, if you have hired a third party to build your MVP, for $30,000, divided into 6 installments, starting in January-2020, you’ll inform:

"Investments" fields on the cash flow forecast.

Step 3: Generating Insights

Okay, as soon as you include your startup’s information, the spreadsheet will generate the flow. That’s awesome, isn’t it?

But, you know what is even more awesome? The insights you’ll gain from the flow to better drive your decisions..

These insights are presented in two different types of metrics: NET METRICS and GROSS METRICS.

NET METRICS

The metrics you see here reflect the outcome of every item you’ve estimated in your forecast (Fund Raising, Revenue, Costs & Expenses, and Investments):

Example of Net Metrics.

GROSS METRICS

These metrics don’t take into account the revenue nor the costs associated with it. In other words, if you fail generating revenue in the next two years, how bad would that be?

Example of Gross Metrics.

UNDERSTANDING THE METRICS

To better understand the meaning of the above metrics, go to these posts:

So, dear founder, I hope by now you have generated your first cash flow and have a better understanding about your business.

Please, leave your comment! 🙂

Cash Burn Rate

What Is Your Startup’s Cash Burn Rate?

Cash Burn Rate is one of the core financial metrics you have to keep in mind, all the time.

Okay, but what is it?

There are 2 different burn rates:

  • Gross Burn Rate: It’s the average amount of money, monthly consumed, to pay for your startup’s activities. In other words, it’s how much money you are spending per month to pay for salaries, rent, energy, marketing, development, services, and other expenses.
  • Net Burn Rate: It’s the average monthly negative cash flow. For this metric, you’ll consider not only your expenses, but any revenues that you might have too.
Continue reading “What Is Your Startup’s Cash Burn Rate?”
Cash Runway

What Is Your Startup’s Cash Runway?

Now that you know what is your cash burn rate, you may understand this post’s question.

Your Cash Runway is the amount of time your startup has before its cash balance turns into negative.

For example, if your startup’s cash balance is being reduced by $5,000 per month, and you have $20,000 as available cash, in 4 months your startup will be out of money.

Continue reading “What Is Your Startup’s Cash Runway?”

Define Your Startup’s Minimum Viable Product (MVP)

You’ll only be able to generate good traction when all the three elements of your idea are properly defined—the problem, the solution and the business model.

Which means your assumptions about each one of these elements have to be true.

And to know which of your current assumptions work and those that should be replaced by better assumptions, there is just one way, my friend: to validate them in the market—with real people.

Continue reading “Define Your Startup’s Minimum Viable Product (MVP)”

Market Size

What is Your Startup’s Market Size?

Even with a great idea you won’t go too far if there isn’t a big enough market that allows your startup to grow significantly. That’s why you should assess the size of the opportunity you’re working on, since the very beginning.

p.s.: Market Size is one of the topics I present in my 7 Startup Essentials webinar series.

MARKET SIZE IN 3 STEPS

Certainly, there are several ways to estimate your startup’s market size and you should look for the most reasonable methodology in your case. The most important is to work on some kind of logic. Here, we’ll base our logic on 3 well-known market concepts: Total Addressable Market (TAM), Served Available Market (SAM) and Target Market.*

Continue reading “What is Your Startup’s Market Size?”

Think Exponentially

Think Exponentially When Building Your Startup

With the first version of your business model canvas, you are ready to check if your assumptions will succeed or fail.

However, I ask you to think BIG.

Salim Ismail, Michael Malone and Yuri Geest identified 10 attributes of what they call the Exponential Organizations (check their book here):

An Exponential Organization is one whose impact (or output) is disproportionally large—at least 10x larger—compared to its peers because of the use of new organizational techniques that leverage accelerating technologies.

Continue reading “Think Exponentially When Building Your Startup”

Startup Idea Assessment: Problem, Solution And Business Model

Once you are completely sure about founding a startup (and not a small company) it’s time to assess the current strength of your startup idea.

Of course, this very first assessment is not a prediction of your startup success. Instead, the intention is to help you on thinking about the components of a great startup idea and which of these components you still need to further investigate and validate in your own idea.

Continue reading “Startup Idea Assessment: Problem, Solution And Business Model”