Tag Archives: Financials

Knowing your numbers

I regularly meet startups who don’t have a good handle on their core metrics like contribution margins, retention rates, and customer acquisition costs. When I ask them why this is the case, there tend to be two answers.

The first answer is “we’re growing”. Although Paul Graham wrote his Startup = Growth post with good intentions, unfortunately it now serves as an excuse for many founders to overlook other equally important metrics. While startups certainly need to grow fast, growth is just the tip of the iceberg. There are many different ways to grow and great startups have either found cost-effective ways to grow or have a good handle on why their current growth isn’t cost-effective but will be in the future.

The second answer, which is related to the first, is that it’s too early to optimize metrics like contribution margins, retention rates, and customer acquisition costs. While this is true for most startups, there’s a difference between measuring numbers and optimizing them. Although you may not need to optimize them now, you will need to in the future. And doing so requires that you understand their history so that you are familiar with their drivers and know which drivers to focus on when the time is right. You won’t be able to optimize in the future what you didn’t measure in the past.

In the end, the reason why you need to know your numbers isn’t because they determine your fate right now. It’s because they will determine your fate in the future. Although the numbers will change as your startup gets older, if you don’t get into the habit of tracking them and seeing how they change in response to different actions now, you’re unlikely to do so in the future, and even if you do, it may be too late.

You may have fallen into a goldmine of a market where the numbers work out without you even knowing them, but the odds are slim.