Spend Advantage Podcast

How to Forecast Your Revenue With Confidence

February 22, 2023 Varisource Season 1 Episode 26
Spend Advantage Podcast
How to Forecast Your Revenue With Confidence
Show Notes Transcript

Welcome to The Did You Know Podcast by Varisource, where we interview founders, executives and experts at amazing technology companies that can help your business save a lot of time, money and grow faster. Especially bring awareness to smarter, better, faster solutions that can transform your business and give you a competitive advantage----https://www.varisource.com

Welcome to the Did you know Podcast by varisource, where we interview founders and executives at amazing technology companies that can help your business save time and money and grow. Especially bring awareness to smarter, better, faster solutions that can transform your business. 1.5s Hello, everyone. This is Victor here with varisource. Welcome to another episode of the Digital podcast. Today we're excited to have Jeff erickson as our guest. Jeff is a very popular influencer on LinkedIn. He probably doesn't think so, but I've been following his content for quite a bit. But yeah, so forecaster is a financial platform to help startups Forecast revenue runway with confidence. Jeff is the director of strategic Partnership with forecaster, but he's also an active investor and advisor for startup as well. So welcome to the show, Jeff. 

U2

Thanks so much, Victor. And I don't know about influencer, 1.1s but I appreciate you following some of my content on LinkedIn. 

U1

Hey, man. You have influenced me, at least. So there you go. But, yes, so obviously, you have a fantastic track record and just point of view from all the different places you've been in, you've kind of been in the startup world for a long time and even starting back at Carter. Right. So I'd love to hear a little of your background and kind of how you got to where you are today. 1s

U2

Sure. No. Again, thank you for having me. A little background, it's kind of cool because I, I got involved in startups early in my career. I came out, came out of the university with mba and worked for a finance company for about four years. One of the partners there left to go to this little startup and he took me with him. So I was employee number 15 at this little, a tiny start up and we ended up raising a few rounds of funding and I just loved it. That was like a totally new world to me and I'm like, this is awesome. 1.6s Fast forward a few years later. My wife had a hobby and it started to turn into a business. So I helped her raise some capital and ended up helping run that company for about ten years. We, we sold the company and they, they made me stay on for a few years as the CEO. So I had that operating experience which was great, but I wanted to get back into tech after that. My wife's company was a direct to consumer products company and that's where I got introduced to the folks at carta and just loved what they were doing. For those of you that don't know what carda does, but they help startups manage their equity so the cap table such a huge benefit to startups. But the cool thing about carta was it put me right in the middle of the entire startup ecosystem. So talking to the venture capital firms, the accelerators, startup studios, venture attorneys and the founders and that's really where I was able to really 1.7s one, leverage some of my experience as a founder but also get kind of that investors perspective. And then it also led me into being able to do some investing on my own. So some angel investing which I've been pretty active at. So that's been kind of fun to see it from both sides. So little background on me after, after carda. I actually met the founders of forecaster while I was at carda 1.2s and jumped over there about a year ago 1.1s and they're kind of doing something similar to carda in the sense that carta was taking Captain Management out of spreadsheets into a software platform. forecaster is taking financial models out of spreadsheets and into an easy to use 1.5s software platform that's also very beneficial for founders. So that's a little background there. Hopefully that's helpful, Victor. 

U1

Yeah, no, super helpful, man. And a lot of that experience is going to come with great point of view and insights on a lot of the exciting questions we're going to have for you. I always say that last 15 years, my career, being an executive role, selling technology to large enterprise customers, you feel like you know how to sell, how to start a business, how to do business and create success. And then you come to the startup world. It's like you're literally learning all new terminologies and you have to take on everything accounting and finance and you think those things are just typical. But in startup it's a whole other skill set while you're still trying to build a business and change the world right, all at the same time. 1.9s One of the first questions we wanted to ask you is why and how startups should manage their finances. Because going back to everybody understand the importance of finance, but 1.5s again, I think a lot of these people that are starting companies and starting startups, they just don't fully understand the importance of it. And so I want you to kind of explain why and how they should manage their finances. 

U2

Yeah, great question. 1.7s Like you said, most startup founders are not 1s financial gurus, right? They've got a product or a service or an idea of vision that they want to execute on. They want to build that business. 1.1s And finance becomes kind of secondary. 1.1s But there's two reasons why I think of in terms of the importance of finance. First, if you're going to go down the path of raising capital, whether that's from venture capitalists or from even a bank or other sources, you have to know your numbers. 1.6s And investors, if they're going to give you money, they speak the language of finance. So being able to speak in their language is going to help increase the likelihood of you getting financing. So that's one reason. The other reason is to manage your business. 3.5s As you start to strategize and make decisions about your company, there are tools out there that can help you make better strategic decisions. And one of those is a financial model that you can put together and say, okay, what if we did this? What would happen? What would happen to our business? When are we going to be profitable? How much capital is it going to take? 1.9s All of those things are super important for you running your business. And then there's the metrics that go into it. How much is it costing you to acquire a customer? What's the value of that customer over their lifetime? 1.5s Just the capital expenses. If you make this purchase, what's your return on investment? And how long is it going to take for you to recoup that cost? All of those things are critical for you to know as a founder in order to effectively manage your business. And again, it goes back to investment. If you're going to be raising capital, you have to know those things because that's what investors are going to be looking at. And the better that you know all of those things, the more confidence one you're going to have. So you're going to be more confident founder in running your business. But two, your investors are going to have more confidence in you as a founder. So again, to wrap that up, two things. One, you need to know your finances to impress investors and help build their confidence in you. And two, to run your business. 1.2s

U1

So again, as an investor yourself into companies or even just working at forecaster and all this experience, what would you say maybe is the top reason? I'm sure there are several, but what's the top reason why startups don't do well? Is it just because don't do well as far as managing the finances? Is it because the lack of tool? Is it lack of just knowledge? Like you said, they're not financially financial gurus. Is it a tool problem? Is it a people problem? Is it a process problem? I'm sure it's all of the above. But if you had to say like the top one that you kind of typically see, or is it that they don't even understand the importance of it or comprehend the importance, 

U2

I think the importance becomes evident when they go out to raise financing, because they're going to get investors and they're going to start asking numbers. Even if you get through your pitch deck and you have this hockey stick graph that shows that you're going to go from zero to 100 million in revenue and that's in your deck, you might get that second meeting with investor. But that second meeting is going to be all about your finances and how you actually get there. So you better know how you get to those numbers. 1s And so I think that that's going to become apparent as you start to go out and raise funding. 1.5s The reason that a lot of founders don't do it or aren't very good at it is I think one of it could be the tools. But having somebody to walk you through that, because most founders aren't experts in this, and it's okay, you don't have to be an expert at creating a financial model or knowing how to build crazy excel sheets or whatever, 1.3s having the tools and then somebody to walk through that with you becomes very critical. And so one of the things that forecaster has done is on the front end, we're actually building the model with the founders. We feel like it's really critical that the founders actually know how that process works and that their mindshare is part of that because they're going to be asked these questions by investors. And so if they understand how this works, then they've been through that process and it makes more sense to them. The other thing is, if they're involved in creating the financial model, they now know how to use it as a strategic decision making tool. 1.2s And so having somebody to walk through that process with you and then coach you on how to use a model becomes very helpful. And that's one of the things that really drew me to forecaster, is there is such a huge need out there for especially early stage startup founders to figure out 1.2s how to use their model to make these strategic decisions and for fundraising. 

U1

Yeah, I think that is such a smart move as far as including that service aspect because I think a lot of times people sell software, they're just like, well, my software do all these amazing things, but they forget that people need to learn, implement on top of everything else they have to do. And you assume they can even learn it or use it correctly. And then what happens a lot of times is they don't use the platform, they don't use it correctly, then they don't get the value and then they don't renew, but they blame it on the tool. And we see that a lot with clients when they buy different kinds of software. So I love actually the value. I think it's super smart to actually add that service aspect because you're selling the software to people who aren't already expert in this thing and you want them to go build this thing as an expert. Exactly. And so I think that also makes it sticky right. The fact that they're getting more than just kind of the platform. So I love that. And again, you've seen from investor side 1.3s and operational side, so what do you think are the top three mistakes you typically see startups make? I'm sure there's a lot, but what are the top three that you kind of passionate about? Three. Okay, that's tough. I will start off with one that I advise. All of the startups that I work with on right off the bat is make sure you get a good startup attorney. That's one mistake. That 1.1s way too many founders make is thinking that, oh, I can do this on my own or 2.6s I can get my sister in law who just graduated from law school to draft everything up for me because she, she's an attorney. There's a huge difference between an attorney and a startup attorney. It's very specific. You want to be working with an attorney that knows about startups and has experience in that. And I think one of the biggest mistakes founders make is they see the price I stag and they're like, we're bootstrapping startup, we can't afford $400 an hour or whatever it is. 1.3s But. 2.6s Taking that to set things up properly right from the beginning 1.1s kind of leads into the next problem. I see. So the first would be getting a good start of attorney. The second mistake I see is not knowing how to divvy up the equity, 1.1s figuring out how much equity do I give to my cofounders or to employees, things like that. 1.6s Again, that is something that a good startup attorney can help you with. And they'll know kind of the ins and outs there. But if you make those mistakes upfront I've seen terrible mistakes where a founder says, okay, we've got three of us as co founders. Let's give ourselves all a third of the company. They don't put vesting schedules place, and then six months later, one of the founders leaves and they're like, wait a second, he owns 33% of the company and we're doing all the work, 1.3s but they didn't set things up properly at the beginning and have vesting schedules and all of that. 

U2

So that would be number two. 2.9s And then three. I think when it comes to raising capital, 1.7s you see founders either raise too much or too little, and both can be really problematic. 1.3s Raising too much, you're giving away a big chunk of your company early on, when the company is 1s probably not valued fairly well. 1.5s But if you've got too much and you've raised too much, and especially if you've raised it too high of a valuation, you have to work your way into that. But not being able to have the systems and everything in place to deploy that capital in an efficient manner 1.8s becomes problematic to the company and for the investors, where they're wanting you to move faster or make more progress than maybe you're capable of. On the flip side, you raise too little, and all of a sudden, now all you're doing is fundraising. And so you don't have time to focus on the business and growing it. You end up raising capital 1.2s 90% of the time and working on the business temp percent of the time, which makes it hard to raise capital. 2.4s Anyways, those are three that that come to mind. 

U1

Yeah. No, that's amazing, man. It's so good. I got a couple follow up for you there. So, you know, do you do you feel like companies, whether they raise too little or a lot, do they know how to properly like, what percent would you say actually know how to properly spend that money? Whether that's a little or a lot in your kind of and it's not their fault to some degree, right. They're trying to figure out as they go, too. But 1.6s what percent of companies do you feel like actually know even how to spend the money correctly? 

U2

Well, when it comes to the percent of companies, it's very small. But if you look at the percentage of companies that actually raise capital, then it's probably a lot higher, because that's one of the factors that is going to go into being able to raise capital, is knowing how you're going to use it and how it's going to be deployed. And it doesn't have to be perfect. But this is, again, where a financial model comes into place, 1.2s to where you can figure out, okay, if we raised $5 million, how would we use it? What would it do and what would it look like? And where does that get us to in three years or two years or however long that's going to last us? Is that too much? Maybe let's run a scenario in our financial model and see how would we use that. Well, let's run a scenario where, what if we raise 2 million? Where does that get us to? Is that not enough? You use your financial model again for making those strategic decisions. And so if a company can kind of go through that process, 2s that's going to prepare them and help them to know how much to raise and when to raise it. You know, you typically want to start raising capital six months before you need it, at the very least. So. 1.5s So, yeah, sorry to bring that back to financial modeling, but I think it's very interrelated. 

U1

No, I think these are the insights that people need, right. They don't want to hear just, yeah, it's important, you should do it. It's like, yeah, how? Tell me how. What's the right tool? It's not just a tool, it's the people. It's the service. And so that's why I love what you guys are doing at forecaster. So you've done several of angel investing. Now, a lot of people always wonder, so what do angels look for? Again, you and I talked about, look, there's the team, right? The product, the vision, the typical things that everybody looks for, just like you're making an investment, like the typical things you look for. What are some things, maybe outside of these typical areas that you really look for? Is it a relationship that you have to build a relationship? You got to know these guys? Or what do you typically look for that has turned out to be maybe success indicators? 

U2

Yeah, good question. Again, 2.3s I have a couple of thoughts there. First off, relationships can be very important, whether it's a venture capital you're going down that path, or if it's a bank or 1.2s an angel investor. Really what you're doing as a founder is establishing a relationship of trust. So probably the biggest thing as an angel is trusting that this is the right founder to solve the problem that they're trying to solve and that they can actually pull this off. Because as an angel, you're typically pretty early. You're like maybe the first check or one of the first checks, and so you're going in early. 1.3s You can pretty much guarantee that the plan that they have in place is not going to go to perfection. So it's great that they have a financial model, for example. It's great that they have this business plan and it's all laid out and this is what we're going to do and how we're going to execute. I want to see that because that gives me confidence that they know how to put all this together and think strategically. But I can guarantee that it's not going to go as planned. And so is this founder the right person who can still 1.9s take this idea and execute it to a point and then get feedback and pivot if they need to or take it to the next level? It's really all about the founder. You've probably heard the saying that early on, you're betting on the jockey and not the horse. Well, the founder is the jockey and you're betting on that jockey that regardless of how good the horse is or how bad the horse is, the jockey knows how to work it and maybe he has to go get a different horse or maybe he has to do something else. But you're betting on the jockey. 1.4s Down the road, and it becomes the horse. But early on, it is definitely the founder. 1.5s

U1

Yeah, and again, maybe a follow up to that, because it's an interesting topic. I mean, we've both interviewed and hired hundreds of people in our careers, and 1s it's definitely an art. It's a little bit of luck. It's a little bit of art, it's a little bit of science. Everything right? You can look at a good resume. They seem perfect on the interview. It's like, wow, this is amazing. You go through two, three interviews just when you're hiring people, and to some degree, these founders are the same, but you just never know, right? So do you have any tips or things that you look at? Because you're interviewing these guys and they're interviewing you, but it's like they all sound good, decent sales people. 1.2s Like you said, you're betting on that jockey. But 1.3s how do you make that decision once you talk to them? Is that a leap of faith, or is it 

U2

part of it is a leap of faith, and I've made wrong decisions. I bet on founders that haven't made it. 1.6s I think you learn from that, and you start to have some pattern recognition. 1.3s But one thing that I have seen is that experience does matter. And so a second time founder, a third or fourth or fifth time founder, 1.5s there's a reason that they get higher evaluations. There's a reason that they get funded more often, and the investors put weight on that. Because as a first time founder, it's hard. You don't know what you don't know a lot of times 3.1s to have that experience behind you, to say, okay, this is not my first rodeo. 2.6s Has a lot of weight and I think as I've gotten more and more into angel investing that's become a bigger and bigger factor is what kind of experience at the same time you start to recognize things like, okay, what experience does this person have? What's, what kind of, what's the integrity level? Those types of things definitely play into 1.6s your decisions as well. 1.6s

U1

Yeah, fantastic. So last question as we wrap up here. 1.3s Obviously you're not just an investor, but you're also an advisor. Those two things can be the same or separate advisor to startups. And I think startups need advisors because again, they're doing a lot of things they've never done before, no matter what their previous experiences were. And there are a lot of people want to be advisors, right? It looks good and they want to help people. But how do you for yourself feel like advisors are able to truly impact? Because just to provide some advice, right? A lot of people can do that. But does that really help that start up make a difference or impact their business? Right? You have a lot of thoughts in this area. So what do you think? 1.2s

U2

Yeah, I've seen the advisors be used very well and I've seen them 1s be used very poorly. In fact, I've been in companies as an advisor on both sides. So one of the things that I will share as a founder, it's really up to you to get the most out of your advisors and part of that that comes through, make sure you put a good advisor agreement in place. And they've got some standard docs that I think carta has a standardized advisor group. There's a group called Savvy Legal that has an advisor template but put something in place and then set the expectations at the beginning, but then most importantly, make sure you're holding them to that, that you're putting a process in place that enables the advisor to add value. Because I'll speak from the advisor's perspective is most advisors, they're not doing this full time. They're kind of saying, okay, yes, I'm willing to help out. Here's what I'll kind of sign up to. If it's a monthly meeting or introductions or whatever, but if you're not reaching out to me proactively, you're probably not top of mind for me as an advisor. I might come across an opportunity to go, oh yeah, this would actually be a good fit for this company that I'm advising. But in most instances I've got three other companies I'm advising or I've got a full time job. I've got other things that are top of mind, but the companies that I've been part of that have done this really well, they hold me accountable as an advisor. They put a process in place and said, okay, we're going to meet every second Thursday of the month at this time or whatever. It's on my schedule. I know that's a commitment I've made. And they are going to be top of mind because leading up to that, they're going to provide an agenda. They're going to share with me how they're doing, what they need help with. Here's the things that are going well. Here's what's not going well. And I'm going to be prepared for that meeting so I can actually add value. 1.2s The companies that do this very poorly are the ones that call, call you up and go, hey, can we, can we just pick your brain for like five minutes and okay, sure, let's schedule something. But there's nothing set in stone and it's just kind of, I've gone for like three months before without a company that I'm an advisor for that, that are actually giving me equity where they haven't had a formal meeting. They might reach out via email or something. But I could be adding so much more value if they were top of mind. And 1s I had some concrete things. And so one of the things as an advisor I've learned to do is put that process in place for not only myself, but for the other advisers that they might have that they're using as well. So again, I'll put it mostly on the founders to set that process and then hold the advisors accountable. If you're going to be giving away equity for an advisor, make sure that you are getting the value out of your advisors. And most advisors, they want to add value. 1.6s But again, you're not going to be top of mind for them unless you make a concerted effort to be top of mind for your advisors. 1.7s

U1

So what are maybe one or two ways you feel like advisors can really help, right? I mean there are so many things you can help with, right? Obviously depending on the company and their questions and their needs and challenges right? You can provide advice, you can provide introductions, you can provide consultation or just experience or ideas. What would you say are the areas that maybe you really feel like you can make an impact for? Assume they have the process and all of those things in place. Right? And where can you really, other than just answering their questions as they have it, where do you think you an adviser maybe in general can really help the startups? 

U2

Well and these are things that I think founders need to be aware of as they start to select advisors, that there are different purposes for advisors. You typically want advisors to kind of maybe fill in some of the gaps that you might not have as a founding team. So 2.1s if you're really solid with your It for example, and your development and all that, you probably don't need an It developer. Maybe you do at some point, but early on maybe your co founder can handle that. 1.2s If you are weak in terms of your finances, maybe you get somebody that's been a fractional cfo or has some experience that way that can kind of help you in that regard. If it's fundraising that's a weakness or a weak spot, 1.6s find somebody that has some experience in that. So complement your team with your advisors. For me personally, where I've been able to add value for a lot of the companies are one into reductions to potential investors. 1.4s And a lot of advisors are connected that way. And then that can be a positive thing or something of benefit that you can leverage. But then the other thing is that experience, somebody that has experience that has done what you are trying to do before, just to use them as 1.6s that, okay, here's a problem we're facing. If you've got an adviser that's kind of done this before, a lot of times they've already been down this process and they can steer you in getting through some of the challenges or how to tackle things or making connections that they know in the space or whatever to help address some of the hurdles that you run into. 2.9s As just an example, actually, just before this call, I had one of the companies I serve as an advisor for, 1.2s she'd been reaching out and we finally got a chance to connect today. And 1s it was one some additional advisors gave me a great update on how things are going on the fundraising path, but looking at making sure that she's got a good pipeline of investors. And so I able to help with that a little bit. But then walking through the process of how do I approach these investors, 1.2s I've got this issue with one of them. 1.7s How do I address that? And somebody has been through that before, I think serves as a good sounding board, but also can provide some guidance in those situations. Yeah, you have provided so many golden nuggets that I think any startups or any company, any founders, honestly would find a lot of value. And I know I could talk to you for hours and pick your brain. But the last question as we wrap up here, Jeff, that we love to ask our guest is if you had one personal and or business advice that you're really passionate about. You've given a lot already today around startups, but whether startups or not, what's one personal and or business advice that you're passionate about that you would want to tell the audience out there? It's. 1.8s Okay. Yeah, I'd probably go back to some of the ones that we talked about earlier, but another one that kind of comes to mind is 1.6s that whole notion about balance. I think as a founder, that becomes a real challenge to have balance in your life. And I think it's important for you to incorporate that sum how to where your company becomes part of different pieces of your life, because so many founders, that becomes a passion of theirs, but it leads to personal challenges with relationships or things like that. So anything you can do to incorporate some of those things into what you're doing is great. And then being able to take a break and reenergize. I think we're hearing a lot of focus on mental health, and that would be something I would 1.2s encourage every founder to be aware of your mental health and your limitations and know how you can recharge personally. And also be aware of that for your co founders, how you guys can recharge 2.1s and be aware that everybody kind of needs that to be more effective. So whether it's outlets that you have that are like outdoor activities or hobbies, things like that, don't lose sight of how important some of those things can be as a founder. Yeah, 

U1

that's a great advice and obviously definitely easier said than done. When you're building startups, you feel like you have to go 100 miles an hour to accomplish your goal and you're just so passionate and all of those things. Right. But yeah, there's a whole other world or personal life also outside of that. And no, I think that's actually one of the reasons why Verisource has been fantastic place to be. My team is amazing. I think everybody has that balance, yet we're all extremely passionate. But it's to find that balance like you can't when you're too balanced that you maybe lose some of that fire. Right. So you also need to make sure you have both. So no amazing feedback. And thank you so much for spending some time with us. 

U2

Well, thanks, Victor. It's been a pleasure to be on the podcast with you.