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I am the author of this blog post - good points on this from a financial perspective. I can tell you were building financial models for a living, because you th

I am the author of this blog post - good points on this from a financial perspective. I can tell you were building financial models for a living, because you think ROI is the most important question for entrepreneurs ;-) For startups, the most important things are good products and good markets. Successful angels and VCs know that, and will invest based on product and growth, NOT financial metrics. Thus, in very few VC pitches will you ever see stats on ROI or payback rate, that's more something you'd seen in the accounting or I-banking world. (I know this from personal experience, having spent the last year at a silicon valley based VC and seeing dozens of pitches) So if entrepreneurs are primarily focused in the world of products, features, etc., then the key thing is to figure out the metrics that measure how these products tie to external market value. So things like conversion rates in funnels or cost per acquisition become super important, because the features are the steering wheel to your revenue engine. As a result, the spreadsheet model is mostly focused on things that are granular enough to relate to product and functionality, rather than things like valuation multiples or ROI or other overly-broad financial metrics.

daveungerer 18y ago
If financial metrics are not important for entrepreneurs, and if the most important things are good products and good markets, then why did you write a whole article on creating a PROFITABLE freemium startup? Do you think profit is not a financial metric? Of course it is, just not as useful in this situation. Hence my suggestion to use metrics that are more meaningful. The metrics that are useful should show you what the risk / reward is for pursuing the business. It is very important for any entrepreneur to estimate how much investment is required to cover initial operating losses and capital expenditure. It is just as important for them to determine whether this investment is worth the expected future profits. Just to drive the point home: you can spend 1 billion dollars in year 1 on advertising, if you had the money. And year 2 will be profitable. But you have a terrible business if the profit curve over the next years isn't steep enough to offset the original investment. Simply making profits is not enough.

daveungerer 18y ago

If financial metrics are not important for entrepreneurs, and if the most important things are good products and good markets, then why did you write a whole article on creating a PROFITABLE freemium startup? Do you think profit is not a financial metric? Of course it is, just not as useful in this situation. Hence my suggestion to use metrics that are more meaningful. The metrics that are useful should show you what the risk / reward is for pursuing the business. It is very important for any entrepreneur to estimate how much investment is required to cover initial operating losses and capital expenditure. It is just as important for them to determine whether this investment is worth the expected future profits. Just to drive the point home: you can spend 1 billion dollars in year 1 on advertising, if you had the money. And year 2 will be profitable. But you have a terrible business if the profit curve over the next years isn't steep enough to offset the original investment. Simply making profits is not enough.