Founders, Compute Backwards from Milestones

This morning, Mark Suster wrote an epic, must-read post about startup valuations and current funding climate. Go read it, and then bookmark it, because you’ll want to re-read it several times. Also go read my three related posts about Changing climate, milestones, and figuring out how much capital to raise.

My biggest takeaway is that founders need to be razor focused on milestones.

Instead of running forward into an uncertain future, founders need to compute backwards from the milestones.

In reality, there are only 2 milestones for early-stage companies – next financing or profitability. Sure, there is also M&A, but this is not really a milestone you can go after.

Become profitable. Let’s tackle profitability first. If you can, just get there. This is really a magical place, because if you are profitable and growing, you are in control your destiny. You don’t need to raise money to survive.

Raise more money. If you can’t get to profitability, you will need to raise money again. In the current climate it is going to be more difficult. This means three things:

  1. Cut costs & plan your burn. Stretch your current capital for as much as you can. Cut costs now. Do careful analysis of your burn, and trim down. Accurate projections and estimating your burn precisely becomes absolutely critical.
  2. Set correct milestones. Spend a ton of time planning the milestones, and making sure that if you hit them, more capital is likely to come. Planning should include comparables, and competitive analysis. Talk to prospective investors and insiders openly – if we reach these milestones, will you fund us? The more realistic your milestones, the higher the chance that you will hit them and get more funding.
  3. Measure your progress. Setup frequent checks and track your progress against the plan. That is, if you need to hit the milestones in 6 months, check every 2 weeks that you are making meaningful progress. If you are falling behind over a couple of cycles, then re-evaluate and make adjustments.

Founders are by nature optimists and believers. But these are the times when sheer optimism isn’t likely to be enough to carry the company.

Carefully evaluate your situation, come up with a plan, set milestones and hit them.