HATCH COO on How To Discover Your Company’s Growth Levers

What is the foremost skillset a founder must develop to grow her business? A thorough understanding of her company’s financials, advises HATCH COO and startup advisor Lindsay Bressler.

“Many founders view their finances in a siloed box and are unclear how they translate into day to day operations,” she says. “Confidence in your financial model allows you to take charge of your business and discover the growth levers that will drive you forward.”

These levers are your Key Performance Indicators (KPIs) and Bressler offered a comprehensive roadmap in her Project Entrepreneur class to identify the ones that will supercharge your business, from increasing sales to raising capital. Here are the questions, frameworks and processes she recommends to design your strategy.

Identify Your KPIs with These Six Questions

*View in Bressler’s class video from 7:00 – 14:00

KPIs are the metrics that impact your company’s growth, and as such, evolve based on the needs and stage of your business. Bressler advises setting your KPIs annually to reflect the coming year’s priorities.

She utilizes these six questions to identify them:

  • Is it more important for me to drive growth or profit this year? Or both? Begin by discerning your goals so you can establish clear actions that will help you achieve them.
  • What are the top ways to generate sales? These are the KPIs that accelerate your growth, like acquiring and retaining new customers.
  • What actions go into making those sales efforts successful? KPIs must be actionable to be impactful. If customer acquisition is your goal, you may think about your digital media strategy and ad spend, as well as how to tighten your unit economics.
  • Are there any unique metrics in my business model? Your business model may require select KPIs to plan for sustainable growth. At HATCH, for example, the majority of customers are pregnant and shop with the brand for limited periods of time. The inability to predict repeat purchases causes the team to design a customer acquisition strategy where they ideally make money on a woman’s first order.
  • Are there any industry standard metrics that I should consider? It is important to contextualize and align your KPIs with companies in your industry, especially when positioning yourself for investment. Industry standard metrics can be found by gathering available public data on market leaders as well as building your network within your industry. Platforms like CB Insights, Pitchbook, and Crunchbase Pro may help aggregate this information in addition to following VC blogs in your sector.
  • If profit is important, what are my main expense drivers? A detailed understanding of where you are allocating capital, from hiring to marketing, is foundational and will help you set goals within your budget.

KPI Prioritization and Ownership

*View in Bressler’s class video from 14:00 – 21:00

These questions may unveil a variety of opportunities to scale but Bressler emphasizes focus as the most telling aspect of this process. “The inability to prioritize KPIs is a textbook pitfall for founders, especially during the early years when every metric feels like a priority,” she says. “Remember, your team’s time is your most valuable asset. Limit your KPIs to the top three things you can control that will move your business forward.” 

The ownership your team feels over your KPIs is paramount to effectively implementing them in your organization. “Nothing is worse than sharing your KPIs and a team member raising their hand to say they’re totally unrealistic. Everyone working with you, whether an agency or executive, needs to be able to answer: What is in my control that I can action to drive results for the business?”

Bressler strongly encourages spending time with your team to help them answer this question, and, depending on the stage of your company, creating departmental KPIs that may be more relevant to their roles. Take site traffic, she shares. Work with your team to understand how they can influence it, be that through your advertising budget, partnerships, or influencer campaigns.

“KPIs are like goals. They are only effective when you can take concrete actions to realize them.”

Forecasting and Scenario Planning

*View in Bressler’s class video from 21:00 – 27:00

Performance against your KPIs impacts your financial model and scenario planning enables you to forecast the health of your business. Bressler teaches a simple four step process.

Step 1: Establish your budget and KPIs at the beginning of the year. Outline any factors and risks that may influence your ability to achieve your goals. “For example, if customer acquisition is your goal and your target CPA (Cost Per Acquisition) is $25, a key risk is that you won’t be able to acquire customers at that rate and will need to spend more,” Bressler explains. “As you set your KPIs, consider the pluses and minuses that may influence whether they’re successful.”

Step 2: Develop three scenarios that reflect how those potential shifts in your KPIs may impact your business: Your worst case, base case, and upside case. “Your scenarios help you answer: What is our current outlook for the business? What happens if we fall 25% below that goal? What happens if we exceed it by 25%?”

Bressler recommends running each scenario through your financial model to discern how changes in your KPIs will alter your bottom line. “Let’s say your CPA swings up to $35. If you’re continuing with your growth rate but your CPA is now more expensive, how much more cash are you burning in order to maintain that growth? It’s important to understand how changes in your KPIs impact your business, both cash and P&L wise.”

Step 3: Implement a system of regular reporting to monitor your KPI performance throughout the year. (Bressler shares a sample dashboard in her presentation and recommends each business find the right cadence for them, be that weekly, monthly, or quarterly).

“Think of it like a report card,” she says. “Your dashboard helps you gut check your performance and identify patterns. How are you trending on the week? The month? The year? If your CPA settled at $35, what do you need to do to account for that? Can you try new ad formats? Reduce expenses in another area of the business? There are a variety of tactics to employ.”

Step 4: Take action when you see significant movement within your KPIs, Bressler affirms. “You’ll be right about some KPIs and may need to adjust others. Regular reporting keeps you from finding out in August that you haven’t hit your metrics and don’t have enough time to catch up. Always think about your business holistically.”

Scenario planning is particularly crucial as we navigate Covid-19. Traditionally, one might forecast three scenarios and reforecast each quarter or bi-annually based on their performance. Today, Bressler recommends a more vigilant approach reforecasting monthly or bi-monthly to adapt to the evolving climate. “Many of our KPIs have changed,” she shares personally. “We’re focusing on near-term cash conservation and minimizing our burn rate rather than growth. Staying on top of your KPIs over the next six months is critical to steering your business through this period.”

Prepare for these three investor questions 

*View in Bressler’s class video from 27:00 – 32:00 

Bressler has personally raised millions of dollars of funding as well as advised numerous founders to do the same. She has also invested in many businesses and seen both sides of the table.

These are three most important financial questions you can expect to hear while fundraising.

  1. What is your three to five year business outlook? This is your opportunity to share your big vision. “As an early stage startup, projecting five years out can feel overwhelming, but what investors really want to know is: How big can your business be? $50 million? $100 million? $1 billion? There’s no right answer. They just want to understand the long-term opportunity and how your growth projections compare to your industry.” On the finance side, this is where you’ll reference your P&L statement. Investors will also ask to see your balance sheet and cash flow statement throughout the process.
  2. What is your use of proceeds? Put simply, this is about how you’re allocating the capital you’re raising and whether that reflects your KPIs. Your use of proceeds and burn rate will be reflected in your cash flow statement.
  3. What is your burn rate? This is where your financial model and business scenarios come into play, Bressler says. “Investors want to know how long this round of capital will support you achieving your goals. Your three financial statements will reveal the peaks and valleys in your business and when you need to raise again. Your scenarios will help you articulate how different circumstances may impact your cash position and your plans to respond.”

If an entrepreneur’s vision is the story of her business, her KPIs are the story of her growth. “KPIs are shared goals that everyone on your team believes in,” Bressler adds. “Your leadership actioning them is a crucial step to success and affecting change in your organization.”

Bressler walks through each of these concepts with detailed steps and examples in her Project Entrepreneur class here

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