Gearing up for next year
Gil Dibner

With four weeks left in the year, and probably less than three until people start heading off for the holidays, this is a great time to start thinking about how next year is going to look. I’ve never really understood why some founders seem to want to wait until January to see how December ended before coming up with their targets for the coming year. In my mind, the holiday break is a great time to reflect on challenges and allow your subconscious to wrestle with them. But in order to do that, it’s helpful to go into the holidays with your targets and goals written down by the time you go off on break. You can always change them later.

Here are a few best practices for early-stage founders as you kick off that process:

• It’s a work in progress, not a deliverable. Targets, forecasts, and goals are always works in progress. They are not intended to be accurate and they are not promises. You are probably not going to hit them. But they are very important. They are working documents that capture your best thinking, inform your decision-making, and facilitate better conversations with stakeholders.

• Targets vs. forecasts. While often used interchangeably, these are two totally different things. The target is what you are aiming for, the goal you are striving to achieve. The forecast is an expectation you can defend. Targets reflect strategy and — therefore — should not change very often. Forecasts reflect reality under conditions of uncertainty and adversity. Consequently, your forecasts should be constantly changing. Right now, you may have zero visibility on your new sales in 2024 and 2025 (i.e. “forecast” = zero), but you must have a set of targets you think you should hit. Without that, you, your team, and your stakeholders have no ability to reason about strategic and tactical decisions.

• One year vs. two years out. While it’s true that “Excel can support anything,” I think it’s critically important for startup teams to set targets out two years in advance. First, your investors are thinking this way and this is an important way of aligning with them. Second, you have two objectives in the next twelve months: achieving your sales targets for this year and building capacity to achieve them next year. Let me make this more tangible: Imagine you have $1M in ARR coming out of 2023. You might set a target of 3x growth for 2024, implying a year-end target of $3M for 2024. You then might set a 2.5x target for 2025, implying a year-end target of $7.5M. If your ACV is $50K, for example, that means $4.5M/50K = 90 new customers closed in 2025, an average of 22 per quarter. Depending on your sales cycle and sales capacity, you may need to build top of funnel and/or sales/support capacity up in 2024 just to hit that target. All of this needs to be taken into consideration now, which is going to impact your cash burn needs and your runway… Yes. It’s a lot.

• Project out cash runway intelligently, based on your targets. With your targets in hand, you can now begin to think intelligently about your runway. The best practice I’ve seen incorporates a range of scenarios into one graph that plots cash position over time going into the future: (1) No sales. The first line should show cash position given your current burn rate and no future sales at all. This is, basically, a worst-case scenario. (2) On target. The second line should show cash position given your planned increases in spending and assuming you hit your targets. This should show a longer runway (i.e. a more gradual decrease in cash) as your sales begin to extend your runway. Ideally (especially in this market), the line might even start to curve upwards as you achieve breakeven. If you are one of the fortunate few that are default alive, this will show that. (3) 50% of target. The third line (optional but helpful) shows the same as the second line, but it assumes you hit 50% of your sales targets but with the same spending pattern. Your ability to forecast the future is limited, but this line captures a more pessimistic view of the future than your target line.

• Org chart. As a startup, most of your expenses are people. Year-end planning is a good opportunity to review your org chart. Who is an “A player?” Who is a “C player?” Is everyone in the right place? Who is carrying too much load and likely to break? Most critically — how does your org chart need to change to hit the targets you’ve set?

With these tools in place, your strategic and tactical decision-making should be easier in the beginning part of next year. Your stakeholder conversations will be smoother and more productive. And most importantly, you can head into the holiday break with at least the first version of your 2024–2025 plan in place. The problems your planning has uncovered in December will be the subjects your subconscious is wrestling with as you enjoy some downtime with your family. You might even surprise yourself by developing some insights into your own business by the time you get back to work in January.

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WORTH READING

ENTERPRISE/TECH NEWS

The great European delisting. European companies are flocking from European exchanges, most notably LSE, to their American counterparts, NYSE and Nasdaq. “The main allure of US exchanges is higher valuations, as well as much larger markets to tap into… When it comes to UK tech companies, a listing on the NASDAQ is seen as a mine of opportunities, especially to lay the groundwork to receive more investments in the future.” As European exchanges grapple with how to retain their companies, in the long term, “stronger regulations and more ease in investment for companies would be key in helping” these exchanges.

GenAI in the workplace. The recent surge in GenAI usage within workplaces has been underscored by a Salesforce study revealing that of the GenAI adopters:

• 55% have used unapproved GenAI tools at work

• 40% have used banned GenAI tools at work

• 64% have passed off GenAI work as their own

The study sheds light on ethical concerns accompanying unauthorized GenAI use. Notably, users engage in questionable practices such as presenting AI-generated work as their own. Another alarming revelation from the study is that a majority of employees have not received any formal training on the safe and ethical utilization of GenAI in the workplace.

Amazon Q. During a keynote at the AWS re:Invent conference in Las Vegas last week, Amazon launched Q, a GenAI chatbot. Q connects with organization-specific apps, like Salesforce, Jira, Zendesk, etc. Q then learns from all of that data to provide responses with the specific businesses’ context. “Q goes beyond simply answering questions. The assistant can generate or summarize content such as blog posts, press releases and emails. And it can take actions on a user’s behalf through a set of configurable plugins, like automatically creating service tickets, notifying particular teams in Slack and updating dashboards in ServiceNow.” Q is currently in public preview and will start at $20 per user per year.

HOW TO STARTUP

Lessons in resilience. Bessemer recently shared a great playbook on SaaS resiliency lessons for doing business during a volatile market. All seven lessons shared are worth reading for founders, but lesson 2 is especially important — revisit pricing strategy especially when headline value becomes top of mind. “Throughout the downturn, companies have comprehensively revisited their pricing strategies to ensure their headline prices are tied more closely to perceived value. These are some creative examples:

• Several introduced “starter packs” to make it more frictionless to land new customers as companies selling initial $1M+ annual contracts faced a disproportionate lengthening of sales cycles.

• Others that had existing large enterprise contracts worked very closely and flexibly with these key accounts to reconfigure contract prices to prevent full churn. Note that a down-sell is perhaps a better alternative than having to win-back a fully churned account at a later date.

• Some introduced a freemium tier to allow customers to downgrade for a period of time, but still stay within the product ecosystem until their budgets could be unlocked.”

The startup spouse. Being a startup founder is not easy. Being married to a startup founder may be even harder. Melia Russell candidly pens her experience of being the other half to a founder of a struggling startup — and how she wished he had a “normal” job. “More than wealth, I want things to be less fraught at home. I want to talk about Kyle’s work, and mine, without tiptoeing around a minefield. I want him to be free of the torment the startup puts him through. I want to release myself of the guilt I feel for tearing us away from the Bay Area, where he would have had an easier time getting funded. I want peace of mind.”

HOW TO VENTURE

Hummingbird’s secret to success. This thoughtfully written post dives into how Hummingbird Ventures has achieved its impressive track record — “its first three vintages have all produced returns greater than 10x on a net basis” — all while not being a household brand name fund.

UK university spinouts. British universities have been advised to limit ownership stakes in the startups spun out from them to no more than 10% for software startups and 25% for IP-intensive startups like in biotech. This recommendation follows a government review, spurred by the backlash from founders and investors against the large ownerships universities in the UK have been taking historically. Currently, at Oxford, “the UK’s most prolific generator of tech spinouts, the average stake owned by the university is 20%. At the University of Leeds, the average stake is 42.3%.” Such high ownership stakes from the onset can be crippling for early stage companies, so this news is welcomed by both founders and investors.

PORTFOLIO NEWS

Angular Ventures’ Gil Dibner made the Midas List Europe 2023, moving up the list this year “thanks to a slew of successful investments, most notably developer-focused software company JFrog, which went public in September 2020 at a $6.3 billion valuation.”

LightSolver’s laser-based computer is challenging both classical and quantum computers.

Aquant’s CEO, Shahar Chen, recently spoke on the ‘AI in Business’ podcast to discuss the role of AI in manufacturing and how copilots can make manufacturing companies more efficient.

Planable is launching analytics.

Januar is launching Januar Crypto.