A Five23 Guest Post by Erik Hayton.

Erik is the CEO of Wedding Nook and a 4x Founder who occasionally writes, speaks and consults in areas of entrepreneurship and business development.

How to beat the odds; an honest look at entrepreneurship

If you spend as much time online as I do, you’ve undoubtedly experienced those hilariously-titled entrepreneurship articles clogging up your feed at one time or another. Most of them tell you how to ‘identify your passion’ in order to turn it into a revenue stream, or how to ‘become your own boss’ by following an unbelievably simple set of rules…

Inspiring, aren’t they.

What these articles fail to acknowledge is the cold-hard fact that your odds of making it are just plain terrible. Sorry.

Let’s talk numbers!

In the United States, only 4.1% of people own their own business (source).

If you’re one of them, you know that there’s a 90% chance you’ll crash and burn.

So…10% of 4.1 = 0.41% of us that are capable of making it through the first few years.

Now, 95% of U.S. business owners have at least a bachelor’s degree. That’s not to say that you can’t do it without a degree, but─  statistically ─ you’re worse off. (0.02%)

Surprisingly, only 1% receives venture capital funding. Something you won’t hear on a daily basis. 

If that wasn’t reason enough to think long and hard about a career change: The top 3 reasons people ‘become entrepreneurs’ are Money, Flexibility, and Control.

These reasons are not only terrible – they’re hilarious.

The average entrepreneur makes under $50k per year, works 66 hours per week and wears far too many hats to worry about control. You want money? Learn a trade; Want flexibility? Try yoga; but if you want control, you’re in for a nasty surprise. Your investors, co-founders, employees, contractors, suppliers, etc. they all need something, and you’re the gofer. Nobody has more bosses than an entrepreneur.

With these overwhelming odds against you, why would you even want to try?

Well for many of us, the odds don’t sound too bad. That optimistic little voice inside of us assures us that the upside is well worth the risk. Whether you set out to leave a legacy or chart your own destiny, you’re driven by solving problems or you simply enjoy challenging the status quo. There are many reasons that do make sense, but out of all of them, one stands out. Which brings me to my favorite statistic: 99.7% of all U.S. Businesses are small businesses.

Who knew that entrepreneurs not only hoped to change the world, but that it was actually part of the job description?

The world NEEDS entrepreneurs, and far more of them.

Luckily, there has never been an easier time to start a business. With all of the free resources and code online, you hardly have a reason not to try!

Need someone who knows something you don’t? Clarity, Cofounders Lab, Founder2be

Need an Investor? Angel List, F6S, Kickstarter

Want to now how much your startup is worth or need to secure financing? Five23

Not sure how to market? Growthgeeks, Sumome

Don’t even have an IDEA? Here you go: “101 Business Ideas“

I could go on, but other people have already made lists:

Growth Supply

Freelance Folder

Entrepreneur.com

Justin Mcgill

Changing the World

For those willing to assume the responsibility, ‘changing the world’ can be as simple as observing what’s around you. Maybe you work in finance and see some holes in traditional banking, so you start an online bank that is fairer than the competition (Musk); or maybe you had a bad experience with an airline, so you start your own, right there in the terminal, with a chartered plane (Branson).

By looking at the people who have succeeded more than most, a playbook emerges; “Never stop learning; and use what you know, to improve the things around you.”

Simple, but hardly easy! After all, if it were easy to change the world, we’d be living in far more interesting times. But all of the technology and resources in the world won’t help you if you aren’t willing to do whatever it takes to succeed. In our dopamine addicted, blue-light infected, ‘feelings are more important than facts’ dream world; you’re up against a hell of a lot of distractions and discouragement.

A recent poll of 9,348 entrepreneurs (courtesy of Five23) showed that the average entrepreneur starts 2.1 businesses before succeeding, and spends 11 months on each. That’s almost 24 months of grinding before you even sort of make it. That’s a lot of time without a decent income, family time, friends, facebook or free-time in general!

But if you can keep learning, stay focused and figure out how to persevere more than most. Then eventually your experience and tenacity will click, allowing you to beat the overwhelming odds, and finally be able to call yourself an ‘entrepreneur’; not because it’s a cool buzzword, but because you’ve truly beaten the odds and earned it.

Now go do something productive.

 –  Erik Hayton.

The post How To Beat The Odds (Honestly) first appeared on Five23.

Customer Acquisition Cost (CAC)

“is the cost associated in convincing a customer to buy a product/service.”

Using CAC as a health and growth metric has its advantages for both the company and investors. It can show a myriad of items including such as:

• How effective funds are being spent on marketing
• The value of each customer
• A & B testing results of cost expenditure in relation to marketing
• Profitability of the company overtime
• Corrective actions towards profitability

For example, imagine you are selling lemonade at a lemonade stand. Upon first glance, the business is booming. On average you are selling nearly 1,000 cups of lemonade a day for $2.00 each. The cost to make the lemonade is $1.00 per cup: in theory giving the lemonade stand a net profit of $1.00 per cup or $1,000 a day on average. Yet the stand is losing money. Why is this? Upon viewing the business in depthly, you quickly realize that the lemonade stand is spending nearly $1,500 a day on advertising. This equates to Customer Acquisition Cost of $1.50 per cup sold. When this is combined with the cost of making the cup of lemonade, the total cost per cup rises to $2.50. This means there is a net loss for the stand of $0.50 per cup, or $500 a day.

Using the CAC metric in the above example, it clearly shows how the company is spending their capital on marketing. On top of this, it gives the company and investors insight into possible solutions to their unprofitability.

Firstly, the company needs to determine how effective their marketing efforts are in comparison to the amount of customers they have. In essence, is their marketing driving sales? If the answer is an unequivocal “Yes”. Then the lemonade stand will have to raise the sale price of their product or reduce cost. If the answer is “No”, or even “Partially”. Then the capital spent on marketing needs to be cut back. By lowering the marketing cost, the CAC will also decrease; thus increasing the profitability of each cup sold and the overall profitability of the company.

Calculating the Customer Acquisition Cost for your company is straightforward and quite simple. You will need three items:

• A Time Period (Monthly, Quarterly, Yearly)
• Total Spend per Acquisition
• Total Number of Customers Acquired

When those items are defined follow the calculation below:

As one can see, the Customer Acquisition Cost metric is robust enough to show how effective the marketing expenditures of a company are─ as well as shining light on areas which could use improvement.

It’s simple to calculate and has far reaching value. Keep it in mind as your startup grows. If you would like to learn more about Customer Acquisition Cost and how it effects your business, feel free to contact us today.

The post Knowing Your Customer Acquisition Cost (CAC) first appeared on Five23.

EBITDA Margin

EBITDA Margin is a measurement of a startup’s operating profitability as a percentage of its total revenue. Calculating a startup’s EBITDA Margin is done by equalling the total EBITDA (earnings before interest, tax, depreciation and amortization) divided by the total revenue. The higher the EBITDA Margin of a startup, the smaller the startup’s operating expenses are in relation to the total revenue of the company. This is a strong tool used by investors to show how profitable the company is as well as how lean the venture operates in comparison to their revenue. Keep in mind, the average product based company has an EBITDA Margin of roughly 12%, while the average service based company has an EBITDA Margin of roughly 18%.

Monthly Recurring Revenue (MRR)

Monthly Recurring Revenue is the proof of the pudding in your business model. While not all business models have recurring revenue on a monthly basis, it does show potential investors how profitable the company can becomes overtime for subscription based businesses. Once a client is subscribed to the service or software, that revenue can be relied upon each month. It should be noted there are secondary metrics which accompany MRR, such as customer retention and churn, using this metric can show how strong the company can be from a financial standpoint each month. This metric is very predictable and reliable, which investors take comfort in.

Customer Acquisition Cost (CAC)

Customer Acquisition Cost refers to the resources a business must spend in order to acquire more customers. Whether it be financial spending or otherwise, this metric includes every effort necessary to introduce your products and services to potential customers. Common expenses in this metric may include: staffing salaries of sales and marketing employees, CRM software, marketing automation, paid advertisements, sponsorships, events and many other items which may have direct contact with the targeted individuals. Investors look at the ‘Customer Acquistion Cost’ of the startup to better judge the overall expenses of the startup overtime. As the business grows, the cost this metric shows should reduce in size. If this cost increases, it shows an investor the startup is unprofitable in the long run.

Customer Lifetime Value (CLV)

Customer Lifetime Value is a metric used to measure the revenue your business or startup receives from any given customer. The purpose is to see the overall amount of financial assets spent using your service or purchasing your product on a customer by customer level. When used properly, it can help businesses define the correct amount of CAC needed for the service or product. When calculated, it may also improve the overall accuracy of allocating funds in terms of customer retention and sales. Investors use the CLV metric in a variety of ways, however, the majority of them refer to the total addressable market of the startup and the CAC.

Month-Over-Month Growth (MOM)

Month-Over-Month Growth is a metric used to express changes in levels in respect the previous month. While this metric can be used to define growth in many different aspects of the company. Generally it is used to define the growth of the startup financially, and from a market viewpoint. In many service based companies, the MOM metric is for the total amount of customers. With product based companies, the MOM metric is used for the total amount of products purchased. Investors use this metric to judge the overall health of the startup and growth trends.

The post Top 5 Startup Metrics to Show Traction (2019) first appeared on Five23.