One of the most common forms of equity vesting is the four-year cliff vesting schedule, which requires an individual to work at a company for a certain period of time before they become fully vested in their equity. For example, a founder or employee may be required to work at a company for four years before they become fully vested in their equity. After the four-year period, the individual becomes 100% vested in their equity, meaning they have the right to exercise their stock options or sell their RSUs.

Another common form of equity vesting is the graded vesting schedule, which allows an individual to become partially vested in their equity over time. For example, an employee may be 20% vested after one year, 40% vested after two years, and so on, until they become fully vested after four years. This type of vesting schedule is often used to provide a retention incentive for employees, as it encourages them to stay with the company for a longer period of time in order to fully vest in their equity.

There are also different types of vesting triggers that can be used to determine when an individual becomes fully vested in their equity. For example, a company may use a “time-based” vesting trigger, which means that an individual becomes fully vested in their equity after a certain period of time. Alternatively, a company may use a “performance-based” vesting trigger, which means that an individual becomes fully vested in their equity based on the achievement of certain performance milestones.

It is important to note that equity vesting is typically subject to certain conditions, such as the individual’s continued employment with the company. If an individual leaves the company before they become fully vested in their equity, they may forfeit some or all of their unvested equity. This is known as “repayment” or “clawback” provision.

In summary, equity vesting is an important aspect of startup culture as it aligns the interests of the founder or employee with those of the company and provides a retention incentive for key individuals to stay with the company over the long term. There are several different types of vesting schedules and triggers that can be used, and it is important for founders and employees to understand the terms of their equity vesting in order to make informed decisions about their ownership in the company.

The post Understanding Equity Vesting in Startups first appeared on Five23.

In broad terms, a tech stack is a list of software plus programming languages that operate in the same environment to create websites and mobile apps and maintain their activity via server-side and client-side support. It also includes libraries, frameworks, and databases that will help the teams manage the products at any moment in their lifespan.

When I start working with a new startup, especially in alpha and growth stages, the issue of choosing a good, solid technology that will meet all product objectives will not become obsolete in a couple of years is rising ubiquitously. Over the years, I gathered a brief list of advice that will help entrepreneurs put their money on the right horse.

Talent Pool

With a huge number of these tools available on the market, the stack choice can become quite a debate and should depend on a competent unit in this case. Such a decision should be delegated to an experienced architect and not to the team of developers as the developers may suggest a tech stack that is the most suitable for them instead of the most effective for the project.

But bear in mind that this shouldn’t be taken as the gospel. You should try to find a middle ground based on the time and costs you have — replacing a team member can be costly and time-consuming. Therefore, it’s worth asking team members about which tools they prefer before making the final decision.

Of course, putting a .NET developer into a Java-based stack wouldn’t make sense. But if it were some minor utilities where he/she had no experience, then that won’t be an issue.

The good thing is, dedicated team model allows for adjusting their roster based on your needs and can keep the project relevant at any stage.

The Platform

There are currently 2 major, rival houses: web and mobile. This topic is good for another dozen articles and will probably never be solved; moreover, the first option doesn’t negate the second one as they can coexist within modern-day gadgets.

The only right answer is to know your end-product well. You need to be fully aware of what it stands for and how to make great use of it: does it naturally feel like a neat mobile app that can be used via simple swipes (messengers, authenticators, taxi services, etc.). Or maybe it is a convoluted mess that requires tons of options, data filling, or precise clicks to allow for the best experience (forums, movies platform, torrent tracker, etc.)? If so, then “web” is the clear winner.

Although both of these platforms can coexist, you still get to decide which should be conducted first as it will define which audience will use your product.

As a rule, it’s a safe bet to make a web app first: such solutions are more forgiving towards mistakes thanks to the greater opportunities for the user to avoid a product’s bugs (mouse availability, bigger screen). Furthermore, web-based products aren’t as dependent on the cross-platform availability: they’re usually accessible via numerous browsers. The updates are also much easier to deliver when you have direct access to your app and don’t have to wait for mobile app stores to deploy it for you (at least 2 weeks, as a rule).

Unlike the rivalry between Android and iOS, the web is a safe place for any type of apps to be fully functional. When you opt to go the mobile path, you will have to choose between the native app and its cross-platform option. Although multi-platform apps provide a wider audience grasp and can be tempting, they almost never reach the quality level that native apps bring upon themselves. As a rule, Swift (a common iOS tool) language isn’t the best for Java (a common Android dev tool) developers and vice versa, making backward compatibility a serious challenge.

The choice here is crucial and you should always pick the right path — remember that it’s always cheaper to make the right choice at the very beginning than to modify your product at the later stages when the tech stack has already defined its route.

Type of Project

There are a ton of different tools, and the way your product is supposed to run will be dictated by which tech stack you pick. From a more technological standpoint, there’s a strong dependency towards, for example:

 – Projects that prioritize speed over high traffic loads, which would make the best use of Ruby or Node.js. Both of these technologies grant a sizeable boost thanks to the well-rounded syntax and the overall terse design. Open-source libraries are also what makes it appealing for the developers to choose.

 – Projects with a high emphasis on machine learning and data science, which will be a fine match for Python powered by SciPy, NumPy, or Pandas libraries. Python can give you an edge when dealing with large data clusters thanks to the blistering processing speed.

 – Java, on the other hand, is a universal soldier among the programming languages and can be utilized by almost any type of project. In fact, it is compatible with numerous side-tools or libraries that make it an obvious choice for the vast majority of top companies, especially when they want to develop an Android-app.

 – C/C++ would probably be the go-to choice when crafting complex IoT solutions or even a graphics engine, let alone a full-blown AAA game.

Frameworks

When talking about the frameworks, this is up for debate, depending on how convenient it is for the developers’ team. Depending on each project, it pursues the same goal of aggregating the practices within the project but can be adjusted by the developers. It also helps unite the different components of large projects yet still grant some flexibility by implementing user extensions and modifying its code to a various degree.

The choice usually depends on the compatibility of each element, such as AngularJS, when the project has opted to go for JavaScript. Also, the choice of Zend, Symfony, or Laravel will be a logical step to enhance the development of PHP-based projects; moreover, asp.net MVC or asp.net web API can come in handy when dealing with the .NET tech stack.

Server

The web-server area used to be a battlefield of ideas but is currently a place for two major competitors: Apache and NGINX.

Not only is Apache free, but it’s also easy-to-grasp with the APR function that helps in creating modules. It also has remarkable compatibility and a large source of data knowledge to support its products. SSL and TLS encryption are also at your service to allow for improved security online.

On the contrary, NGINX is a fine option when the performance is set to become a cornerstone for the project. It also requires much less memory and reduces the load when supporting the clients by utilizing a minimum thread or none at all.

This, however, doesn’t mean that both of these options cannot be used: by simply moving NGINX in front of Apache as a reverse proxy, it will help you get the best of two worlds: NGINX for the static content and Apache for the dynamic content to be further returned to the rendered page.

Trends

Despite a hefty variety on the market, we can still see the tendencies for certain tools to be picked over the others when it comes to full-blown successful projects. Judging by the data, top companies lean towards:

    Programming languages: PHP, Python, Java, Go, JS

    Frameworks: Node.js, Angular.js, Django

    Databases: MySQL, PostgreSQL

    Server: NGINX, Apache

    DevOps: Docker, GitHub

    Utilities: Google Analytics

    Business Tools: Slack, Trello

In Conclusion

These general remarks can only touch a fraction of the possible software combinations when forging a system that will run your product. Whether it is .NET, Java, MySQL, or Slack, you should also take into account the size of a future project; sometimes it’s even more important than the actual perks of each of the aforementioned stacks.

Reliability is also a key factor when picking a tech stack. As a rule, the more mature tools prove to be the most consistent in terms of performance and bring a bigger toolkit to make developers’ lives easier and more time-efficient. If an ecosystem has a wide range of continuous integrations and bug-tracking systems, it will be a large performance boost for your developers when crafting your end-product.

It you like to see how Five23 can help your startup and its technology suite. Feel free to contact us here or by email: contact@five23.io.

The post Leveraging Technologies for Startups (2020 Guide) first appeared on Five23.

This mistake can cost your new startup a fortune and can be easily avoided. Taking proactive steps in the beginning of your startup can ensure that you have all the right to your name. Things like trademark and registration searches are key. With this in mind, the following is a guide to help you with trademark and brand protection for your startup.

What Should You Trademark?

Often startup shave no idea what should protected by trademark registration, since it extends much further than just the company name. Here are a few items which you should consider trademarking to protect your startup. 

Company Name

First, as a small business you should always protect your company name. Your company’s name is how consumers and clients find you and your goods and services. Without protection a competitor can open shop under a highly similar name and begin to take business from you by confusing your clients. A Trademark on your name is the easiest way to protect against this scenario from happening. 

Product Names

Just like with your company name, consumers also locate your goods and services through your product names. As such, if you provide a product or a service under a particular name you must also protect the same to avoid competitors from using like names on their goods or services. A good example of this are device names, most of us know ‘iPhone’, ‘Android’, etc. These are simple ways to protect your product from infringement. 

Logos

In addition to the above, logos can also be protected by trademarks. This will stop competitors from using like images for their goods or services. For example, no one is able to use the Nike Swoosh but Nike themselves. This is an example of a trademark on a logo. 

Marketing & Advertising Slogans

If you use a particular phrase or slogan in your marketing, you may be able to protect it through a trademark on the words. You can see examples of this with many fast food restaurants, such as McDonald’s, “I’m lovin’ it!”, or Papa John’s, “Better ingredients, better pizza, Papa John’s”. 

Benefits of a Trademark

Often startups wonder if trademarking is worth the cost and effort in the early stages of the company. The answer is: Yes! In addition to the potential savings of avoiding a costly rebranding after learning that the name you have been using is trademarked by another company below are a few other ways you can save money. Vice versa, if you do not have a trademark, these items may affect you. 

Deterrence

Having your trademark registered with the U.S. Patent and Trademark Office makes them easier to uncover by those doing trademark searches to see if their own trademark is available to be registered. This in turn helps to prevent the adoption of confusingly similar marks by third parties who may not choose a specific trademark similar to yours if they see your trademark is already registered with the U.S. Patent and Trademark Office, or the equivalent authority in your respective country. 

Registration Symbol ® 

Only trademarks that have been registered with the U.S. Patent and Trademark Office have the authorization to use the ® symbol in their advertising and marketing. The right to use the ® symbol in connection with your trademark may deter potential infringers from adopting or using a similar trademark to yours. It is also a great way to communicate that your brand is legitimate and valuable in a crowded field of imposters and cheap knock off brands.

Damages

Unfortunately, the reality is that companies often have to resort to filing lawsuits to enforce trademarks against infringers that don’t respond to cease and desist letter. When your trademark is registered it increases the type of monetary damages you can demand in a lawsuit if it is later infringed upon such as the ability to recover lost profits associated with the infringement including the possibility of receiving treble damages in certain circumstances as well as recovering attorneys fees. Essentially, having a trademark registration can pay for itself many times over.

Block Importation of Infringing Goods

If your trademark is used in connection with goods this is a key factor. Once registered, your trademark registration can be provided to the U.S. Customs and Border Protection Agency to help block the importation of goods that infringe on your trademark. More and more with products we are seeing this becoming a necessary step to stop product infringement. 

Takedown Notices

In the age of digital commerce where brands are distributed in online marketplaces around the world. One of the most powerful tools at your disposal is the ability to use takedown notices against counter-fitters and unauthorized distributors. This allows you to have the product / service removed based on registered trademark. It’s a fairly straightforward process that all major retailers and service providers adhere to. 

How to Protect Your Trademark (Process)

#1 Check if Your Name is Available

If you have yet to begin to use your product or service name, it is imperative that you research to see if it is available. A properly conducted research report will let you know if the name you seek is available to be registered before you incur the expense of the non-refundable government filing fees required for registration. Also, a research report will ensure you are not adopting and using a name that is infringing upon another’s trademark. If this occurs, you could be forced to give up use of your name and even pay damages to the entity you have infringed upon. A research report will avoid these issues and make sure your name is available. 

#2 Register Your Trademark

Once you have determined your desired name is available to trademark you should immediately apply to register it with the U.S. Patent and Trademark Office. Since trademark rights can be acquired either when you first use your trademark or first to file for an intent to use the same, it is imperative you get a trademark application on file with the USPTO as soon as possible to secure your rights in the trademark before someone else does. 

#3 Monitor For Infringement

Once you have a trademark you need to make sure that no one else adopts and begins use of a confusingly similar trademark. Trademark infringement costs businesses hundreds of millions of dollars each year in lost revenue. Even if a competitor begins use of a similar, albeit not identical trademark to yours, if can still funnel clients away from you business. In essence, competitors create confusion between your and their goods and services by adopting a similar trademark to yours. They then use the good will you have created in your trademark through your marketing to otherwise steal your clients and / or products. 

#4 Police Your Trademark

When infringement of your trademark is discovered, you must act quickly to stop the same. There are numerous ways to enforce your trademark depending upon how it is being infringed upon. For instance, if a competitor has registered and is using a domain name that is similar to your trademark, a domain name dispute may be the right tool to use. If a competitor is simply using a similar trademark on their website, then sending a cease and desist letter or possibly suing them in court may be the best option. Or if they have applied to register a confusingly similar trademark with the U.S. Patent and Trademark Office. 

Final Notes

For many businesses, their brand is their most valuable asset. Through a few judicious steps in seeking trademark protection, monitoring use by others, and policing infringement, you can ensure that your company brand is secured and flourishes with the growth of your business. You can learn more about trademarks and intellectual property protection by visiting the U.S. Patent and Trademark Office (USPTO) here. 

To see what Five23 can do for your startup. Please feel free to contact us here, or by email: contact@five23.io. 

The post Why Trademarks are Important to Startups first appeared on Five23.

Key Financial Indicators

All three indicators are important, but emphasis shifts depending on stage:

Cash (Early Stage: Pre-Product/Market Fit)

Run Rate (Growth Stage: Post- Product/Market Fit)

Annual Revenue (getting ready to IPO)

Cash

In the beginning, cash is all that matters because it is the lifeblood of the company. It pays the team, rents the apartment you work out of, gets super-fast Internet access and a lot of snacks from Costco. It’s the printout from the ATM that has two commas in it, and you dance around for a few minutes before reality sets in: the timer has started.

Managing the cash balance of the company as the most significant high-level financial indicator makes sense in the early days. You take the total bank balance you have, and divide it by how much you spent this month, and that tells you roughly how many months you have left before you run out of money. Maybe you take it one step further and make a simple forecast showing estimated hires and an estimated monthly rent when you move into a real office, but it’s still very simple.

Cash: Net Burn Rate

As long as revenues are growing, burning $400K a month becomes less and less risky over time. Which brings us to our next phase of money: Run Rate.

Run Rate (ARR vs. ARR)

When we started out we were focused on cash because we didn’t have revenue, but as soon as we had revenue growing it was all that mattered. As a newly minted SaaS CEO I diligently studied SaaS metrics, and I was surprised to discover that run rate has different meanings depending on who you’re talking to, and your business model:

Annualized Run Rate (ARR) — This metric extrapolates future performance of the company based on the latest results. Using this metric, a true statement about your company would be: “our Q1 2015 quarter puts us at $1.57 Million run rate”. How did I get that number? I took the $392K of revenue earned in Q1 and multiplied it by 4 to get an annualized number.

Annually Recurring Revenue (ARR) — With the rise of SaaS, recurring revenue has become more common. Recurring means there’s a subscription in place and the customer is charged on an ongoing basis, rather than a one-time purchase. E-commerce companies rarely have recurring revenue (exceptions: Amazon Prime and Le Tote) though they may be able to model the rate and value of return purchasers. In this case, a true statement about your company would be: “at the end of Q1, our annually recurring revenue was $1.81 Million”. How did you get that number? By taking the annual contract value of all existing subscriptions at a certain date.

So far, these two numbers aren’t that different. Annual recurring revenue is 15% higher than annual run rate, based on Q1 performance. Here’s the problem though: You’ve been giving your investors guidance with a goal to achieve $4.5 Million in annual recurring revenue by the end of the year. You’ve told them you are only slightly (-3.2%) behind target.

So your company is going to generate $4.5M in revenue by the end of the year? No.

Based on your forecast, your company will generate $2.6 Million in revenue for the year, if you hit your goals.

The reason for the difference is important: you need to collect revenue for the entire annual contract up front for about 50% of your customers, but if you make a change and switch to accrual accounting. You can now recognize revenue as it is earned, rather than when it is paid to the company.

That means if you sign up a customer for an annual contract and collect $12,000 from them on December 1st, this year only $1,000 of that money is attributed to that year’s revenue. The rest is unearned for for that year, and will be spread out over the next 11 months into the next year.

To illustrate the point again about why this can get confusing, consider the Annualized Run Rate metric above. Let’s say your forecast calls for $962K of revenue in Q4 of 2018, which would give you an annualized run rate of $3.85 Million ($962K x 4). All these statements are true, but which ones are right? Which ones should be communicated from founders to investors? Which should be used in fundraising to set valuations (i.e. multiplied by public market multiple for your specific sector)?

Revenue

A few years agao, the Wall Street Journal published “Tech Startups Woo Investors With Unconventional Financial Metrics — but Do Numbers Add Up?”, using statements from Hortonworks’ CEO to set the stage in the opening paragraph.

Chief Executive Rob Bearden forecast in March 2014 that the software firm would have a “strong $100 million run rate” by year-end. But the number looked a lot smaller after Hortonworks went public and then reported financial results: just $46 million in revenue last year.

Can you see how this confusion might have happened? As we’ve explored, run rate is not the same thing as revenue.

Deferred Revenue

Earlier in this post we explained your company’s year-end run rate will be $4.5M but your revenues for calendar this year will be $2.6M. Revenue for calendar year will be only 58% of your year-end annual recurring revenue, and that’s great — because it means you are growing! As the previous article goes on to explain:

It turns out that Mr. Bearden wasn’t talking about revenue, though he didn’t say so at the time. The Santa Clara, Calif., company now says the $100 million target was for “billings,” a gauge of future business that isn’t part of generally accepted accounting principles.

Right now maybe you have ~$500K of revenue whose recognition is deferred between next month and next six months. Deferred revenue is great, because it’s cash you can use now. It’s non-dilutive financing for operations. It’s great for startups. But it can be difficult to communicate, as the Hortonworks CEO found out.

Some things you need to watch out for in this article was the suggestion that you’re doing something shady in reporting these numbers and providing this kind of guidance. If anything “billings”, future contract revenue, annual recurring revenue or whatever you want to call it is a valuable aspect of SaaS businesses that should be shared with investors as it helps create a more complete picture for why a company commands the price it does in the public market. These aren’t wishes and hopes, they’re numbers derived from real contracts signed with real customers.

Annual Recurring Revenue of a growing company will always be greater than annual revenue of the current calendar year, and investors who think this is misleading fundamentally do not understand how SaaS revenue works.

Revenue Multiples

Going back to our previous analysis, we had several different numbers we could use to offer guidance for your company revenue this year: $1.57 Million annualized run rate based on Q1 performance, $1.81 Million based on annual recurring revenue at the end of Q1, $4.5 Million projected annual recurring revenue at the end of 2015, $2.6 Million forecasted revenue earned in calendar 2015, $3.85 Million annualized run rate based on forecasted Q4 2015 performance. All true statements, but which are the right metrics.

Choosing the Best Option

How do you figure out what your company is worth at the end of this year? Let’s assume that Brad had a solid valuation model going into our Series A round. Your company was valued at $18.5 Million pre-money at $1.5M annual recurring revenue. That’s 12.3x annual recurring revenue, which lines up with the higher end of the range for SaaS company ARR multiples on exit.

If we assume 12.3x annual recurring revenue multiple holds steady, at the end of 2015 we would multiply $4.5M annually recurring revenue x 12.3 = $55.5M, which is 3x the original valuation on the round… a nice markup for your investor, and a healthy position for the company. However, you need to be careful. In many cases things have changed overtime. If you really want to get the most accurate valuation from an outside source. Take a look here how Five23 can help you find the correct value of your company.

Of course growing slower and other exogenous factors (markets, multiples etc.) could change everything in this projection of the future, but it at least gives you an idea of where you stand.

What About Profit?

You might be wondering why we didn’t include profitability as one of the phases. It is important, and can happen anywhere along the way depending on choices the company makes about how much to spend and when to pursue break even. As companies grow and mature, the distance from negative to cash flow break-even becomes a smaller percentage of revenue, increasing the company’s flexibility to decide to be profitable.

Profitability (or lack thereof) is a choice in many cases. Burn is one of the few things entirely within the company’s control.

Generally, we think controlling expenses is a lot easier than figuring out how to make more money. So when you do find a way to make money, you should leverage it like it’s an unfair advantage that could end at any time. In a market where capital is available to support rapid growth to claim a market, startups are operating a breakneck speed to claim it.

When the Bear Market Comes

A question we see all of the time is: “Right now we are in a bull market. What happens when things reverse / we go into a bear market?”

Our answer: Report on every minute of it with data. Longer contracts. Avoid selling to startups or SMBs, or businesses whose customers are startups or SMBs. Sell a huge library of one-off research reports to customers who can’t get budget for an analyst and/or tools. Cut expenses, hunker down and become profitable so you can control when/how you fund the company and choose your rate of growth into the future.

Being on top of these items will give you the step up as markets change and your company grows. If you have further questions, or would like to know how Five23 can help you. Please feel free to contact us here.

The post 3 Phases of Financial Indicators first appeared on Five23.

1. Make a “value-based” pros & cons list

Imagine that you’re considering a move. Will you relocate to another city? Pull out a piece of paper and write a classic pros and cons list for the move. Now, here’s where science has added a helpful twist. Assign every list entry a number from 0 to 1, based on your personal values. For example, if being closer to your family is a “pro” that’s extremely high on your list, you might score it at 0.9 or 0.95. If you listed “near the mountains” as another pro, but you’re more of a culture hound than an alpine hiker, then it might only rate 0.2 or 0.3. Do the same for the “con” side. Leaving a job you love could score 0.8, for example, if your career is an essential part of your life. Add up each side, multiply by 100, and see whether the pro or con side wins out. You can also make a separate pro and con list for staying where you are. Compare the final values and see how you feel about the outcome. Often, confronting a “logical” number (which was actually weighted with emotions) can illuminate subconscious feelings. If you see the numbers but still feel pulled in the opposite direction, it’s worth doing some deeper exploration. You can also use this technique for smaller, less personal decisions, like which project or feature to tackle next.

2. Explore future scenarios

Considering the best- and worst-case scenarios is a common way to make tough choices. What’s the very best future you can imagine? The worst? And how would you feel if that disastrous scenario became reality? To expand on this technique, psychologist Gary Klein has studied a twist he calls the “premortem.” In a Harvard Business Review story, Klein explains why a premortem is the hypothetical opposite of a postmortem.

       “A postmortem in a medical setting allows health professionals and the family to learn what caused a patient’s death. Everyone benefits except, of course, the patient. A premortem in a business setting comes at the beginning of a project rather than the end, so that the project can be improved rather than autopsied.”

       Imagine that your decision was terrible. The project you chose to tackle was a crash-and-burn disaster. Now, explore every possible reason for the failure. Once you address this worst-case scenario, you can take steps to prevent it — and make a better decision in the first place. In fact, research shows that premortems (which are also called prospective hindsight) can increase our ability to identify future outcome causes by 30%. On the flip side, try to visualize that epic, best-case future scenario and gauge how you feel. If you’re not happy or excited, it’s worth considering why. Amazon uses a variation of both these techniques. Company developers must draft a hypothetical press release and FAQ announcement before they even write any code. By working backwards, the team tackles the most difficult decisions upfront and clarifies the product’s value proposition.

3. Avoid binary choices

We often get stuck choosing between this or that. Should I go back to school or start a business? Should I move to Seattle or stay in Denver? It’s easy to see the world in black-and-white, but there’s typically a grey option in the middle — or several shades of grey. Maybe you could spend summers in Seattle and winters in Denver. Or, you could live in Denver for another couple years and move to Seattle later. Sometimes the right choice is not one of two opposites. It’s a more creative, nuanced, or flexible solution.

4. Consult with others

Sharing your dilemma with others can justify or reinforce a choice, but more importantly, it’s a valuable way to gather valuable information. If you can’t decide whether to move, for example, don’t just survey your friends and family (who will also have skin in your game); talk to someone who made the same move. Ask how they feel now about their decision. For professional or business decisions, try hiring a consultant. Find people who have deep, niche expertise and learn as much from them as you can. The extra information you gather will almost inevitably help you make better choices in the future.

5. Avoid hidden decisions

For nearly 6,000 years, North America’s First Nations hunted the plains buffalo by chasing them over cliffs and finishing the kill below. This method enabled tribes to gather and store large quantities of meat, hide and fat for the long winter ahead. I always wondered why so many bison would just run over the cliff. They were usually pursued by hunters on horseback, for one, but it’s also an example of herd behavior. All the animals are just following the group, letting the flow take them where it will. Buffalo jumps are a good metaphor for hidden decisions or non-decisions, which we’ve all experienced at times. When you procrastinate or delay an important choice, you’re still making a decision — and it’s rarely a good one. For example, maybe you need to part ways with an employee, but you put it off to avoid a potential confrontation. If the employee is negative, unpleasant, or ill-suited to their role, the choice to wait and delay can poison the whole team. Non-decision is a choice with real consequences.

Those 35,000 daily choices can be daunting, but quick action is the enemy of decision fatigue. Choose fast and whenever possible, tackle your choices head-on. Use as many methods as you need to pick the best solution. Just don’t follow the herd. Choose what’s best for you — and then stand firm in your decisions.

One final note: if you’ve started a business or launched a product and you’re feeling overwhelmed by all the decisions, please know that it does get easier. Additionally, Five23 can help you analyze your chooses. Our packages can help any stage startup reach its full potential and take the guesswork out of the process. Once your business is stable, many of the big, foundational choices are done and you will reach equilibrium. Then it’s time to focus on the constraints. Determine where you can make the most important, impactful decisions, and use them to grow or refine your business. Remember: decision-making gets easier with practice, and a new choice is always just seconds away.

The post 5 Techniques that Help Entrepreneurs Make Hard Decisions first appeared on Five23.

For any entrepreneur, knowing how much money you need to raise is a big part of being ready to talk to investors. How you can determine the amount of capital you need to raise is key to getting the figures right. This post should help you solve the task of identifying how much capital you need to build your runway.

Identify Major Milestones

Investors usually look to fund a business to its next major milestone. These are milestones that show your business has reduced one or more key risks in its development, such as demonstrating market demand for your product or service through a critical mass of customers or users of your prototype, outgrowing current production facilities, or ideally, achieving consistent profitability. Start by identifying the major milestones for your business over the next few years.

Create a Plan

After you’ve identified those milestones, create a plan to achieve them. The process of developing a business plan will help you create a roadmap for achieving those milestones. Because the business plan is a big picture view of where you are going over the next few years, you should also dive deeper and create a more detailed project plan for achieving the next major milestone in your business — that is the milestone that you are looking to fund. Really spend some time plotting out each step, identifying how long it will take and what resources are needed to achieve that milestone.

Project Cash Flow

Now, translate your plan into numbers by creating a financial forecast. We recommend developing a monthly forecast for the initial year and an annual forecast thereafter. For each period, forecast your business’ revenue, expenses, delays in customer payments, and purchase of assets. Project cash flow by looking at the difference between cash inflows and outflows in each period. You can begin to see how much funding you will need by looking at the sum of the cash flow over the estimated time frame to achieve the next milestone.

Note: If you are having trouble with forecasting, we’ve offered step by step guides to getting started on financial forecasting and analyzing cash flow in previous blog posts (view them here).

Be Realistic

Go back and check your assumptions to make sure they are realistic. Ask yourself if your estimated time frame for achieving the next milestone is realistic based on the research you’ve done in your industry, the time you have available to dedicate to your business and your capacity to lead the business. Make sure the expenses you identified are necessary to develop the business over that time frame — that you are not inflating expenses nor are you missing any expenses. Also, add in a small buffer for inevitable mistakes or miscalculations in the implementation of your plan; we recommend a 5% buffer in either direction. Lastly, ask yourself if the forecasted revenue growth can really be achieved with the resources you will have.

Choosing the right amount to raise is critical to the success of your business. If you underestimate funding needs, you’ll end up raising less than you need and may find your business in a cash crunch. If you overestimate funding needs, you risk losing credibility with invests and may not be able to raise the funds you need on reasonable terms, if at all. So, before you start talking to investors, make sure you have identified your milestones and have put together a well-thought out plan and financial forecast.

If you’ve developed a plan and forecast, and you’ve identified how much you need to raise, you may be interested in our services to help you successfully raise funding. To learn more about how we help startups, click here. To see what is included in each of our packages, click here.

Still not sure exactly where to begin, feel free to contact us here.

The post Determining How Much Money to Raise (How to Startup Guide) first appeared on Five23.

Listen to Your Insecurities

There are countless online articles teaching entrepreneurs how to “fake it until you make it.” This advice suggests you put aside your fears, doubts, and anxieties, and pretend to be confident and successful until you internalize that as your truth. But, confidence and success don’t come from pretending. Burying those insecurities and putting up that front is hard work, and it can cause more stress, isolate you, and prevent you from making sound business decisions. Also, those insecurities are a growth edge and are needed to push you towards what you can be. Instead, listen to your insecurities, identify ways to act on them and make changes, and take little steps to build confidence. The more you practice, the easier it becomes.

Reframe Failure

Because we have so much of ourselves wrapped up in building our businesses, any business failure or setback can feel like a personal failure. Instead of beating yourself up over the setback, try looking at it from a different perspective. Life is a constant process of failing and succeeding. When we learn to walk as babies, we fall down and try again. Starting a business is no different. Consider the setback as a learning opportunity. You’ve now gathered more data on your business and can use that data to make a more informed decision about your next steps.

Ask for Support

Many entrepreneurs have difficulty asking for support. We’ve been led to believe that entrepreneurs are self-reliant. We think asking for help is a sign of weakness. We don’t want to inconvenience other people. We don’t want to be indebted to someone else. Or, we don’t know what to ask. However, reaching out for support can greatly increase the chances of a business’ success. By connecting with and asking for support from family, friends, co-workers, advisors, and other community members, you can reduce stress from the highs and lows, energize new thinking around your business strategy, cultivate partnerships, and find more opportunities to grow your business.

Set Boundaries

The current state of work lends itself to the perception that we need to be available for our business all the time. This is often amplified when we experience low points in sales and are scrambling to find new customers. We might think we need to have a presence on social media all day long. Or, we need to drop everything and attend to every customer request that comes in. We may even take on customers or partners who aren’t aligned with our values. This can produce a lot of anxiety. It can prevent you from doing work necessary to develop your business in a sustainable way. And, the amount of time and energy you are expending can have a negative impact on your loved ones and other parts of your life. As such, it’s essential to set boundaries that guard your time and energy.

Practice Self-Care

In the early stages, your business doesn’t happen without you. And if you aren’t taking care of yourself, it might not happen. Self-care sets you up to handle the demands of growing your business. A daily self-care practice will help you reduce stress levels, and improve clarity, focus, productivity and creativity in your business. In addition to getting enough sleep and proper nutrition, consider creating a self-care plan. Start by identifying the activities that help you maintain your physical, mental, and emotional health. Then, look at how you can work those activities into your schedule. And try to practice consistently so it becomes a routine. Having a life coach is a great addition to many entrepreneurs’ routines and may help yours as well.

Setting yourself up for success is key to becoming a strong entrepreneur, the items listed above will do just that.

The post The Rollercoaster of Starting a Business first appeared on Five23.

There are two types of burn rate, depending on how you calculate it:

Gross Burn Rate: is the average monthly cost regardless the revenue.

Net Burn Rate: this represents the monthly loss, the costs that remain uncovered by the revenue.

It is important to state that burn rate is more relevant for companies that are not yet generating any revenue and are relying on the initial cash reserves (investment). In this case we talk about the gross cash burn rate. It is a common situation for funded startups and may prove to be a reason of concern for the investors.

So how do we calculate this cash burn rate?

To get the numbers you need, look at your cash flow. Take into account all the cash flow types: operating, investing, financing. Decide over the period of time at which you are going to relate to; it may be the past 12, 9, 6 or 3 months.

To obtain the gross burn rate, take into account expenses only. Calculate the difference between the starting cash and the ending cash amount of your chosen period, taking into account cash payments only (regardless the revenue). You divide the result by the number of months in this period and you have the gross cash burn rate.

For the net burn rate, the operation is similar. This time you extract the ending cash balance from the starting one of the selected period. Cash revenues are taken into account.

For many startups, which haven’t generated any revenue in the time frame for which they calculate their cash burn rate, the gross and the net value will be the same. Also, startups should consider a prospective burn rate, based on forecasted costs. It can be calculated similarly to the retrospective burn rate, with the difference that this time one starts with the initial funds and extracts the estimated costs (as accurate as possible) for the following 3 to 12 months; then divide to the number of months in the forecasting time frame. This estimated burn rate will give startup owners a good view on how fast they need to start generating revenue and how much, in order to stay in business and develop further.

In numbers

Let’s calculate the burn rate for a quarter. Let’s say that at the start of the last quarter you had a cash reserve of 100K in US Dollars. At the end of the quarter you only had 40K. Let’s assume that you haven’t had any revenue. This means that you spent 60K over 3 months. We divide 60K by 3 and we obtain a burning rate of 20K per month. If we assume that you also had some cash revenue of, say 30K, your loss will be of only 30K. Divided by 3 (months), you will obtain a cash net burning rate of 10K per month.

However, because cash revenue is a rather unpredictable value, especially for young companies, it is better to look at the cash gross burning rate as a measure of how well things are being handled.

How do you use the cash burn rate?

This metric is not of great relevance by itself. It needs to be related to other values such as cash reserves, revenue and profit. Another useful indicator that can be calculated with the help of cash burn rate is the ”cash runway”. This value will show for how long the company can last without any revenue, at the current burn rate. It is the result of dividing the remaining cash reserve to the burn rate that you obtained. In our example, it will be 40K/10K, meaning the company can continue its activity for another 4 months before running out of cash.

Both young and mature companies should pay attention to the cash burn rate (and cash runway implicitly). It’s true that these metrics are more relevant for startups (and investors all the same) as a sign of their potential to manage their activity, survive and ultimately start growing sustainably. However, mature companies shouldn’t ignore it, despite their stable revenue stream. A burn rate check once in awhile may prevent unwanted trouble.

Small or big? How high should the burning rate be?

For a company to be sure it can go on undisturbed, a lower cash burn rate is preferred. A net negative one is even better, because it shows that the company is generating more cash than it spends, building up its cash reserves (a safety net for times of struggle). Still, a great amount of cash reserves is not a good thing, either. It may seem as a paradox, but having money that stagnate and are not working to generate growth and more revenue is not a good sign for a business. It’s always about balance.

So when you start building cash reserves, plan ahead and see for how long you need it at the current burn rate so your company stays safe and comfortable. The rest ;  invest it, use it to grow, make it work for the business.

In summary, cash burning rate points out clearly how long you can continue your activity with the current expenses and revenue stream. It will tell you how soon you need to take serious action, reduce costs and start generating revenue. And, very important, it relies on your cash flow recordings. So don’t put off your cash flow management any more. It will prove of great help. And if you have any questions about this topic and how to manage it, feel free to reach out. We’d love to help you get on the right path when it comes to burn rates.

The post Managing Cash Flow and Burn Rate first appeared on Five23.

Get Disciplined with Invoicing

Slow invoicing is one of the biggest reasons why businesses fall short on cash; and why many business owners don’t treat invoicing as a priority compared to day-to-day activities of delivering their product or service. But, if you don’t invoice, you won’t get paid by your customers. For example, create discipline around your invoicing practices by setting aside 15–30 minutes on the same day and time each week to review and process your invoices and payments. Be sure to address invoices that need to be created and sent to customers; invoices that have been paid: invoices that are outstanding and when payments are expected, and also be sure to review customers who are past due on their invoices and need to be reminded to pay.

Review Your Expenses

Every business is different and has its own specific expenses at various stages of development. Take a look at all the expenses your business has on an ongoing basis. Evaluate which expenses are necessary for running your business right now, which expenses are related to investment in business development opportunities and which expenses are simply “nice to have.”. To improve cash flow in your business, you want to minimize the spending outside of the necessary expenses and make sure you are investing in business development activities that are yielding or expected to yield a reasonable return.

Pay Your Bills on Time

When cash flow seems thin, it’s common for business owners to start paying their bills late. But, by paying late, you’re just moving your cash problem to a future period. In addition, you may be hurting your business’ reputation with vendors. Just like your business, your vendors rely on timely payments from their customers to maintain healthy cash flow and do their work. As such, it’s important to pay your bills on time. But if it’s really not possible to pay your bill on time, communicate with your vendor about your cash flow situation, how you are working to improve cash flow, and when you expect to pay them. If you maintain good relationships with your vendors by paying on time, they are more likely to help you out when cash flow is light.

Have a Financing Option

Despite your best efforts to track and manage your cash flow, unexpected events will occur that can throw off your cash flow. These could be positive for your business, such as a customer asking you to fulfill a big order, or negative for your business, such as a commercial landlord raising your rent. When these events occur, you might need to rely on another source of cash for your business, such as personal savings, credit cards, friends and family, a business loan, or even venture capital. It’s typically more difficult to get financing when the event is occurring — many financial institutions hesitate to provide financing to business owners in time of distress and those that do often charge usurious rates and/or you may not be able to carve out the time to evaluate and enter into a reasonable financing arrangement. Having a backup financing option in place will provide a cushion for unexpected events.

Taking proactive steps in managing your business’ cash flow will help you improve operations, free up cash for investment in business development, and reduce your stress as a business owner.

The post Successfully Manage Your Startup’s Cashflow first appeared on Five23.

Five23 can help you close your investment round, no matter what stage.

Built for Startups

Since our launch in early 2016, our focus has been you: The Startup. The goal of Five23 is to allow Startups and investors to have a better understanding of the company as a whole, and raise capital faster. We do this by looking at your company from both a macro and micro level. Everything from projected financials to the stress levels of the team members are evaluated. Once we have a clear understanding of the Startup, we create an in depth business report highlighting the strengths and weaknesses. This report can then be sent to investors, giving them a non-biased third party view of your venture.

What Investors Want to See

Five23 was born out of the investment world. We know what investors want to see in your company, and our reports focus on these items. You want to show investors who you are and what you can do. Five23’s reports specifically target these items from both a human and financial side of the business, ensuring your venture receives the attention it deserves. Our business reports are trusted by investors and accelerators around the world. From Dubai to San Francisco, investors use our reports daily.

Simple. Thorough. Precise. Personalized.

We understand, as an entrepreneur time is precious. That’s why we keep our reporting process as simple as possible. It consist of four easy steps, which only two require input from your entrepreneurial team. While a great deal of the analyzation process is done via machine learning artificial intelligence, the overall approach by our team is on a personal level. We look at the “ins and outs” of each company we examine on an individual basis. We want to know what makes the team tick, as well as what will make you the next Uber or Facebook. This personalized and in depth approach is what ensures Five23’s reputable quality. So whether you are a first-timer or a serial entrepreneur, you can be sure Five23’s reports will be of the highest quality for your venture.

Close Your Round Today

Armed with Five23, you will be sure you are giving your startup the best opportunity possible to raise capital. So what are you waiting for? Check out our packages or contact us today to get started today.

The post Closing Your Investment Round with Five23 first appeared on Five23.