Month: April 2022

Month: April 2022

Zendesk reviewed 4,400 early-stage companies to see how customer experience (CX) tools, tactics, and strategies at high-growth early-stage companies differed from slower growth startups. This report used 4.6k+ startups, starting in Jan 2014. The data shows that while there is no one-size-fits-all approach, startup companies’ success stories have one thing in common: the ability to provide more holistic support to customers from the beginning.

What Are the Best CX Trends, Tactics, Tools & Strategies Used by The Fastest-Growing Startups?

As the basis of every business is to acquire and retain customers, the customer experience (CX) has become increasingly important. Improving customer retention by 1% can have four times the impact of improving acquisition by 1%. With startups, CX can be make-or-break: the difference between the top 2% and top 1% in terms of performance is often massive and can mean the difference between getting funding or not or achieving a successful exit.

So, what are the best CX trends, tactics, tools, and strategies used by the fastest-growing startups? Here are some ideas to get you started:

  • Make sure your product or service is delivering on its promise. This may seem obvious, but many startups fail to meet customer expectations. If you’re not delivering on your promise, you will never win the CX battle.
  • Get feedback early and often. The best way to improve CX is to constantly collect customer feedback and then act on it. This means being open to criticism and always looking for ways to improve.
  • Build a strong relationship with your customers. The more you understand your customers’ needs and wants, the better position you’ll be in to provide them with an exceptional experience. Building strong relationships will also help you retain customers in the long run.
  • Be responsive to customer queries and concerns. Customers appreciate it when they can reach out to a real person who will help them with their problems. Make sure you have a system to quickly and efficiently respond to customer queries.

Constantly strive to improve. The best startups are always looking for ways to improve their CX strategies and CX tools. This might mean making minor tweaks on a regular basis or periodically overhauling your entire approach. Either way, always be on the lookout for ways to take your customer experience up a notch.

CX Is Seen as Cost Center, Not A Growth Lever

In a world where buyers have more power than ever before, businesses need to find ways to stand out from the competition. With so many choices, customers have become pickier, and it’s harder to please them. Studies show the Net Promoter Score (NPS) has declined by 34% since 2015.

Even more challenging for businesses is that the Cost of Customer Acquisition (CCA) has increased by 70% since 2015. This means it takes more money and effort to get new customers while, at the same time, product values have decreased, and customer willingness to pay has diminished.

To grow in this climate, businesses need to start seeing customer experience as a growth lever, not a cost center. By focusing on CX trends, early-stage companies can improve customer loyalty, increase customer lifetime value, and ultimately generate more revenue. Excellent customer experience is key to success in today’s market. Businesses need to focus on CX strategies to grow and thrive.

The problem is that many businesses see customer experience as an expense rather than an investment. This is especially true in industries where the average number of competitors has quadrupled or quintupled in the last 10 years. With so much pressure to keep costs down, it’s no wonder that CX strategies budgets are often one of the first places early-stage companies look to cut when they’re trying to save money.

High-growth vs Slower Growth Startups: Key Differences

In recent years, there has been a lot of discussion about the differences between high-growth startup companies and slower growth startup companies. While many factors contribute to a company’s growth rate, one important area that’s often overlooked is customer experience.

High-growth startups tend to be laser-focused on acquiring new customers and growing their business as quickly as possible. As a result, they often sacrifice long-term customer loyalty in favor of short-term gains. In contrast, slower growth startups tend to focus more on retention and building long-term relationships with their customers.

There are a few key strategies that all businesses can use to improve their customer experience, regardless of their growth rate.

It’s important to invest in CX tools and staff them properly, so customers can get the help they need when they need it, and your team will be prepared to handle any issues that may arise. 33% of high-growth startups are more likely to add support in their 1st year, and 20% more likely to add a live chat by year 2.

They should also focus on meeting customers where they are with their CX strategies. This means offering omnichannel support so that customers can reach you through whichever channels they prefer. In fact, 33% of high-growth startups add omnichannel by their second year.

Invest in self-service options like Knowledge Base articles and FAQs. This will help reduce the number of support requests your team has to deal with and free up their time to focus on more complex issues.

Watch the full webinar about CX trends with guest presenter Adam O’Donnell from Zendesk:

Financial Model Templates, balance sheet example

We created a template that covers everything discussed in our how-to post. Filled with sample data for an imaginary startup so you can take the time to understand how cash flows through the business and eventually translates into progress towards milestones. 

This template is an over-simplification designed to drive home the point that cash is the lifeblood of your startup. Fill it with your own information and add what you need so you can get a clear picture of what’s driving your business. 

Concrete Ventures Pre-Seed Financial Model Template

If you’re looking to level up your financial model, then check out some of these financial model templates below:

SaaS Financial Plan v2.0 by Christoph Janz

Use this tool to:

  • Create a simple plan for an early-stage SaaS startup with a low-touch sales model 
  • Includes support for multiple pricing tiers
  • Supports annual contracts with annual pre-payments
  • Great headcount planning section
  • Simple cash-flow planning
  • Plenty of built-in charts

Limitations 

  • Revenue/cost-based model (no balance sheet)
  • Month to month only (doesn’t account for annual plans paid up-front)

SaaS Financial Model, by Jaakko Piipponen

Use this tool to:

  • Upgrade your SaaS Financial Model to an operational tool that helps you make more informed decisions.
  • Build scenario-based forecasts to get ahead of the data instead of reacting to it.
  • Includes loans & investments 

Charlie Tillet Financial Template

Use this model to track:

  • P&L by year and quarter
  • Sales Plan
  • COGS
  • Staffing plan
  • Expenses
  • Balance Sheet
  • Capex and Cashflow
    • Which lets you account for investment

Cash Flow Projection Tool for Tech Companies | BDC.ca

Use this tool to:

  • Present past financial results and project cash flow for up to 24 months into the future
  • Automatically generate key SaaS metrics, for example churn rate, monthly recurring revenue, and customer lifetime value
  • Present financial information and growth forecasts to investors, bankers, and other partners

Use insights from the cash flow projection tool to:

  • Understand the amount of additional funding you need to keep your tech company on the right growth trajectory
  • Highlight shareholder investments and other financial inflows, such as grants, when applying for loans
  • Keep track of key SaaS metrics, such as MRR and churn
Creating your pre-seed financial model, including a balance sheet, to keep track of your cash.

Why we are talking about this:

As early-stage investors, we have seen plenty of financial models, balance sheets, budgets, & forecasts. Surprisingly, considering the importance of cash for any company, it doesn’t seem like there is a consistent “best practice” for financial modeling at the early stages of building a company. 

This post is for entrepreneurs who are just getting started. Maybe you have an idea, an MVP, or even one or two customers. If you already have significant revenue then the finance function of your business will look very different than what we present here, as it should. So with what appears to be an endless amount of advice for budding entrepreneurs, we wanted to create something that would help you cut through the noise and focus on the one thing that truly matters: cash.

We have seen pre-seed startups doing everything from 5-year models, discounted cash flow valuations, and complex scenario analysis. But for a business with little to no revenue, and maybe an MVP, do you really know what your finances will look like in 5 years? How confident are you in that model? 

As investors, the most important things we look for in pre-seed financials are 1) where the cash is coming from, 2) where it’s going, and 3) how that translates into progress towards meaningful milestones. We believe that as an entrepreneur, those three things should resonate with you as well. 

Where is the cash coming from?

The title tells you everything you need to know. The first section of your model should be all about what cash is coming into the business and where it’s coming from. 

Cash sources could be revenue, investment, grants, loans, or any other substantial funding. Breaking out the sources of all your cash line by line helps provide a clear picture of what is really keeping the business alive. Is revenue your main source of cash? Investor capital? non-dilutive funding or grants? 

A common pitfall we have seen is the desire to lump everything into “revenue”. From the accounting perspective, this may be correct in some cases. But it doesn’t provide the insights you need to properly manage your cash.

For example, a business with $500,000 in revenue being sourced by selling products to customers is much more sustainable than a business with $500,000 in “revenue”, with no customers. 

Where is the cash going?

It’s important to get a grasp of where your spending is coming from. Creating a balance sheet and listing all your major expenses line by line can help give you the visibility that you need. 

It’s important to use “fully loaded” costs here. For example, with employees, you must also pay the employer portion of CPP,  EI, vacation pay, benefits, etc. What this means is that the software developer you hired with a monthly salary of $7,500 can end up costing more, depending on your local labor laws. 

When it comes to expenses, don’t feel obligated to list every expense item. Some things like software subscriptions you can lump together to make it easier to read. Especially if the amounts are small. Once certain expenses get over a certain monthly threshold perhaps revisit breaking them out (i.e. paying $2,500 a month for HubSpot). 

Understanding the end result: Your cash balance 

On a monthly basis, you want to understand how much cash you are forecasting to have at the end of the month, as well as how much runway you have remaining. The math is simple: (cash in – cash out) + previous month’s balance. If you’re not yet profitable, you will notice your cash balance continues to decrease. For profitable businesses, this number will increase. 

As the months go by, filling in the “actual” numbers for your cash-in and cash-out items on your balance sheet gives you a glimpse of how your cash balance will change in the future. For example:

  • Slow revenue growth may mean that cash-out is closer than anticipated. Perhaps you hold off on hiring that SDR and customer success rep to help extend runway.
  • In a tight labor market, the cost of great talent may have been higher than you planned. Again, this will reduce the time you have until cash-out. 
  • A favorable scenario – perhaps revenue growth exceeded expectations and you want to know if you can hire the customer success rep 3 months sooner. How will this impact your cash?

Milestone Progress 

Milestones are what define the progress your business is making. Proper milestone identification is a topic on its own. At a high level, it’s important to lay out your roadmap alongside your financial model. 

Being able to see your milestones on the same page your budget allows you to ask some key questions:

  1. Am I spending money on the right things, at the right time?
  2. Will I run out of money before achieving all my milestones? 
  3. Do I have extra time to achieve milestones if things take longer than expected? 

This also helps both you & investors understand how spending ties back to milestone attainment. 

Best Practices

As your business grows, revenue tends to become more predictable. When that time comes, you can start to plan on longer time horizons, which increases the complexity of your modeling. Picture driving a bus, when going slow you don’t need to see too far ahead of you. But once you are traveling at 100km/h you need to see pretty far ahead. The same can be said with financial planning. 

For a pre-seed company with little to no revenue, it’s almost impossible to predict where you will be in the next 24 months. Sure, it will look nice in the spreadsheet and give you some confidence, but will you be right? Unlikely. Will you need to make significant changes? Almost certainly.

Planning for the next 12-18 months is what most early-stage investors are looking for. Answer the question, “what gets us to a seed/series A round?” and then show that from a numbers perspective. 

You don’t need multiple tabs, with tons of variables and complex calculations, and you certainly don’t need a discounted cash flow valuation. 

In addition, you don’t need to plan 3-5 years out, not yet. 

At the early stages of your business, all you need is a bulletproof understanding of where the cash is coming from, where it’s going, and how that translates into progress. 

We gathered a few different financial model templates to get you started