Three Numbers to Know Before Launching A Startup
When launching a startup, you face the task of turning inspiration for innovation into a profitable product or service. Ideas are a dime a dozen: the successful startup differentiates itself in execution, and this ultimately comes down to the numbers and profitability.
I built my independent wealth management firm, LexION Capital, from the ground up. As a financial advisor, I also work with a number of clients who are business owners themselves. With that, here are three key numbers that a would-be entrepreneur needs to have in hand before launch.
1. Your burn rate.
How much cash will you burn through in a month, and how long is that sustainable, given your savings and any other capital you have?
The difference between entrepreneur and “wantrepreneur” ultimately comes down to cash flow and sustainability.
2. The length of your runway.
This is where #1 comes in. Your initial business plan should always include a runway. If your business hasn’t taken off by the time you reach the end of the runway, you don’t keep driving. Calculate the length of your runway via your burn rate.
When I started LexION Capital, my runway was three years. If LexION had not been successful within that time frame, my plan had been to re-enter the corporate workforce. I knew it was the right time to quit my day job when I had a long enough runway that I could take off and not crash.
3. The number of clients in your best-case scenario.
You have a projection and a target for your launch, your first quarter of business, your first year. As part of calculating your runway, you’ve also considered what will happen if you fall short of that goal and how long you would then have to get up to speed. But an entrepreneur may overlook the necessity of a best-case action plan.
When I opened my doors for business at LexION Capital, by the end of the first day I had more clients than I expected for the entire first quarter. This success became what I can only call a reverse curse, as there was no way that I could adequately serve any more clients at the extremely high standard I was committed to. So, LexION shut its doors temporarily to additional new clients while I expanded and staffed up. It was a whirlwind lesson in strategic growth planning, one that every entrepreneur would do well to prepare for in advance: what if the surprise is to the upside? What would that look like? Dream big, and then dream bigger. Will your company be ready for that given its current size, and if not, what will you need to do so that you are equipped to handle that additional business?