From Startup to Scale: Lessons from Slidebean CEO and TEDx Speaker, Caya

Hello everyone. I hope you're having an awesome day. My name is Daniel. I'm a part of the FI marketing team. Thank you so much for joining us with a, for a very, very exciting event. And this one is particularly exciting because we have with us today Kaya, the co-founder of Slidebean. If you ever made a presentation, if you're interested in startups, if you have looked up anything ever related to startups, you probably have heard of Slidebean. So we are really, really excited to have Kaia here with us today. Before we bring Kaia on stage and, you know, go through the presentation and all the other motions, why don't you in the chat let me know where you're coming in from? I can see that we have people in from Montreal, we have people in from London, awesome, Boston, Kenya, Sofia, Spain, awesome, Mexico. Like always, we have a very international audience that kind of, you know, it tells you about the power of startups and the aspirations that people across the globe have when it comes to building impactful businesses, right? Before I bring Kaia on stage, just to kind of briefly go over the agenda here today, Kaia will go through his presentation, and after he's done with his presentation, we'll go into a Q&A. So to pop in a question to ask Kaia, whatever's on your mind, all you have to do is click the Q&A button on the right side of your screen. It should be right under the chat button. So what we'll do is I'll join Kaia on stage. We'll go through some of your questions, bring them on stage and all that good stuff. And once we're done with that, we do have a networking portion of the event. Hopefully if Kaia has some time, he might stick around. I'll be there. You'll be able to meet a ton of startup founders, aspiring startup founders from across the world. And of course, to show Kaja some love, if you're enjoying everything that's happening today, you see a reaction button right at the bottom of your screen. So all you have to do is click it and show our speaker some love.

Yeah.

And without further ado, let me just invite Kaja on stage. Here we go.

All right, everyone, uh, my videos— oh, there you go. All right, hey everyone, thanks a lot for having me. Uh, and excited to kick it off. Like, I've been, uh, I've been on and off with, with Founder Institute for a while now. I don't, I don't think I have the energy to run a chapter, but I've been a mentor to a couple chapters in a couple different cities. Um, so excited to, to meet you all. I saw someone from, I saw someone from Austin, Texas, which I just got back to on a, on a really cool trip around Texas. So that's, that's cool. A highlight to, to them. All right, I have some slides. I don't want to make it too overwhelming for you guys because it's, you know, financial modeling can get crazy. Daniel was saying that this is a very fun session. Like, I try to, like, financial models are a bit of a necessary evil. Uh, with startups, uh, I don't think that they're— I don't think that they're— or I didn't used to think that they were fun. Like, I think I found, uh, I have eventually found some fun into them. But, um, the general thinking is like, I, I don't think that founders think about financial models enough. Um, you know, we've been working with founders for a while and it's, it's usually an afterthought when it should be honestly a big core of the business. So hopefully I can convince you guys to take a look at your financials and to run them more carefully through this session. So let's get started. Okay. So there are a bunch of different names that you can— Yeah, you probably read around this thing, right? There's this pro— People call them a pro forma template. You could call it budgeting sheet. You could call it just revenue estimation or KPI tracking. But in the end, all of these things kind of summarize or are summarized or what what we're talking about here is, is a financial model. Um, so what I want to talk about is, uh, well, common problems with financial modeling. Um, I want to do kind of like our approach, which is— we didn't invent it by any means, but we sort of— I think that we're making a big effort to bring awareness to this concept of driver-based financial modeling, which I don't think is a thing that people used to think about. Um, we're going to model a company. We're going to do a very basic sample of a company from the audience. So Daniel, I'll let you know, and we'll ideally, we can bring someone up to stage and kind of like hear a little bit about their business and, and try to map that in, in our, in our system. Uh, and then I'm just going to show you how a financial model looks after it's finished, uh, and run some revenue projections and, and give you some scenarios as to how that could look. Okay, so, um, let's start with— oh, sorry, uh, I used these slides for the Zoom thing, but Daniel already told you where you can drop your questions, so make sure you do that, and we'll have some time at the end. Okay, so the one reason why we understand this and why we honestly got into helping people with financial models a little by accident was because we started Slidebean as this fundraising platform, right? In the last 18 months, about $300 million were raised with pitch decks that we helped make. And so many of those pitch decks and so many of those projects were struggling badly with the financial model. And, and here are some of the problems that we often see around that. First, we see arbitrary round numbers. Like this is usually a very obvious telltale sign that someone has, hasn't done their homework in the financial model when they go to an investor and they, they're just raising some random conveniently round number of a million or $500K. Usually not guaranteed, not a red flag, but definitely a sign that, you know, the math hasn't been run in the background. Another common problem is, you know, the growth projections just assume this hockey stick 10% growth and there's no good understanding of what's gonna drive that. I'll show you that in a sec. And then the other big issue around financials is that, companies are focused more on their months of runway or, you know, hey, we're raising money for 18 months or we're raising money for 24 months than on their capacity to reach a certain key milestone as to where the company's going. So let's make sure that we don't commit those mistakes. And then the answer to that is, yeah, it's a spreadsheet. We've, I think we've done our best and it's a free template by the way. So I'm not, I'm gonna try, I'm not trying to sell you anything, but it is a template. Um, available for download for free. I'll give you the link in a sec. But, you know, we've made a good effort to, um, make it look as far away from a standard nasty financial model as we can, and I think we have. But we're not gonna touch it, we're not gonna look at it, uh, for a while yet. Uh, why? Because we have to understand some things first. So first of all, um, we all understand this driver concept that I've been telling you about. So imagine this chart where we have very simple, you know, green bars reflecting revenue and red and blue bars reflecting expenses, right? So, and you're sort of modeling, you're projecting your revenue, you're projecting your expenses to reach a certain milestone, right? Either that's your next round of funding or that's a revenue goal or maybe it's becoming profitable or, you know, or an exit selling the company, right? So, That's where you're projecting. You want to make sure that you get there, right? So the big question is, well, what is driving your revenue and what is driving your expenses? What's the cause of that revenue? Cause and effect. So let me give you a very classic example of a founder's story. They'll come to us and they'll say, hey, we're going to generate 700 orders a month, the month we launch, and then that number's going to grow 10% every month. And after the second year, growth is gonna slow down a little bit. It'll go to 5%. So if you wanna project that, and that again, this is a, this is bad, but this is a very common approach that I'll see in, in a lot of pitch decks. So what does that mean in a spreadsheet? Like how do you project that? Well, that's very easy. You'll take the 700 orders in the first month and you'll just multiply that by 110% and then you'll drag that formula. You'll connect that to 110%, 110%. Again and again. That's just essentially a 10% growth every month. So how does that look? Well, if you put that into, into a, into a chart, it'll look like this. And that is a beautiful— there's a beautiful hockey stick chart. Uh, it looks great, it shows growth, but it's so wrong. Like, it's again another red flag sign that someone hasn't really done their homework. Why? Because just growth doesn't happen like that. Growth isn't magic, magical. There needs to be a source of that growth. So what is driving the orders in this case, in that example? What causes orders? And I'm mentioning orders as an example, but to you, orders may be traffic, might be your subscribers, could be your monthly active users, could be drivers and riders for an app like Uber. So what's driving the orders? And at the same time, what do these orders drive? The more orders you have, well, the more fulfillment costs you have to cover or the more hosting costs you need to cover or the bigger your support staff needs to be or the more account managers you need. So remember this causality, right? Cause and effect on those orders. So if we think of, if we try and sort of illustrate this into a visual, into a flowchart, it would look something like this. So revenue, is what we probably care about the most. And then revenue drives costs, right? So think of an e-commerce platform for t-shirts. You're selling t-shirts with your design on it. The more t-shirt orders you get, the more you have to spend buying t-shirts, right? So the cost of these products, the cost of the products that you're selling, that's cost of goods sold. That's what COGS means. Uh, we've color-coded. That's not— it's— this is not a standard. So COGS is a standard. This is a word that everybody who does financial modeling understands, not the color coding. But I think that it's helped our model kind of be much more easy to navigate, much easier to navigate, and much more intuitive. So COGS, we'll call it that. Uh, it's kind of like pink. We call it slight being red. But yeah, so revenue drives COGS. Um, and then the question here is, well, what drives revenue? What are the drivers that generate revenue, because again, revenue isn't magical. So what could be drivers for revenue? Well, we could have paid marketing, right? So we could group— I normally like to group those things into a single driver concept, which is, you know, search engine marketing, display, retargeting, sponsors, influencer marketing even. I would dare say, I would dare call that a paid marketing campaign. Why? Because In the end, you're paying influencers to advertise your product. And after advertising your product or after you pay for that, you'll get a certain number of conversions, right? A certain number of, of a certain amount of revenue. And you know, if you rinse and repeat this, you should start to see a cycle of, hey, for every sponsorship we're getting this many customers. So it is a paid campaign in the end. There's brand awareness that influencers give you, but in the end you should be able to track that much more accurately than just assuming that your brand got visibility. Another common driver is outbound sales, right? So if you have a B2B SaaS or an enterprise product, you know, outbound sales, you know, you're either cold emailing, cold calling, doing business development, and that's how you get customers in. The other option is organic traffic. So, you know, you could assume that because you do SEO, because you have word of mouth, because you do social media, because you have brand awareness, organic traffic on the website will grow, will continue to grow, and that's what's gonna drive more orders, right? Or, you know, if you have a subscription type business, then your returning customers, just the customers that are renewing every month, that's another source of revenue and another potential driver for your revenue. So just a few examples of drivers, how I, how we normally group them. But there's another aspect to them, which is that they're not all the same. Some, of these drivers have a direct cost associated to them, right? Paid marketing campaign is literally money that you spend to recover money or to convert that into cash as revenue. Outbound sales team, you know, you're paying salaries and that's the team that's driving the revenue. The bigger the team, the more revenue you have in theory. But organic traffic isn't, right? So there's a team, there's a marketing team that's driving your organic traffic, but by doubling that team, the size of that team, you don't necessarily double the amount of organic traffic, right? So it's driven by cost, yes, but it's not necessarily directly proportional. But point being, all of these things drive revenue. And that's kind of like the big aspect that I want you to understand. 'Cause if a good financial model has a great understanding of this causality, right? And I'm gonna show you how that looks in a sec. Before we do that, just like, normal, just, um, um, sort of leveling the playing field in terms of color coding and just the main essential parts of the model. Revenue, like I said, is green. Green is the color of money and it's my favorite. Uh, COGS, we talked about that, that's cost of goods sold. Uh, the blue code or the blue color code on the model is SG&A, that's sales, general, and admin expenses. Uh, some people call that OPEX or operational expenses as well. Um, but But in the end, it's the same thing. It's almost everything else. So everything that's not a cost, it's usually an SG&A category. That's your rent, that's your utilities, those are the SaaS platforms that you pay for, those are your employee salaries, your marketing costs, all of that falls into that category. And the last one where I won't stop for too long is capital expenditures. So that, you know, in a financial model or in a business, if you buy a car or if you buy property, if you buy laptops, you're not really spending that money, you're buying an asset and that's an asset that the company owns, right? So it's not entirely an expense, it is treated differently. So a lot of tech companies, like tech startups, don't have a lot of capital expenditures 'cause it is really just the laptops for the team, but it is a separate category. So we make sure that we color code it. And if we apply this idea of driver-based modeling and we apply some color coding, we can start building diagrams like this, right? So let's, let, let me walk you through that quickly. This is the diagram or the, what we call the financial model map for an e-commerce business, for just an e-commerce store. So let's see how that works. In the end, the number that we're after here on the, on the right side is orders, right? Orders, the number of orders drives revenue because we have an average order size and the markup on the product. Revenue drives costs, the product costs, right? So that's pretty intuitive. And then orders here also drive fulfillment costs, 'cause for every order we have to ship an order in e-commerce. So those are sort of tied together. The shipping costs are not necessarily tied to revenue, right? They're tied directly to the orders. And so how do we get to a feasible number of orders? Well, orders are a combination of, orders that are coming from new customers, so somebody that comes to the website for the first time, and orders that are coming from regular customers, customers that buy multiple items, that have purchased something before, that are coming back, so we didn't have to go and acquire them. So if we take this map from the left to the right, right, in the ideal order, we see that in here we're assuming that customers will come from two sources. One is paid marketing, the other is organic traffic. Uh, so paid marketing has a cost of acquisition that drives orders. Organic traffic has a conversion rate that drives orders, and that's how we get there. So the numbers, the inputs that you put into this model, the drivers of this model are your paid traffic and your organic traffic. If you want to grow faster, if you want more revenue, then what you do is you increase your assumption about that organic traffic, or you increase your assumption about that paid traffic, and that's That's what scales the model. It's not an input into the revenue like the bad example of the 110%. The input is in the drivers, not in the revenue. So hopefully this will make sense in a sec, but I'll stop now before we build one because we are actually building one. And I'll check the chat if we have any questions from everyone. So now is the time. I see the Q&A. I see questions about the recording. But no questions on the model so far, so maybe— okay, here's one. I'll take Guillermo. So Guillermo, let's see if I can do the answer thing. No, okay. Maybe you do that, Daniel, when— I don't know if Zoom has this little answer thing, but I'll take Guillermo's question. So how do you go about pricing a revenue model or forecast for B2B business where contracts are larger and more sparse? Obviously pricing is a number that needs to cover the cost of running this business, right? Needs to cover the cost of, and it needs to generate a profit. So pricing, sometimes people think of pricing as, hey, my product cost this and I'm gonna put a markup of 50%, right? When we started Slidebean as a presentation platform, our first thinking about pricing was, hey, server costs of running a customer are like a dollar, so we'll multiply that by 5 and that'll be our pricing. That's not how it works, right? Pricing needs to reflect the cost of bringing that customer in and it needs to reflect the cost of running the business. So that's where budgeting a spreadsheet where you have to account for, where you do take into account the, you know, how often you convert customers, how big the sales team needs to be in order to convert those customers. Uh, if you take into account those things and you budget them, that's where you can start thinking, well, what number do I need to put here in pricing so that this business is feasible and it makes sense? Let's see what else came in. Uh, where do you put the cost of marketing for yen? Uh, that's usually in the SG&A side. So sales, general, and admin expenses usually accounts for marketing. It's just not in the acronym, but it is. Um, so that— this is a great question from Radu on valuation. So how do you calculate the current company valuation? So a company valuation is a company valuation for an existing business, i.e., a company that has revenue, that has raised money in the past, a company that exists, right, that exists as a business, is an auditing exercise, right? So somebody will go do a 409 valuation and determine how much the business is worth. It's, it's very, it's a pretty straightforward process, I think. On the other side, if you're a pre-revenue company and you haven't raised any money so far and you don't have a product, then valuation is just, it's fugazi, right? It's just an imaginary number. And it is. And I see a lot of founders kind of concerned with, hey, how do we estimate evaluation for this business that doesn't exist yet? And usually my recommendation is like, don't sweat it. Uh, in the end, the valuation that you get at which investors will invest is not so much based on what audit you do and so what market estimation you do. People pay thousands of dollars for these valuations, and that's not going to convince investors to give you a better valuation. In the end, the valuation is, is just a balance of how much risk is there in your business and the offset that investors want for their money. At the pre-revenue stage. After that, it's, it's a very different exercise where you take into account revenue, revenue projections, profit, and so on. Um, okay, let me take maybe a couple more before we get into the next step. Um, what modeling to do if the startup is not selling a product? Um, I mean, there are— I guess it depends on the type of model. Uh, well, if you give me a little context, then maybe you can answer that better, because not all models are e-commerce, right? That was just an example. Uh, I'll take flat. So, uh, in a way, this is how an accountant looks at a business. And this is, this is a great question, and I'll, I'll end with this one before moving forward, which is I think that there's a big difference between the financial model and the job of the accountants. So the job of the accountants or the bookkeepers is to look at the transactions the business made, classify them where they need to go in these categories— cost and SG&A and capital expenditures. And keep them in order for taxes, for tax purposes, and just file all of that. That's, that's what an accountant or a bookkeeper does. Um, that's very different from the financial modeling part. So the financial modeling part is more about guessing to the best of your abilities how much revenue you're going to generate next month. Why? Because you need to know that in order to determine if you can hire someone You need to know that in order to determine if you, if you need to spend more aggressively, if you're meeting or failing at your investor goals. Like, that's what a financial model is for. And it's not the job of the bookkeeper. It's usually the job of the CEO. Um, I'm sorry, it's usually the job of the CEO, the COO, or the CFO. Now, many companies don't start with a COO or a CFO. Uh, you know, we are an example of this. So, and we struggled a lot, or I struggled a lot because nobody was running this. Somebody had to. How do I know if I can hire someone next month if I don't have the visibility on that? So that's why I think the financial model is key. And in so many ways, it has saved us from oblivion where we've been able to budget and make decisions based on what's going on. Okay, Daniel, if you have a chance, do you, do we wanna maybe wanna bring someone on stage? So I don't know if in the chat guys you wanna type kind of like a one or two liner about what your business does. If it's a B2B or if it's, sorry, if it's a B2B SaaS or a B2C SaaS or an e-commerce or a website, just throw that in the chat. I'll read through a few and we'll pick, we'll maybe pick one that is useful for, for more than one of you, and hopefully you, you all can learn a little bit of how that works.

Okay, so we have a couple of people, uh, chiming in here, right? We have people— SaaS, e-commerce, e-commerce, B2C. Okay, here we go. Okay, so, okay, so do you want to maybe just pick one?

And yeah, I see a lot of— I see a lot of B2Bs, right? So let's maybe— let's maybe go with the B2B, uh, Sorry, I see a lot of SaaS, which is, and B2B SaaS, which I see as the most common trend. So let's see, why don't we pick Hannah Rose? So D2C with product orders and subscription model. I think that that applies for everyone. Can we bring Hannah up to stage?

Okay, Hannah, would you? So let us bring you on stage. Yeah, Hannah, you should have an invite to the stage. All you have to do is accept it.

All right, while I do that— while we do that, I'm going to paste the link to the template. So this is the spreadsheet that we're gonna use for the rest of the session. Again, it's free to download. I'm generally not trying to sell you anything with it. I see a couple of Sliding customers. Great. So maybe you know about this already. So I just dropped the template there. Again, all the links that we have are gonna come from there. So you'll find everything in there. Hannah, good to meet you.

Hi, nice to meet you. This is so cool. I can't believe this is happening. I watch your YouTube videos like every day. So I'm really starstruck right now. Thank you so much.

Awesome, awesome. I, um, I, uh, it's weird to do— to— it's weird that I do YouTube videos on like cool, you know, uh, social issues, and then I have— and then I do spreadsheets too. But that's, uh, that's the circus act, I guess. Uh, go ahead, tell us about your business, and we'll, we'll, we'll get to try and model it in the time that we have.

Fantastic. Yeah. So I'm a direct-to-consumer product company with a subscription model attached. So I sell a pair of pants that help women with pelvic pain and chronic pain. But included with that are portable heat patches that go in the waistband. So my customers can wear these pants with or without the heat patches. And there's a subscription model if they need the heat patches. Whenever they want throughout.

Okay, okay, okay, okay. I got that. I got those basics. So let me, let's try and build it. I have some follow-up questions for you, Hannah, as we build this. So the link I dropped there in the chat will give you access to this template. We'll get into the template in a sec and we'll show you, I'll show you a little bit of how it works. But what I'll do now is, the first thing we need to do again before we even touch spreadsheets is we wanna work on the model map, right? So here in the model map page, you'll find a link to a Miro board, which is this board. You can make a duplicate of it and create your own account. It's free too. And you'll be able to kind of grab a bit of a template on these building blocks. Okay, so Hannah, how do you get customers into the product? Which by the way, I didn't ask the name.

Emma Valentina. So far our customers have all been through word of mouth. In organic growth, but I do see, you know, paid advertising and working with influencers in the near future for sure.

Okay. You said Valentina was the name of the brand?

It's Emma Valentina.

Yeah. Oh, Emma Valentina. I gotcha. Let me arrange my screen here so we have, we have, we can fit everything. There you go. Okay. Okay. Let's do that. Emma Valentina, right? You said, sorry.

Yeah, that's perfect.

Okay, there you go. Cool. Okay, so here's what we wanna do. So you said, you said word of mouth. Great. Word of mouth is, is great, but sometimes a red flag for investors. If you're, if you're trying to raise money to say, hey, like, hey, all my revenue has come from word of mouth. I mean, it's a bit of a double-edged sword, if you will. Why? Because part of it is, okay, great, you've been able to do something like guerrilla marketing to get people on board, fantastic. But if you're raising money, you need to know where you're gonna spend it, right? So sometimes when that message comes like, hey, we haven't spent a dollar in advertising, then it's like, well, how do you know how that money's gonna be spent? You're gonna make mistakes. Everybody makes mistakes when spending their first few dollars in advertising. So that's kind of the challenge. But that, that's fine. So I think that that should be one that we take into account. So notice that I'm just stealing the block format here and I'm gonna do your first source of customers and let's call this organic traffic. So to me, word of mouth fits in here, social media fits in here, but in the end, the KPI that we're after is how much traffic is that driving to your website? Now that, that isn't magical, right? Like organic traffic doesn't just happen. There must be a marketing team that's driving that. But again, it's not a direct driver because the bigger your marketing team, your organic traffic will not necessarily grow. It should grow, but it isn't like directly proportional. Sometimes I'll just add that as a reminder, like on a, like on a dotted line or something like that, just to remember that, hey, there is a marketing team here that that's causing this cause and effect. But in the end, this is the driver that we'll be able to control from the model. And then the other one would be, I'm sorry, you eventually mentioned, do you wanna do influencer marketing and other advertising?

Yes, that's correct.

Okay, so let's say we'll do influencer marketing. Um, paid ads. Okay. Um, okay, assuming— do these people go to your website? Is it an app, or what happens next?

Um, it is a website, um, and a lot of our traffic is through Instagram. Um, okay.

Yeah. Uh, which we— yeah, we sort of grouped into organic traffic, right? Instagram would fall in here.

Love it.

Um, where— so they'll go to your website, they set the order on the website.

That's right.

Okay. Yeah. So I would, I would take, I would do it like this where we have organic traffic, uh, and the number that we're after is orders, uh, right? So certain amount of your organic traffic. So the people that came from Instagram, et cetera, will convert. So we'll call, we'll sort of translate this into this via a conversion rate. And once you start doing ads, will convert money, like the money spent in ads into orders via a cost per acquisition or cost per order. Yeah. Cost per acquisition. Cost of acquisition. Okay. So they'll order what, a pair of pants usually just one pair?

So far that's just been our MVP. Ideally they'll be, or the average order will be more than a single pair of pants. Um, with that first order, they do get their first set of heat patches, but I've noticed that, um, I think 40% of my current subscribers came from a pants order. So there's— okay, I don't know if that's needed right now, but, um, no, no, it is a KPI.

Okay, okay. So the order is pants and patches?

Um, that's right, yeah.

And then subscription is just for the patches?

That's right.

Okay, so I would think that it's something like this, uh, where we have a number of orders, uh, or let's call this initial orders. Uh, now initial orders have a direct cost just because an order is set, right? So there's a direct cost in that order, which is the fulfillment or the shipping. Whether you charge it to the customers or not, you have to pay for it, right? So it's, uh, shipping. On fulfillment. Okay, now, um, on the— what happens next is that each order has two things. It has pants and it has patches. So let's break those out. So we have pants and we have patches. So you, uh, so every order has pants, you said, right? Um, yes, every initial order. And does every initial order also have patches?

Um, yes.

Okay, so 100% of orders. And we'll just remind ourselves that everybody that goes from here goes to each either one of these, right? Because the first order always has them. Um, and from that, now we can just estimate revenue, right? So patches Sorry, pants. Uh, we can say average pants per order, and we can convert that into revenue, which is— we'll call that pants revenue, uh, and average price per product. Okay, let's look at the patches now. Uh, so in the patches Um, uh, average patches per order, same thing. And then average patches revenue. And then for each— for both of those, we'll also need the manufacturing cost, right? So we'll need to cover that as an expense. So the cost— well, we'll just call it— I'm just gonna COGS. And COGS for each one of them. So we'll, we'll track them separately. Now the subscription part was the reason I was really, I thought your, you know, mapping your business would be fun. So tell me how that subscription works.

Okay, great. Yeah. So far this is amazing. Thank you so much. The subscription is based on whatever the customer needs. I have a lot of options for them to choose when they need the relief most, but my most common order size is about 5 heat patches once a month.

Okay. Okay. So they'll, they'll keep ordering this, but they're, but do they sign up to like an automatically billing subscription?

Oh yeah, that's right. Mm-hmm.

Mm-hmm. And you said about 40% of those people get the subscription.

That's right. Mm-hmm.

Okay. That's nice. That's fun. Let's see how we fit this in here. Mm-hmm. Okay, yeah, so out of that initial order, we're saying that 40% of people are getting subscriptions. So we can plug that like this here. It's another error, and we'll call this subscribers, uh, and then the subscribers will pay a subscription. I would normally— normally when you have multiple subscriptions, and this is a a tip for everyone. When you have multiple subscriptions happening at the, you know, and you wanna estimate the revenue for those, my best recommendation is not to do this. So not to like say, okay, subscription 1, subscription 2, and try to break them out like that, 'cause you'll end up with a very, very complicated model. My recommendation is at the get-go to just work out of an average. Uh, right, so we'll do subscription, subscription revenue, uh, and we'll say like average subscription price and average patches per subscription, something like that, where, you know, we consider them in on average so that we can project to the future rather than saying, hey, like these guys are on the 5-patch plan, these guys are on the 7-patch plan, because that can get tedious very fast and usually not necessarily to— it's not necessary to look at it at so much detail. And then the last arrow that we need to connect is here we have COGS for pants, cost of goods sold for pants. And here we have cost of goods sold for patches. And this one really connects here, right? Because we have patches that were sold on like individually on that first order. but we have patches that get sold through subscriptions. But in the end, in the end of the day, at the end of the day, there are patches that you need to pay for. So that's at the very, very, very basic how your business would be mapped. But let's actually look at how we would work on that in the model and do a little bit, a little bit of formulas so you guys can see how it works. So I'm going to go to spreadsheet. I made a duplicate of the one that you— the link I shared, so the one that you guys can download. I just made a duplicate that I, you know, so we could use in this session. Normally, you know, the, what the model is, is a spreadsheet that has, or what the template is, is a spreadsheet that has all of this stuff kind of mapped directly, right? So for example, if you go to SG&A and you have, you know, your accounting costs, right? So you have accounting services here and you set that, I don't know, to $500 a month that they're charging you. You know, we'll summarize it here into, into the advisory section. Uh, maybe legal, we have 2. So I don't know, you want to set aside some $500 for legal stuff every month. So that all gets added up, uh, it gets consolidated here as like professional services, and then it gets consolidated here on your total SG&A on your financial statements, uh, and then it gets consolidated annually in your, in your entire expenses for the year. So that all happens automatically. That's the, I mean, that's part of the time we're saving you so that you have to do that from scratch. It's not too complicated, but what's the point of doing it again? Okay, so that's the first good feature. The other good feature is staff. So normally if you wanted to track staff, we have a headcount block here. So I don't know, you wanna start paying yourself a CEO salary. So you'll set, you know, you'll set a month of October as your first month where you pay yourself And then you start kind of adding one and then you hire an office manager here, you start adding ones, but this is really tedious, right? You have to go and paste this number every single time or even drag it. And if you wanna hire another one, then you have to go and do it again. So that gets inefficient very fast. So what we did is we built this little dashboard here with staff that lets you estimate your staff much quicker, especially the scaling of that staff. So for example, if you're doing content marketing, social media, word of mouth, you could have a marketing team here, like a senior marketing person. You can define an annual salary for them, which I can never get this number right 'cause I see people from all over the world. So I don't know, $75K for a marketing person in New York just seems normal, but that might be ludicrous in Pakistan where Daniel is. So yeah, ignore this, but, You have an annual salary, you can do a number of payroll taxes, which in New York is like 25%. You can assume an annual increase on their salary. So maybe you set that to 5%. And here you can do, you can choose when that hire starts. So if we, I'm just gonna highlight it so we can see what we're talking about here. So we'll say, hey, we'll hire the first marketing person. In January, right? We'll have 1 in January, and then every quarter, quarterly, we're going to add 1 more person, uh, so that we get to a maximum of, um, I don't know, 15 people on the marketing team, for example, right? So by just adjusting this line, what's going to happen here in SG&A is that we're going to create that role of senior marketing and that team notice how it's gonna scale every quarter by 1. And that just saved us the time to have to go and do it manually. So in the cost, we also take their salaries, the salary for the entire, that entire senior marketing organization. And that's that. Now I don't have a direct or, you know, like the last part of the puzzle here is, going to the assumption sheet. Um, sorry, I see Jared asking for the link to the template, which I'll just paste once again so we don't, uh, so you guys don't forget. Also, I can't, I can't help myself, I'm sorry, somebody asked for the YouTube channel, which is my favorite thing of my job, so I'll just paste that as well. Okay. Um, okay, so, uh, yeah, the next step, or the last step here, is sort of bringing those formulas here into assumptions. So a good, well-built model has all these formulas stored in the assumption sheet here. And then so that we have like this one dashboard where you can control everything. And the best I can do for today so that we don't run out of time and we still have some time for questions is show you a finished model that looks somewhat like Emma Valentina, Uh, which is our— which is an e-commerce model. So I'll just make a duplicate of this so I don't break my original one, uh, and we'll work out of that. Again, it's, it's not exactly what we built here, but it is somewhat close, uh, and I think it's a good example. Um, so let's do— let's see how the assumptions page looks. So here in assumptions, we have these paid marketing budget or paid marketing traffic here and this organic traffic here as inputs, right? So we can define, for example, let me zoom in. We can say, well, Valentina, when you, maybe you started doing organic traffic already, how many visits do you think you get every month? Just ballpark every month from organic.

Ballpark, probably about 250. So not too much.

Okay. That's fair. Is that growing?

Yes, it is.

Mm-hmm. Ballpark, how much is it growing every month?

Probably about 2%.

Okay. That's fair. Okay. So we'll do that, right? So we can pick here, we can pick and say, hey, you know, let's say assume that organic traffic started in January, starts at 250. Grows by 2%, and then we can set a cap. I normally like to set a cap on traffic because there's only so much traffic you can get, right, in your market and in your space. And then you have a percentage of visitors that make an order, which I'm not going to ask you, Valentina— I'm sorry, um, Hannah, because I don't, uh, I don't want you to reveal your secret sauce. But let's just assume that it's something like, I don't know, 5% of people that come make an order. And then On the paid marketing side, so let's assume that you guys aren't doing marketing yet, that you will eventually. So you can set a launch date for that marketing here and maybe start at $1,000, grow that by $500 a month, and then also set a cap for it. And then you have an expected cost of acquisition here. So the idea of this dashboard of building something like this, and, and this is done using very simple or relatively simple spreadsheet formulas, including just IFS and, you know, like IFS on Excel, SUMs, and, and basic math operations. There's no secret sauce to, to any of this. It's just like standard Excel formulas. Um, but what we see now is that after we input that, we can go to revenue and we'll see, for example, organic traffic. Great. So this is organic traffic as it's projected, right? 250 the first month, growing 2% every month as it scales. Now we, of course, since this has been happening already, we can just come here and update the actuals, right? And say, hey, like, well, last month was 250. So we'll, and then we can, you can literally just add the original value here. I don't know how that scaled with time. I'm just putting some random numbers in there. A good rule of thumb is to use blue numbers for inputs and black numbers for formulas. So if I just made the manual input, I can just change it to blue. That way I track the historical, and then starting November, I'm just going to assume that 2% growth, right? Notice how paid marketing is also here starting March as we set it, um, and we, we also put that as blue or light blue really because we want to remind ourselves that that's an expense, right? So here in SGA If you go to marketing, that is being accounted for as an expense. That's probably the most important part of everything, right? It's not just assuming that marketing spend, but actually budgeting that marketing spend, put it on the SG&A sheet so we know, we check if that's happened. And then here in revenue from that paid marketing, we have a conversion to orders, which we do just like we did here on the map, a conversion rate. So certain amount of organic traffic converts converts to orders, and then paid marketing on a cost of acquisition converting to orders, right? So it's, it's pretty similar what we have here— up there, but here, uh, where on assumption side, you know, percentage of visitors make an order and there's an expected cost of acquisition for that. And then the model breaks down again here to look at website sales, you know, customers and so on. This one is a little different from yours, Hannah, so I'll stop here. I also don't want to overwhelm people. But that in essence is the task of a financial model, just to estimate if things are— if things make sense, right? And you can also, you know, go and look at that dashboard now that we understand much better to understand, you know, whether the business is growing, whether you need to adjust prices or not. Again, this is an incomplete model. We haven't really talked about pricing yet, but that is the general idea. So I wanna— I'm— I rushed a little bit through this last few steps because I wanna— I see, I saw a lot of questions in the first stop for questions, so maybe let's do another one and make sure I can answer everything. Hannah, thanks for lending us your business as a little case study.

Thank you so much, honored to be here.

All right, so let me jump in to Q&A. I am seeing the chat and the Q&A, but I'll pick from the Q&A now.

Yeah, Kai, before we kind of really get into those questions, I do have a question that we do get a lot, right? And the question is, when should an early-stage startup founder really start focusing on financial models, right? The assumption here is they're at an idea stage, they're validating customers, when's the right time?

Good question. I'd say, man, I mean, I'll tell you a bit of my experience. Like when we started Slidebean, we had, we raised like, we did Startup Chile, which was a grant of about $30,000, $35,000, which was an investment. The moment, I mean, the moment we started operating the business, I had a financial model so that I could, just budget, uh, budget when we were gonna run out of money. Um, so it wasn't complicated, it wasn't, it wasn't elaborate, it was just a simple, very simple spreadsheet that just tracked a list of, hey, this is, these are all the expenses we have to make each month, including our salaries, which were not great. Uh, and then that means that at that rate, we'll run out of money like in 6 months, and I would have this spreadsheet just for my own peace or not peace of mind. Um, but I guess, you know, to answer that, I'd say, you know, the moment you are in business, even if you're not making revenue, if you're just spending money, you should have a budget sheet. And financial model is a fancy name for it, but it is, it is somewhat the same thing.

Yeah. And we do kind of get a lot of questions about like what tools should you use, you know, what what applications are out there and all of that. And I think the answer here really is just kind of keep it really simple so that you're able to understand what you're doing, right? And then I guess as you go along and as you grow as a business, then you can progressively decide to, you know, use a couple of different tools or, you know, if you need to maybe reach out to somebody who can help you with some expert advice.

Yep. Yeah. Yeah, I think that, you know, like normally the pain of the financial model comes, um, the first pain of the financial model comes on, hey, when am I going to run out of money? Like, that's a question, it's a question that he asked the spreadsheet. Uh, the next big milestone or the next big reason is, hey, I'm raising money, I want to understand how much money do I need to raise, or less ideal. I'm raising money and the investors that I'm pitching asked me for the financials and I don't have them. We get a lot of, we get a lot of customers that come at that, at that stage. But again, you know, you should have worked on that slightly earlier before you went out to pitch investors. Um, and the, the model gets increasingly complex after that. Uh, it's tough. For example, we've seen it, we've seen a few cases of companies that are at a Series A stage and they still don't have a decent financial model. Which is tough, 'cause now you have a lot of data to look back at. You have a business that's running and then building it is, I mean, it's a little bit more work, but what gets more complicated is adopting this culture of running your financial spreadsheet inside the team. 'Cause it is just a lot more complicated to run a spreadsheet for a running business with $1 million in revenue a year than just for a $300,000 3 guys that are starting something together and they're just budgeting their expenses, but you sort of learn with it if you start early.

Right, and I think, you know, there's a lot of questions that come about on, especially when you're like a first-time founder and you're thinking about, hey, I need to raise money, right? Like, how do you kind of justify your valuation? I think the really obvious answer is like, how much money do you need to get to that next stage, right? So if you're like a really early stage founder, right, how do you, uh, you know, how do you kind of, uh, go about that, answering that question?

Um, sometimes like what we've seen is like we're working with these, uh, with this company the other day, um, he was building this mobile app for like sports fans. Um, early, uh, I think he had hired kind of like the first dev team and he was just working on the first prototype of the product. Um, I think luckily we, we convinced them to, to do a, to do a financial model, so we built one for him. And what he found out after he put in some values into those assumptions was that the way he had envisioned the business then didn't make sense. Why? Because if you put reasonable cost of acquisition estimations, right? And reasonable traffic estimations and reasonable download estimations. 'Cause all those numbers, those individual numbers that we input, they're, I mean, they're easy to find, right? You can go and listen to a podcast and find out what an average cost of acquisition is or what a normal conversion rate is. Like those numbers, people will talk about them. They're not secret for anyone. So if we put in reasonable assumptions for the way he had envisioned this business, and what we found out is that at year 7 on the spreadsheet, this was a $3 million business, like a business that was making $3 million a month. I'm sorry, $3 million a year. And that's not a venture-backable business, right? If you only grow to about $3 million in annual run rate a year, It's a good business for you and for a small team, but it's not a venture-backable business. You can't go to VCs to raise money for that company. And that was his intention, right? So he was trying to pitch this business as a venture-backable business, but his numbers, he couldn't find a way to make his numbers work to make that the $100 million company that these VCs are probably gonna be after. So at that opportunity, we sort of got working to adjust the business model, to find other revenue streams, to increase pricing, and to sort of change that story, right? Not just to put makeup on the model, but to change the story, the whole concept of the business so that it can be the company that he was setting out to build.

[Speaker:ARVID_KAHN] Right, and yeah, I feel like that's also something that a lot of founders, they, you know, it's not very obvious in the beginning, right? Because, When you enter into the startup world, everything is really all about, you know, fundraising, right? That's what you hear, that's what's really newsworthy, right? And you kind of experience that as you go along and you kind of also learn the fact that maybe you're not a venture-backed business, right? Maybe you need to adjust your expectations and also kind of look at what works best for you, right? So awesome. So let's kind of go through a couple of questions. I know we're about to hit the hour mark here. Uh, right.

So I see a couple. I'll— if you— if— so I see, uh, Emmanuel asked me, like, he purchased an old version of the model, can you get a free upgrade? Sure. Uh, I mean, it's a new sheet, but absolutely, just email our team. You should get— you have our email, and that should be easy. And then for yen, uh, samples of financial models, I forgot to mention that, and I think it's a useful hack. Uh, so again, the template you go— that I shared there is free, and it comes with access to this mirror board. I mean, not this, not this mirror board, but the same mirror board where you have the building blocks. And here under this conspicuous white page section, you actually have a few examples of how maps look like, right? So you have a self-service SaaS and how that looks like, and you have an inbound SaaS and how that looks like in converting leads to customers. You have an e-commerce and a mobile app model and a marketplace model so that you can get an idea of how these maps look. We're trying to be as useful as we can with these resources. Awesome.

I think how about we wrap it up if you do have time. We would love to have you stick around for the networking. Kaija?

I can't, but I wish you all very well on the networking session. Sorry, I have to catch my next one.

Fully understandable. Thank you, Kaija, so much for taking out the time to be here. Thank you to the wonderful audience for, you know, joining us, for your wonderful questions as well. Kaija, before we wrap things up, any last messages? Anything you want to say to the wonderful folk here?

Uh, well, thanks for tuning in. Like, I see, I see we didn't lose that many people through the session. I know it's a dense topic, financials. I think that the colors, the colors on the sheet at least help it help make the job more colorful than just, uh, black and blue. But, um, but yeah, like, please don't, don't put this, uh, don't delay the work of budgeting. Like, your, your main, your main job as CEO, or your core job of CEO is not running out of money. Like, that's, that's your task 1, 2, and 3. Yes, growing the business, but if you run out of money, there's no business to grow. So, you know, make sure that you, you have a good grip on, on your economics and your financials, on your runway, uh, because, you know, it, it, it, it is your number one task to sort of remove this burden from the rest of the team and run it. Eventually you'll have a CFO. Eventually a CFO will build and run this, this financial model for you. But, you know, until you can afford one, which is normally, you know, 50+ employees that a company gets to do a CFO, it is, it is going to be your job as a CEO or as one of the co-founders. So, uh, I guess embrace it.

Awesome, awesome. There you have it, folks. Embrace it. Uh, thank you, Kai, for joining us. Um, everyone, if you want to join another FI event or if you want to learn more about FI, uh, please do head on over to fi fi.co, and for events, fi.co/events. We'll see you in the next one. Please do stick around for the networking. Bye-bye.

All right, bye guys.