Jason CohenFounder at WP Engine

Founded four startups, all >$1m revenue, all profitable, sold two, bootstrapped and funded, working on #4 (WP Engine) with 450 employees & hyper-growth in the WordPress Hosting space.

Recent Answers

In my experience, VC's always want to know GAAP revenue because it's a way to compare apples to apples. We both know it's not perfect in that regard, and that cash is king, and they know that too, but that's the primary, standard metric.

The good ones want to see both, so they really understand the mechanics of the business.

At WP Engine, everything in marketing and sales is included in CAC. Salaries, commissions, coupons, direct advert spend (which you're saying you don't yet have), fees, travel and other costs associated with conferences, etc..

My advice is to err on the side of putting too much in CAC, because that helps you honestly understand the costs. Ignoring some costs just because they don't scale with company size or marginal new customers doesn't make sense to me, it simply means that certain components of your CAC you expect to get more efficient over time. Indeed, they had better! So measure it, instead of ignoring it.

You also might find that some of those direct-spend channels are not as inefficient as they seem compared to things like SEO efforts. Or the reverse! All good things to explore of course.

I'll also note that at $19/mo in the crowded space of CMS offerings you will find that very few channels will be efficient compared to the revenue you're generating. It sounds like you know that, and are dealing with it with "scalable" efforts like content marketing, however again you should be ruthless in understanding how those costs are really translating into orders and whether that's a financially sensible total strategy.

Mine. :-)

Seriously: The two mistakes I see with people and blogs is (a) spending too much time reading instead of doing, and (b) reading blogs which don't align with their own business, and therefore the advice therein isn't necessarily good FOR THEM (even if awesome for others!), and therefore is perhaps even worse than a waste of time.

Now you can tell I'm being honest because (a) implies you shouldn't read my blog after all!

Here's how you can attack (b). Decide on some fundamental characteristics of your business such as: Bootstrapping or Funding? Wanting to run forever or wanting to sell someday? Wanting to grow large and be the CEO of a 1000-person company or wanting to stay small or even stay single-person? Business model (SaaS, installed, hardware, marketplace, freemium, etc).

Now find bloggers who tend to give advice to the particular type of business you have. This can be difficult sometimes, but at least you have a lens or filter. Some of it is easy, e.g. 37signals and Joel Spolsky is about bootstrapping and staying small but profitable, whereas Ben Horowitz and Paul Graham are about getting huge with funding on online high-margin tech businesses.

And my blog? Well, you'll just have to read a few hundred articles to figure that out. :-)

Scaling using freelancers is better (at first) than scaling with employees. Either way, you need to avoid the trap of being a mid-sized consulting company.

Here's an article of mine detailing the math behind this trap, and some challenges you'll face, and also a list of ways to combat this trap: http://blog.asmartbear.com/consulting-company-accounting.html

None at all.

Because: You're just starting.

You do need to form an LLC or Corp and honor the rules therein such that your personal finances and liability are separated from those of the business. That way if the unthinkable (and very improbable) happens, and the business is sued out of existence, that's the limit of what happens.

Your business is likely to fail for all sorts of reasons. Failing due to an event which would be covered by any of the various forms of business insurance (E&O, liability, etc) is almost certainly NOT the way you will fail. Any second you spend on that is time you should be spending working on not failing in all those other ways.

Once you have something lose, something to protect, then the tables turn and indeed it is reckless to not protect that with insurance of various forms. Also some large customers will require you to carry minimum amounts of various insurance policies.

But that's tomorrow.

If I understand you correctly, you're saying a customer agreed to pay you for services (product and/or support), either through posted prices and a shrink-wrapped license or through a written contract, and then you provided those services, and then they didn't pay?

And you're asking whether it's "OK" that they didn't pay?

Of course it's not OK! Is there any business who could operate in that fashion?

The way it affects the customer relationship is you don't have a customer relationship. You have a situation where they are taking advantage of you. A relationship goes in two directions.

Unless there's a strong imbalance in contribution to the company's success or finances, it's usually best to split equity evenly.

In this case there is in fact an imbalance in finance -- he needs a "full salary," which is the *opposite* of what a co-founder generally does with a new business, *especially* with a tech co-founder.

To me, this is not a co-founder, this is employee #1.

To see why, ask this: What is the risk this person is taking in joining the company? He's making a normal salary and can get another job if it doesn't work out.

If the risk is the same as an early employee, this is an employee -- maybe a KEY employee -- and should be treated that way.

I would say 10% sounds good especially if you'll need to take money later.

Put yet another way, this is just a contractor building the MVP for you.

Here's an article of mine with more of a math formula for this question if that's more helpful: http://blog.asmartbear.com/cash-equity-compensation.html

Watch all of Paul Kenny's videos from the Business of Software conference. Perfection, and easy to understand.

Then remember this last trick: Honesty wins.

Growing up from 1+subs to a team like you're saying is a classic problem in consulting. The financial math is not in your favor until you get a consistent team.

Here's an article of mine detailing the issues and also detailing solutions: http://blog.asmartbear.com/consulting-company-accounting.html

Having said that, I would also say you're trying to do too many things at once with not enough resources, which means the chance of being successful with each one is diminished.

For example, you could focus on consulting revenue so you can build up your bench, so that you truly can self-fund the development of a product without distraction.

Or you could focus on product, investing time/money there with consulting only to pay for that, even using subs for that, until the revenue there gets to the point that it's scaling (which will be hard, as you can already see).

Building a product or a successful consultancy is individually very hard -- most fail. So trying to do both at the same time means you'll almost certainly fail.

Which is a shame, because that's "failure due to time-management / strategy" as opposed to actual market forces. i.e. something fixable!

I hope some of this helps, although I agree with you that talking through the details would probably be more helpful. The specific details of your situation matter.

You would include all those lines in your revenue.

Typically this looks like:

Receipts: [full cash inflows]
Fees: [payouts to vendors]
Gross Receipts: [subtract]

This ALL does into the Revenue category, so that your stated revenue is indeed net of fees, but you can see how it breaks out to understand how money is moving.

That's if the margin there is very slim. If the margin is pretty good, and if you believe you can increase that margin materially over time, you can consider putting those fees into your gross margin instead of in your income.

Copyright © 2019 Startups.com LLC. All rights reserved.