I think a key idea got lost in the translation – my post was not about “accounting” it was about how accounting substitutes for metrics about your business model.

VC’s and entrepreneurs confuse the two.

Fred’s post talked about “accounting” which he defined as “Accounting is keeping track of the money in a company.” I think that’s a great definition.

Unfortunately at board meetings “accounting” is all that some VC’s have you measure. My point is that the metrics as you search for your business model will not be found in “Accounting.” It will be found by agreeing on a set of business model metrics. They may be: customer acquisition cost, viral coefficient, average selling price, etc. And that these metrics are more important in the early days of a startup than Just the ones for accounting.

I didn’t see anything in Fred’s post that talked about metrics, just about the value of accounting. Since Fred’s firm is leading the renaissance in Venture in NY you will be doing accounting in his board meetings

See if you can sneak in some metrics.

Hope this helps.

steve

I love your blog, and this post in particular. As you may be aware, Fred Wilson posted a diametrically opposed view about the importance of accounting to a startup:
http://www.avc.com/a_vc/2010/03/accounting.html

Do you have any thoughts about difference and similarities you have with his point of view? Do you stand behind your “worse than useless” comment or is it a rhetorical flourish?

Just trying to figure out if there is any genuine disagreement between two of my favorite bloggers.

Cheers!

I have presented in Board meetings (not VC sponsored though) numbers that meant nothing to anybody but took lot of time to prepare.

I would have liked the meetings to focus on validating or trashing the basic premises or assumptions on which the entire business model was structured. To accept them as sacrosanct and worry about the numbers is putting the cart before the horse, imo.

What would also make the BMs effective and productive is checking up the alignment of the processes and activities with the Vision, fi there was one in the first place! Its easy to get distracted by our own excitement or what happens in the market place and make that as the foundation for our future plans. The Board really needs to step in and keep things aligned towards a common purpose.

Cheers

Badri

how many startups died of big dreams but no sense of reality..
Sky-high prospects but no insight in liquidity, that is fuck-up #1

Cash rules!

The “I went to business school but don’t really know what to tell you to measure so I’ll have you do these.” quote struck a chord with me (F#7b9#11 for you jazz musicians).

The powers that be (those you take money from) sometimes expect that the entrepreneur has to instantly satisfy whatever capricious thought that comes into their minds. Hence requests for all means of documents related mostly to their past personal expertise and interests (less often these are required to satisfy their company’s internal measurement processes).

I had an investor on my BOD that taught a university course on corporate governance. I was therefore continuously bombarded with forms to fill out that were used for his corp gov classes (why not kill 2 birds with 1 stone?). Endless forms detailing things like – timely and balanced disclosure, remunerate fairly and responsibly, safeguard integrity in financial reporting, promote ethical and responsible decision making, etc., etc., you get the idea.

Of course there’s nothing wrong with corp gov, it has it’s place, but it started becoming a key focus of BOD meetings. He believed that if the corporate gov checklists were all filled out and reviewed at every board meeting, then everything else would magically fall into line (we weren’t public, we were a brand new start-up). I eventually put a stop to it.

abcz

Excellent article!

As an VC, I’ve seen companies almost die due to the excess concentration of their entrepreneurs in “getting the numbers ready” month after month instead of focusing on what’s important: growing their business.

As an Entrepreneur, I suffered seeing how my time was monthly wasted in putting the financial figures together, loosing precious time that could be used in what is important: growing my business.

Why do this happen?

- Most VCs are financially-trained and learn to asses the company’s situation through the numbers.
- All VCs are afraid of loosing control over their investments, therefore having neat monthly financial figures let them have a sense of control over their investment.

And if you add that:

- Some entrepreneurs lack the financial training to set up the systems to gather financial information in an easy and painless way
- Most important, as Steve point out, some of these figures are just misleading at this state of a company

Your objective as an entrepreneur should be:
- to reduce the sense of insecurity and lack of control over the company’s use of funds and general financial direction that your VC might feel (they wont accept it but its always there)
- to reduce to a minimum the amount of time and effort used to collect the needed information

What can you do?
- You can convince your VCs of reviewing on a monthly base only those metrics that will measure progress more accurately at this stage, instead of all the financial data which is not relevant
- You can set up the right financial systems/software to help measure basic financial information, and allow your VC access to additional financial figures every quarter or by request
If none of these work:
- You can try convincing your VC of using the right metrics as well as the financial ones, and to be measured by a mix of both
- You can hire a seasoned part-time CFO who can at least free you of the hurdle of putting the numbers together

Thanks for a great post!

Vanesa

I absolutely agree that a startup should focus on core actionable metrics around its conversion rates and per user economics. Unfortunately, however, continuing to produce GAAP financials will be a requirement – especially for any funded startups. I don’t know any investor / board member who spends a lot of time on them. But you still need to deliver them.

Mark