Picking up where she left off, Victoria talks about how times like these can be either a bane or an unexpected boon for fledgling startups, and how to tell where you fit on that spectrum.
Listen to Part 1 here.
Julie: Hello, everyone, welcome back to the XR for Learning podcast. My name is Julie Smithson, I am your host, and today we have Part 2 with Victoria Yampolsky. We’re talking about forecasting for innovation with the execution roadmap. Victoria is the founder and president of The Startup Station, an education and consulting company committed to helping founders be successful and get funded faster. She focuses on creating credible financials and valuations for early stage ventures. Welcome, Victoria.
Victoria: Thank you so much, Julie. It’s a pleasure for me to be back.
Julie: Yes. Thank you. And let’s continue our conversation. The first episode, we talked about forecasting for innovation with the opportunity, and assessing what opportunities are out there. We’re right now in the first couple of weeks of having this pandemic with the coronavirus. So some of our conversations are obviously highlighted with the sensitivity of some companies and businesses and startups which are affected in a positive way, and in a negative way. And of course, assessing the opportunities right now for each startup will be different. But we’re going to continue on with an execution roadmap. If your business is one of the fortunate ones that is doing well during these times, what kind of roadmap and execution path will you take? And maybe you can continue the conversation from here on innovation, and how-to, and the impact on revenues, costs, supply chain, and capital expenditures and being able to budget for the unfortunate.
Victoria: For a startup, creating a financial model needs to be a lot more granular than for a more established entity, because you need to really model your activities to be able to evaluate which activities are working, and which activities are not. And here I’m specifically referring to go-to-market strategy. It’s not enough when you’re thinking about your revenues to just project the top line and say “I think I’m going to get the 10 percent user growth, or 10 percent client growth, etc.” because it’s not clear where that growth comes from. And when you begin modeling your go-to-market strategy, you are then going to be forced to determine the drivers that make that strategy happen. And then those drivers are the ones that you can change to test the sensitivity of your business model and sensitivity to your business to various scenarios, such as the coronavirus. So when it comes to AR/VR, there are only two types of customers to which you can sell. You can sell directly to the consumer, in which case you employ a variety of marketing strategies: digital marketing, social media marketing. You may go and make podcasts such as this one, you may employ influencers, radio advertising, etc. Or you may sell to enterprises and that usually employs a sales force. Each of those strategies have assumptions associated with them. One of them is a budget. Budget is a discretionary assumption that every company can decide on. And in these times, that is a decision that your company should make, whether you want to increase or decrease your marketing budgets, depending on how aggressive you want to be or more cautious you want to be, in conjunction with your company’s strategy and also how you’re going to allocate that budget across the marketing strategies. Now, how do you decide whether your budget should be increased or decreased? I think you need to think about who your customers are, and whether they are affected by that outbreak, whether their economic situation is affected. If they’re not as affected, there is no reason for you to change your marketing spend or in fact, maybe that’s a reason for you to increase it and try to capture more market share. If your customers are the ones really affected by the outbreak, then it doesn’t make sense for you to spend that marketing money that will be wasted. Then you should go more in the brand awareness mode, to make sure that your customers don’t forget you. And when the situation improves, come back with the vengeance. Now, when you’re thinking about the sales force, the question about the customers remains the same. And here the important criteria are the length of the sales cycle. And so the sales cycles, if your customers are affected, it may increase the conversion rates of leads, to close deals may decrease, and also the value of which contract may decrease as well. So how do you plan for that? I always recommend the low, medium and high scenario. That’s something that I already mentioned in the first podcast. So you plan for the conservative scenario, the worst scenario, and the optimistic scenario. And then you’ll look at how your business is going to do. I recommend highly to pay special attention to cash. Cash is not the same thing as income. Income has some items on the income statement that are not cash-based. Sometimes you book revenue before you get it, especially if you extend credit to customers. So income doesn’t give you a full picture of how much actual runway your business has. And so cash flow statement, I think at this time, is the most important one to pay attention to and really make sure that your cash balance does not fall below the minimum, whatever that minimum is — whether it’s a three month runway or a six month runway — and if you’re starting to approach that, you need to start thinking aggressively about your financing options. So A) how can you cut costs before you get to the point where you have no money in the bank? Far in advance. We’re also thinking about some of the debt options or equity options available to you, going to your existing investors and asking them for a little bit more breathing room as you weather this situation.
Julie: Excellent advice. Thank you, Victoria. One of the things that I did want to touch base on was dealing with potential investors. And of course, with the situation that we do have right now, maybe you can highlight the preparedness that you need to have as a startup to present to investors. And coming back to our industry, there’s– we’re moving to online and virtual meetings and that sort of thing. So there’s a lot of great opportunities right now. Maybe you can shed some light on, if there are startups out there that are dealing with or presenting to potential investors, what kind of approach to take right now with regards to finances and being — I guess — encouraged by the potential of our particular market.
Victoria: So AR/VR is obviously in a great situation, because I’ve looked at some data yesterday, and in 2017 the size of the market was predicted to be — by Goldman-Sachs — $95-billion. And then 2019, Allied Market Research predicted it to be by 2025 $571.4-billion. That’s almost a six times difference. Oh, it’s actually more than a six times difference. And so this is just an indicative of the speed of innovation. How fast things can change just in two years. So these are good things. So investors are obviously looking for high growth companies. The two month blip is nothing. I think investors that are investing in emerging technologies in early stage startups, they have an appetite for risk. I think they’re incentivized not to let those companies fail just because of something that’s a force majeure situation — such as this one — if there is a high potential of success in the future. So I think the important part here is to be very clear on what your execution plan is around the virus, kind of thinking through all of the issues that I’ve been talking before. And if you need to ask investors for money, to be very clear what that money is going to be for and potentially just cast some early liquidation options, where they may be able to get that money back sooner, and that will be more like an emergency loan as opposed to additional equity investment. Or maybe it will for them some additional sweeteners, as a thank you for helping you in the difficult times. Now, from the existing investor’s point of view, it is better for them to give you a little bit the money to weather that downturn than to lose their investment in your company entirely. And so as long as they know that you have a strong execution plan and as long as there is a demand for your product, it is clear what the product development timeline is. You have a clear go-to-market strategy. That is traditionally very weak point for all startups. I think that you should be in good shape to survive this. I think from the technology startups are in much better shape than a lot of businesses that depend on people actually interacting with each other.
Julie: What advice would you give to startups right now, during this time?
Victoria: Like I’ve mentioned in my first podcast, I recommend that startups take this time to assess their near-term and long-term strategy. They have a little bit more breathing room because some of the activities are curtailed, and this is a great time to take a deep look at their business, to think about their vision, to think about the overall roadmap of how they’re going to get there. It’s so easy to get lost in the day-to-day activities and kind of forget the bigger picture and not see some of the trends that are happening that can help your business or vice versa, present a threat to your business. And so I’m not talking about the pandemic. I’m talking about other business trends or emerging technologies, so competition, et cetera. And so this is the time to really think about that, and think about things creatively. Think about innovation. Think about what change you’re trying to make in the world. Think about what strategic partnerships you can establish, who you can talk to, who you can bring on board as an advisor or in a board of directors, who can really help you propel your business forward. It’s very rare that business owners have this time of reprieve. And I recommend not to get stressed out, because that’s not going to help anybody, but instead come together, come together as teams, come together as co-founders and really think about how to make a difference, and how to make whatever you’re creating really change the world.
Julie: I think that’s a great way to end off our podcast, Victoria. Thank you so much. I think that there’s a lot of really nerve wracking times right now, but it’s a great opportunity for many business owners to take that step back, take a look at your business, take a look at your customers, and the position that you’re in, and plan forward for this time of innovation, and a bit of uncertainty, and putting those emergency plans into place so that you survive through these times and your business survives through these times, and everybody comes out on the other end better for it. So thank you so much, Victoria, for joining me today. Why don’t we close off with how do people get a hold of you and join The Startup Station with you?
Victoria: Absolutely. So the website of The Startup Station is www.thestartupstation.com. Every Thursday, 12:00 PM to 1:30 PM Eastern Time, I host virtual office hours for any entrepreneur to come ask me any questions about fundraising, financial modelling, forecasting, dealing with investors, etc. You can find a link on my homepage of how to register for those office hours, as well as on my social media. And if you’d like, if you’re in the process of fundraising, if you join my mailing list, you will get a startup investor search guide, which has 26 resources for different databases and different links to a database of accelerators, a database of funds that invest in women founders, etc. And so that’s a great resource for somebody who is just beginning on their fundraising journey, to get a sense of what’s out there, and what avenues are available to you to raise capital.
Julie: That’s great. Thank you so much, Victoria, for being on our XR for Learning podcast today.
Victoria: It’s my pleasure. Thank you for having me, Julie.
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