[0:00]All right, everybody, welcome back to startup basics. This week in startups.com/basics, if you want to see the complete collection of legal, uh, financial, uh, and customer-based basics we do with our top partners. We're an investment firm, we invest in 100 companies a year, we rely on service providers to help our startups keep things tight because tight is right, and one of the people who helps us do that is Scott Horn, who is the COO of Kruse Consulting. They're an accounting firm that is specialized to work with startups. In other words, you like the pain and suffering and the exhilaration, like I do, of watching companies attempt to get product market fit and turn on revenue. You're addicted to it like me. Every, you know, I always tell people, everyone at Cruz is like that. The people at Cruz could work at any accounting firm and they choose to work at Cruz and work with startups because they love founders. And yes, there are challenges, but we love it and we love the educational aspect and there's nothing, I mean, you you know this, there's nothing more rewarding than seeing a company just learn to fly and take off and we When they outgrow us, we call it going off to college, you know, and it's a great feeling. Yeah, that's true, right? Yeah, if they beat go become a public company or whatever, they're going to go with some big fancy four accounting firm and you got them there, right? And that is really about specialization, right? Um, you you really need this group of individuals who are starting companies need specific help. And one of the things we, uh, or I personally have been on a, a bit of a mission for the last decade is to tell founders to get into the cadence of writing a monthly update. Why? Why do you want to do a monthly update? It's a lot of reasons. I think the discipline of the founder themselves being able to look at a blank piece of paper, looking at that blank document on a Sunday saying, what the hell did I accomplish in October? I need to tell the people who gave me their money to join me on this journey, the investors, I need to give them an update. And for my team, I need to collect the information from them of what we actually did. And when these don't get sent, it's typically for one of two reasons: one, the founder is scared because it's not good news, which is a mistake, when you have bad news, that's the time to send it. And number two, you know, uh, some founders have not set up a great reporting structure or maybe they're lost in the woods and they don't actually know what they should include in an update. Because they're, uh, they don't have plans, they're just playing the role of CEO founder. They're not actually developing a plan, they have not given clear goals, so then how do you report on them? So let's talk on, uh, from your perspective, the basic things that should be in there and then whatever else you want to add to my little preamble. I total totally agree and I think the most important thing is it doesn't have to be perfect and just get in the habit. It's like waking up and working out every day and I think you're talking you're right about the discipline, but there's another thing which is the goals, the goals for the company. I know because we're a startup too and our founder Vanessa Cruz is a super goal-oriented person, and I know how well that has served us over the years. And so communicating those goals at the beginning of the year, communicating the goals or the milestones for the next fund raise and reiterating that every month to the venture capitalist, the investors who are reading this is probably the single biggest most important thing. And like you said, being able to evaluate yourself and seeing how am I on track, am I in trouble, do I need to ask for help early, do I need to cut expenses, whatever it is. That's the single biggest, most important thing and then you get down into the metrics and first of all, there are tons of good templates out there, so You don't have to like make this up on your own. You I think we even have a template on our website that you can just Google Cruz investor update. But the first thing to start by far is cash, cash balance, just to give everyone a sense of where you are, and then the next very next thing should be your burn rate. And the thing after that should be how many of months of cash you have, because I don't know about you, Jason, but when I read investor updates, because I do in Angel investing too, My my pulse quickens until I can see how much cash this company has. Sometimes they don't include it and you just hit reply. I didn't see cash and burn in here and runway. So if you don't include it, people's minds, uh maybe not yours or mine, but I'm going to just say people in general, people's minds go to dark places and there's a a glaring omission. And the the the place you don't want your investors going is, oh, the startup is dying. Very simple, how much cash you have in the bank? Pick a number, million bucks. How much did you burn last month? 25k. How much you burn the month before? 50k. How much did you burn the month before? Zero. You had a great month, you had some cash come in. Okay, I like to take the last three months average burn, which in this case would be 0 plus 50 plus 25, which is 25k a month. We have a million dollars in the bank, we burn 25k on average, or 75k for the quarter, 25k in a month. That means you have 40 months of runway. Great. Or if you want to base it on the peak month, uh, we have half that amount, we have 20 months. And so I like to have based on the last month's burn, we have this much, based on the three-month average, we have this much. So I even have a little bit of a, you know, kind of like when you're looking at your average gas mileage, is it over the last mile or over the last 10 miles, right? You might see two different numbers if you're climbing up hill or whatever it happens to be. What this does though, is it ultimately builds credibility for you with your investors, so when you need more money down the road, or something goes well, doesn't go well, or does go well, they might, if things are going well, send you an unsolicited offer to give you more money at a higher valuation. If things are going poorly, they might be able to intervene and help, they might proactively offer you a bridge round. Uh, and so all of these things are possible and, um, short is better than nothing. Yes, yes, yes. A short update.
[6:08]We, uh, we didn't hit our goal in terms of revenue, the product is pushed back a month, the team is working 12-hour days. We burned 75k a month again, we have 12 months of runway. We're going to get this product out, uh, you know, by December 1st, worst case scenario December 15th, but we are six weeks behind because we lost our iOS developer. Uh, expect another update December 15th. You know, boom, perfect. I just wrote that update in 10 seconds. That's better than nothing. Yes, totally. And you're right about your mind going to dark places because everyone who's been in the stark of being system for a long time has this pattern recognition and when people go silent or or are leaving things out, you you know, your brain knows that something's wrong. So you're totally right. A couple other things I'd add to like the metric stuff would be just revenue. If you have revenue, celebrate that, especially at the seed stage company, and show the the progress, because I don't know if everyone realizes this, but especially like, like you have a speed dial to the series A investors. So like if you see a company tracking, you're probably going to pick up the phone and be like, hey, you guys might want to get in front of this one. It's not the absolute amount of revenue you have, it's the trend. Series A investors, series B investors, they are paid to find companies that have a really good trend that could be huge and get into those companies. That's like their entire job, so if you are showing, hey, we're growing 20% a month and yes, it's only $20,000 in revenue this month, but next month it's going to be, you know, what is that, 24,000 and then 30,000. That's catnip for the series A investors. 100% catnip. And if it's it's, you know, 200,000 up to 250 to 300, that's what the series B investors want to see. So you're doing, you're there's there's all this like little bit of communication, it almost like branding or marketing to your investors. Now it has to be true. You do not want to mislead anyone ever and that will hurt you way worse if you're misleading. But like show those trends and then celebrate the customer wins. You know, if you're trying a couple, you know, Fortune 1000 companies for your SAS company, right? The whole lighthouse customers. Yeah. Get a high five. Even if they're just triling it, hey, we got a trial with Disney, it's, you know, it's 500 bucks a month, but man, if this thing were to take off, it could be 500,000 a year. So we're lightning focused on that, gets people excited and often, if you send a nice tight update, you might have a seed investor, uh, an angel say, hey, Would it be okay for me to introduce you to this Allstar series A investor who I had lunch with last week, or I was telling them about you? So what happens is you're giving ammunition to your early investors to talk to the next stage of investors. No updates, no ammunition. They can't talk about you, so when they have a lunch and we do network with each other, uh, and so to service people, um, you know, they you want to talk about how great a company's doing. Uh, you've had some of our breakout companies as, uh, early accounting, correct? Oh, absolutely like Comm superhuman. Comm perfect, exactly.
[9:59]Comm the meditation app, Alex would send updates, you know, I'd say every other month and, uh, you know, we'd we'd see the number and you would see you on some of these, be like, what? We hit a million in revenue in a month and we have 17 people, like, whoa, this is going really well. And then people started throwing money out them and they said, no, we don't need it. But it it really did create the excitement and the buzz around the company and around its growth. Uh, and I think regular communication is a big part of that. Cadence, I like monthly for uh, seed stage, uh, because it creates discipline. When you get to series A, you might move to quarterly, you don't have to include everything in here. You don't have to, if you're worried about the things leaking, if it does leak and people write a Wall Street Journal story, you're probably going to be pretty stoked about it if things are going well. So let's be honest, like somebody was like, what if this leaks? And I was like, you get a Tech Crunch story or Wall Street Journal story. They're like, can you leak it? Can you send it to your favorite reporter? And I'm like, no, I'm not in the leak business, but I guess you could create a freak Yahoo account and say, you know, send it to somebody. And founders have done that, by the way, leak their own updates because they're so good because they want to get coverage. But you don't have to include, hey, here's the seven things we're doing on a growth basis that are our secret sauce to get new customers. If you figured out some customer acquisition channel, don't put that in there, you could put it in after your launch it. Hey, we launched our new product, here it is. You can show that to select investors on a zoom privately, tell them, don't tell anybody. So just, you know, if there's any concerns, you don't need to include everything. Top level, but runway, cash flow, revenue, customers, all of that super important. If you have hires, people might be able to help you with hires, you put a couple links in, uh, you could have retweets in there with a click to tweet link, which is a cool little service where it it pre-populates a tweet, gives people the ability to edit it. So I tell people, hey, put a little click to tweet in there. Hey, you know, uh, new version of calm sleep stories is out, you know, and check it out, you know, with the link. But it's just a great way to, um, help, you can put requests in it, so if you wanted it to work for you, you put requests at the bottom, requests, we're looking to fill these positions. We're looking for customer introductions and we've got an open note with 500k left on it if anybody's interested in double down on their investment. So many great things can come from these, but really the discipline is the key, I think. I totally agree. If you can go for a coffee every day, you go to Starbucks, you go to Blue Bottle, you take a walk, you wait in line. That's what I say to founders. This is my little trick, you know, you learn some tricks and trade. I I waste a monthly update, I don't got it. I said, okay. Um, hey, have you been to blue bottle or what's your favorite coffee? Oh, I like Phils. I'm like, oh, which one which one do you go to? Oh, you go to the one on Market Street. Oh, that's nice Phils on Market. Big line there, right? Oh yeah. Took 15, 20 minutes. I'm like, great. Next time, send your assistant. Send somebody else to get your goddamn coffee, get your poor over seven bucks. Sit at your desk and write a 20 minute goddamn update. And I'm not telling you this for my, I already own my shares. I'm already made my money, I've already got a portfolio. I'm saying this for you, skip the freaking, no offense to Phils, it's delicious. Get that Mojito. But you know, just take the 20 minutes and write it. I know it's hard. Or write it in line for God's sake, you know, if you're standing you could just. Dictate it. Yeah. There's a couple other things that I I would recommend too, by the way, which is, um, there's a nice little hack, which is recognize your investors who do something nice for you the month before. Like, because a lot of these are like BCCs, right? So you don't actually know, you could look at cap table, but and there's nothing probably that gets me more motivated. I maybe I'm like a praise hound or something like that, but like I like that, that makes me feel good. And you actually know you're appreciated. Yeah. I was on the phone with Disney two weeks ago. Somebody asked for an intro to Disney, I looked at my LinkedIn, I got too many Disney people on my LinkedIn. It seems like everybody I know from the dotcom era has done a stint at Disney. It it's almost like it's a, uh, you know, it's like a tour of duty in our industry, uh, and so I was like, my Lord, I know some important people. I got on the phone with somebody who's incredibly important. I told them how jazzd I am about this particular startup and, uh, you know, next thing I know, the startup's in three different meetings with three different units. This is how it goes. Now, if they put a little praise to me, that would be quite nice. I'd like to get a little shout out in the newsletter, really nice punch up there. I like that. Uh, shout out your investors for helping, and then it might activate others. It's human nature, you know. The other thing you talked about, which I think we should cover for a second if you're okay with it, is how to break bad news. And you you are so first of all, the monthly newsletter or update is a good place to break bad news. But I would actually recommend like the phone call zoom, especially if which are mature, you know, your big investors. You know, if launch owns 10% of the company, then they should be reaching out to you and your team to do because there's going to be follow-up questions and things like that. But getting in front of that bad news is such a credibility builder and there's nothing worse because I also think people don't always understand that like you're probably friends with, you know, the the syndicate members you know across across all these seed stage companies is huge. So if you're at Phils in line, you bump into one of your investor friends, you guys might start just swapping stories and you to hear about it that way instead of directly from the entrepreneur is not a good thing and it makes you shut down your your checkbook, you know. Yeah, I mean you investors have options, they are not obligated to continue to invest in your company. In fact, quite the opposite, they're going to reserve second and third investments in your company to the highest performers and the highest communicators, those two things tend to be correlated. I love bad news if it's followed by how we plan on turning it around. So, nobody here hasn't been to the rodeo before. I mean, we're rodeo, we're we're like the clowns in the middle of the arena getting chased by the balls laughing about it, you know, like every If there's not something going wrong, you're wondering why. We understand this, like we're literally, you know those three clowns playing cards and they like are taunting the bull and we're just sitting there playing cards like, we get charged by the bull all the time. We know, it's like a joke to us like, okay, yeah, you lost your CTO, oh you're getting sued, oh you're running out of money, like of course that's we're we're in the middle of the rodeo, it's the startup circus, we understand. Just tell us what the plan is. We lost our CTO, he went to a competitor. We are stealing this other competitor's CTO, we got four people, we're doing interviews all weekend, like just tell us what the plan of attack to recovery is. And once again, the word credibility comes up. You took a bad beat, how are you gonna, uh, you know, rebound from it? How are you gonna come back even stronger? Get knocked down twice. What is it? Knock down twice. Stand up. Yeah, stand up three times. Like whatever, you just, you just stand up. Well, also like in this in climate when there are companies doing layoffs, like odds are, you know, a great CTO candidate who just either their company's going down or got laid off or whatever, it can insert them right in there. So don't underestimate like the synergies of your venture capitalist and how they can help you plug holes. That's just one example. You know, but like that happens all the time. It is the way for you to have your own discipline, uh, to separate yourself from the other options of investment, a new company, or funding another one of your, uh, portfolio companies. Um, and listen, nobody's expecting perfection here. They understand startups are going to be messy. Uh, and listen, even the big ones, you know, Facebook laying off of 11,000 people, their stock went from 350 down to $90. I made a J trade. Pretty proud of that. Did you buy it 90, 95? What, I I put the water in at 90 and with a 5% uh, you know, variability on it. I think I got in at 94 in chain was 110 again. I had gotten shares at from like some venture firm that invested in a company that, um, Facebook acquired. I wrote those puppies up to 115 and sold them. Uh, and, you know, because I just didn't want to be an investor in Facebook at the time. But then I was just watching this and I'm like, I think Zuckerberg's gonna take the medicine at some point. Yeah, yeah, yeah. Because this is so much negativity from investors, right? So this is the mighty Zuck, he's worth 50 billion, 100 billion dollars. Even he had to bend the knee. Yeah, yeah. And say, okay, fine, Brad Gerstner, fine, whoever's gonna, you know, all these people started selling the stock. We don't we don't buy your story. And he said, okay, fine, I'll make a ref. You know, I'll cut 10,000 people. I'm going to austerity measures are going to happen. And he communicated that, and his stock went up from $90 a share to 110. Boom, massive rebound. 20% rebound and now people like who work at the company are like, okay, great, we're taking the medicine, we're facing reality. And that's what, you know, uh, a little monthly missive does. It makes you take ownership, face the music, and that'll just make you a great leader. We have so many delinquent people on this that we have a system, you know, our firm. Email, hey, we missed August. Hey, we missed September. Hey, we missed August, September, and it's October now. Are we going to get an October update or maybe we can bundle these three into a quarterly update maybe or something? Um, and then if there's a fourth email, hey, CC and Jason, here's his calendar link, can we jump on the phone? And if I don't get a meeting from that, then it's, hey, CCing you on your phone, Jason is CCed here, and then I hit the dial button. And I'm increasingly just hitting the dial button and calling my founders when I don't get one. So for all the investors out there, just call your founders. Then we had three or four people who were so delinquent, I popped up a notion page with the headings in it. I had them talk to one of our operations people who did like a little interview with them. How many employees do you have? What's the cash position? You don't have the cash? Okay, who's your accounting firm? Oh, it's Cruz. Can we have permission to talk to Cruz and we literally started building the bones of this based on what they said. And they had a board meeting, so we're just like, okay, we have the board doc, let's adapt some of that. We literally started writing for them and then this founder was like, okay, you proved to me, I should write these. I'm just so busy, I'm so busy. No one's too busy for you. Now we're back to the Phils line. Yeah, yeah. How long you Did you go, did you see the new Black Panther? 2 and a half, what is that run time, 2 hours, 45 minutes? Come on. Write it in the popcorn line. You watching House of the Dragon? Yeah, yeah, yeah. Come on. 10 episodes, they always go like 105, 110. Just give up one House of the Dragons, you know. If I can extend that Zuckerberg analogy too, that was so good because you're showing people that like if if they're because Zuckerberg has to communicate with Wall Street. He you know, and so he's forced to do it. And you're like, everyone can see that Facebook's fundamentals are pretty good still from like, you know, cash generation. And so you jumped in there and bought more. Like that can happen for seed stage or series A companies. Like if there's some bad news around the periphery but the fundamentals are good for these companies, like you this is when like venture capitalists are not, they're not charities. You are in it for the money. No, we're company. Yeah, but that's the moment where you want to write a check when things look good besides the peripheral stuff and so. We're we're okay with risk. Yeah. We are in a risk business. You you tell me, listen, we had 30 people, we're making a million dollars a year, we cut it down to 12 people. Uh, and we doubled our prices, we lost 20% of our customers, but now we're at 1.8 million, we just hit break even. I'm like, okay, you got my ear. Boom, boom. Okay, let's go. Uh, yeah, after you, after House of the Dragon, let's go get a fills. You know, let's go. Anyway, listen, I think we beat this horse. Yes, yes. Uh, and I, they're already dead. We don't need to beat this anymore. Your updates are for you. They benefit you, you need to stop whatever you're doing if you hear our voices and just write the update. I even if it's been a year, even if it's been a year, just write, just take the medicine, apologies. This should happen more frequently. I'm going to hit a quarterly cadence next year. I watch Cruz and I watched launch talk about this on startup basics. Shout out to Scott and J Cal. Uh, but yeah, just take, I mean, just do it. It it's not that much work, short is better than nothing. Make sure you got those numbers in there like Scott's saying, just tell us your runway. Tell us your burn, divide the numbers, tell us how many what the what the outcome of that division is, and we can help you, right? And lean on your investors. How can we be helpful is what we always say.
[26:56]You can't be helpful if you don't communicate.
[27:01]Very well said. Couldn't say it any better. All right, listen everybody, Cruz consulting.com Scott@cruzconsulting.com He's a true mench, uh, helps a lot of startups. No, I mean it. I mean, I thank you. Especially in times like this, this is where the reputations are made. Reputations and fortunes made in the down market, collected in the up market. Now's the time when the great service providers do the hard work to save these companies, to help these founders, you know, thread the needle. This is when the great investors make the riskiest bets that have the biggest Alpha, uh, in the market. And so I'm working, I don't know about you, but man, I'm working 16 hours a day right now. It is brutal. I worked every weekend, at least half days on the weekend and by half days, I mean, half of 16, 8-hour days, you know, four hours in the morning, hang out with the kids at night, no house of the dragon. Thank God that's over, I can put another four hours into work. Hard work pays off. This is the time when the great companies are built. Uh, this week in startups.com/basics to see the whole collection. God's and good nests in there, you just join us, uh, to understand these basics. Really appreciate you Scott. Thank you, Jason. Appreciate it. All right, we'll see you all next time. Bye-bye.
