A Strategist’s Go-To-Market Strategy Guide
Iman Olya
23rd November 2020
Having supported several tech start-ups go-to-market (GTM), this memo will outline my tried-and-tested approach for start-up strategy.
I encourage feedback and discussions on my approach, regardless of whether you are a founder, would-be founder, techy, GTM specialist, strategist or anyone else. My intention is to continuously refine this approach and share my learnings with as many people as possible.
Contents:
Intro
What is strategy?
Ambition
Actions
Conclusion
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1. Intro
Starting businesses has never been more accessible. New start-ups are at an all-time high in the US, and there is rebounding sentiment emerging in the UK too. So, it’s more important than ever to understand the strategy behind building businesses.
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2. What is Strategy?
A strategy is the most important thing a business will have. Everything a business does, from its customer focus, to internal company culture, to location, to hiring, to funding etc., will hinge on its strategy.
A strategy is, at its base, an organisation’s (i) ambition and (ii) actions to achieve the ambition. In other words, it is the north star; something start-ups (and their stakeholders) can come back to and something that guides them forward.
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3. Ambition
Charismatic leaders and founders usually drum up ambition in a way that is intoxicating and energising. They talk about first, second and sometimes multi-order impacts of their businesses and link their ambition to something societally purposeful or noble.
In the below video of Jeff Bezos (before he glowed up), you can see this at work.
Note how he simplifies Amazon to just “great customer service” and “obsessive attention to the customer experience”. He brings everything the interviewer asks back to the ambition of serving the customer. Of course, not all tech founders are outwardly charming or phenomenal orators (by traditional standards). Even Jeff does not come across as the best wordsmith or the most endearing individual, but he definitely has gravitas now.
Elon Musk is a great example too: he can articulate multi-order impacts of his various businesses in detail, as he does here, or even discuss in detail these linkages while high with good ol’ Joe. By no means is Elon a great orator, but when he speaks, people listen. Why? Well, partially as he is massively credentialised to speak about these things. But also, he is clear and links things back to important purpose-driven ambitions.
What leaders like Bezos and Musk can do very well, is articulate clearly the ambition of their businesses in a way that acknowledges, but does not get stuck into, the complexities of the businesses.
However, not everyone can be, nor should aim to be, a leader from the same mould. I find that those who struggle to verbally communicate the value of their business / start-up can benefit from formalising their ambition on paper (although, whether leaders are prolific orators or not, they should still undertake this exercise).
This is where a start-up’s Statements come in. These are several sentences that a start-up should ponder and develop upfront. Statements include the Vision, Purpose, Mission and Value statements. The sentences themselves are not as important as the thought and time that are put into developing them. Naturally, the outputs of those thoughts will be very clear Statements that will help keep leaders on a Bezos-level almost manic-like drive to stay true to the ambition. I explain these Statements and how to write them in Appendix A.
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4. Actions
The actions to achieve the ambition delve into the how. I call this an organisation’s Value Proposition.
In the video with a young Jeff, the interviewer was aiming to get at the core components of Amazon’s Value Proposition. How can Amazon compete in all the new markets it was entering and what gave Amazon a right to win? How can it be a long-term success with low margins? What proportion of intrinsic value of the business was derived from its real estate portfolio? By elucidating the route to reaching the ambition clearly and concisely, a tech start-up can essentially answer these questions before they are asked.
In more specific terms, a Value Proposition includes a concise outline of the start-up’s solution and product, and fundamentally the market or societal problem it aims to solve. It also highlights other key considerations such as the team and the financials (see below).
Value proposition components: (i) Problem, (ii) Solution / Product, (iii) GTM Plan (target customers, channels, timeline), (iv) Size of the prize (market $ value), (v) Financials (prices, revenues, costs, margins), (vi) Team
The Value Proposition can be written in a slide pack with 10 slides. Ain’t nobody got time (nor the attention span – especially in a social media age) to read a long document or a fat slide pack (the irony of this being a long-winded blog is not lost on me).
Beyond grabbing attention, a short Value Proposition helps articulate things concisely – which makes start-ups and their founders appear more polished to customers, investors and staff.
A Value Proposition document can double up as a pitch pack too, if done right. The order of the components should change for a pitch pack however, with Team coming at the start and Size of the Prize coming after the Solution (do this because Angels and VCs usually want to know upfront who they’re investing in and / or who’s presenting to them).
(i) Problem
A Value Proposition needs to articulate the problem the start-up is solving. Kevin Hale, from Y Combinator, outlines this really well in this video, so I won’t reinvent the wheel. The problem should have at least some of the following conditions:
Popular: a lot of people have this problem. Size the market, by # of people per segments (geography, demographics etc.) and by Total Addressable Market ($1bn+ target) (see (iv) Size of the Prize)
Growing: a lot more people are experiencing this problem, and this problem will grow faster than other problems. Even if it’s an estimate, size the rate of growth, by segment if possible
Urgent: needs to be solved now – even if people don’t realise, they need that problem solved (think Uber). Regulation can sometimes make problems urgent
Expensive: expensive to solve, means start-ups can charge more for the solution, either at first or over time. This does not mean charge high fees regardless!
Mandatory: a lot of people must solve this problem – they can’t get by living with the problem
Frequent: problems that happen repeatedly – there isn’t a one-time solution. And problems that are ‘daily’ or ‘weekly’. I.e. not something like buying a car which happens once every 7 years on average for Americans.
(ii) Solution / Product
A solution is not just the product.
This is because the solution embodies how a start-up addresses the overarching problem. Once the problem is identified, the next step is to show how the whole solution ticks off some of the problem conditions above.
E.g. if this is a problem that occurs regularly, the solution may be a subscription service that automatically takes care of the problem (think Apple charging for iCloud storage). The product is just the tool that enables the automatic ability to take care of the problem (using the Apple analogy, the cloud storage back-end, that automatically syncs updates nightly).
Product evangelists will tell us that without the product, there is no solution. And this is true. However, think about the audience that will be receiving the Value Proposition and/or pitch pack. They will not likely be super tech-savvy, particularly if they are early-stage Angel investors. Angels look for impressive people with good ideas and a commercial drive. Even Venture Capital funds will not be that interested in the product. They are looking for clear product-market fit and a team that can deliver in the long run: a team with technical and non-technical co-founders (who can run the commercial elements of the business and ensure continued development of the tech back-end).
Therefore, when it comes to your product, produce a simple user engagement story and show the technical apparatus that drives the back-end of that user’s journey. This helps show the technology the start-up is using, and critically, why the start-up is using it.
Although, as a side note, I would still have an appendix with a more detailed tech architecture and engineer/user installation journeys, for those interested. I’d also include key product features in the appendix too.
Investors and stakeholders hate nothing more than solutions that are built because technical founders are enthralled by the technology that sits behind them. This has been the story of the last decade, with solutions in the AI, ML, blockchain space etc. exciting founders who come up with a product that has great functionality but has no commercial purpose.
In summary, find a problem first, then come up with a solution, then figure out what technical product works best.
(iii) GTM Plan
A start-up’s method of achieving its ambition needs to consider three vital components:
Who the target customers are
Through what channels will the start-up target the customers
In what timeframe will the start-up reach target customers
(1) Target customers
Segment down to the finest demographic level who the target customer should be. Then outline the segments of customers that are aligned to this vision of the target customer. Finally map their demand for the solution.
Demand will vary depending on timing of customer acquisitions. Looking at the typical technology adoption lifecycle will show you that early adopters come after innovators and make up 13.5% of users. Firstly, this archaic language isn’t helpful, but let’s roll with this for now…
It’s not very helpful as it was popularised in the 1962 book ‘Diffusion of Innovations’ by Everett Rogers; so not exactly built for this day and age. But the general principles apply.
Although this graph is useful in showing that early adopters are a small group, it’s a lot harder to actually figure out who early adopters are. Typically, tech adoption theory would point to them being:
Younger age groups
More prosperous – i.e. more cash to splash on new tech that’s expensive (as it isn’t commercially viable yet)
Well-connected and thought leaders – i.e. have a large social circle so they can flout this newfound piece of tech
If you’re interested in social signalling in this space, I would recommend reading “The Social Subsidy of Angel Investing” by Alex Danco. It basically argues that the social value (of pursuing the status, credibility and social capital) that comes from being an early stage investor, explains the irrationality of putting money into things that don’t necessarily make financial sense.
It applies here in the context of early adopters too, as described by Packy McCormick from the Not Boring Club. In this Substack article, Packy argues that the same logic that applies to Angels in the Valley, applies to the new class of private stock market investors who want in on the latest tech stocks.
More progressive – i.e. less likely to be right-wing radicalists
More educated - probably not mutually exclusive from the prosperous and progressive characteristics
But luckily, there are more practical ways to figure out who the early target customer is:
One way is to theorise on paper who you think the exact person is who would want the solution. You can even use the list above, but chances are most people founders know fall into those categories anyway. Then find that person and sell it to them or give it to them for free. Founders typically experience the market problem themselves, hence why they come up with a solution. Therefore, if founders can find people like themselves from their own circles, that’s a good starting point. From there, let Metcalfe’s Law of networking effects take it forward. But this can be slow.
My favourite way is to combine that initial outreach with a cold outreach approach: get an MVP out and test it with as many people as possible. Be militant about getting feedback. Once you have enough feedback, then product adjustments and updates can be made to the MVP.
The third way is to officially run trials with the product. Get demographic details from the people who test it and whittle down to target consumers from there. The best way to do this is with a research company that can run qualitative and quantitative surveys rapidly. They’re pretty cheap too.
(2) Channels
In order to grow a start-up, the GTM plan needs to highlight how the business will gain users. There are three steps to getting user numbers up:
(i) Attract
Paid: paying to get onto platforms where you can spread the message
Paid online marketing (e.g. online ads, social marketing)
Trade shows
In-store displays
Earned: driving users through organic means
Natural search / SEO
PR
Social referrals
App ratings
Owned: using your own platforms
Website
App
Socials
(ii) Engage
This is harder to do, but typically brands will engage through online content
Options include:
Nudges / notifications
Newsletters / emails to users
Opt-in special content
Social content or video marketing content
(iii) Nurture
Maintaining customer loyalty, and rewarding it, are by-products of having the right product-market fit
But there are ways to show this by doing more targeted advertising specific to the consumer
A start-up will need customer data in order to do the above, so they need to have methods of gathering customer data. In order to target specific sub-segments of the target customer and personalise the service for them, there will also be a need for analytics capabilities and KPIs to track what good looks like.
(3) Timeframe
It is wholly viable to set up a business in 2 to 3 months. And getting an MVP out should happen in those first 2 to 3 months. Then testing and iterating the product for the next couple years is vital. Stakeholders like to see a timeline of target customers and how that will help support updates and iterations of the solution and product.
But I think this is arbitrary.
There is no point me providing subjective timelines and milestones for getting to a certain customer number. As Chamath points out in this video, fast growth can sometimes be a curse. Stakeholders are looking for more than fast growth. They’re seeking steady growth and a vision to profitability. They are also looking for other factors such as network effects and switching costs (check out 7 Powers: The Foundations of Business Strategy by Hamilton Helmer for a lot more detail on this). By showing that the market is sufficiently large, and not too competitive (more on this below from Peter Thiel), a start-up can prove growth is viable, and therefore should assume slow growth to target market share (see (iv) Size of the Prize).
It’s also important to note that B2B start-ups can scale faster or more profitably without worrying about user numbers per se. A few large contracts could get a start-up into positive margin territory pretty quickly.
The point regarding “not too competitive” is also important. As Peter Thiel says, competition is for losers. He maintains that no competition is the ideal business model, and he recommends founders to always aim for a monopoly and to avoid competition. And how do you build a monopoly? You start small. It’s far easier to dominate a small market, than tackling a massive one. Start small by being unique, being different, being niche. You can see Thiel talk about this in more detail here.
You should definitely mention competition in your Value Proposition, but remember to show competition as nearest competitors and critically, why your start-up is niche and different.
(iv) Size of the Prize
Start-ups must show in simple numbers, the size of the market (in revenue) and the potential money they will make from that market (revenue share).
Market sizing is a Consultant’s dream. Consultancies even interview people using tough market-sizing case studies. But this concept may be alien to most non-consultants. So how do you market size?
There are 2 approaches that can be used in conjunction: (1) Bottom-up and (2) Top-down.
(1) Bottom-up market sizing
As the diagram shows, bottom-up market sizing refers to finding the simplest building blocks of the market revenue and multiplying them out. The essential building blocks of revenue are quantity and price.
Let’s start with quantity.
This is made up of the number of customers and number of units purchased. There are multiple denominations of market size that can be shown as a funnel. The key segments are the Total Addressable Market and the Serviceable Obtainable Market.
What about price?
I talk about pricing in more detail in the Financials section, but price will always be industry-specific and will be a core component of finding product-market fit. Understanding the ratio of customers that purchase a start-up’s premium vs base products will help start-ups come to an average price to then multiply by total unit sales.
(2) Top-down market sizing
This form of market sizing is research-based, i.e. searching for the nearest viable TAM based on market studies or just Googling. At this point, by making a number of similar assumptions as the bottom-up analysis around serviceable customers, it becomes relatively easy to get to a market size.
For me, top-down sizing is used to triangulate the findings from the bottom-up approach and sense-check numbers emerging from the bottom-up analysis.
In order to triangulate, start-ups could present both analyses and then produce an average of the two.
This section can be slightly complicated. It is worth working through logic and assumptions with people who are close to the market. I have worked through an example in Appendix B. The example builds on a market-sizing exercise from Grad Interview Prep, which is a great source of market sizing material (not sponsored).
(v) Financials
Here’s where most start-ups don’t do enough thinking or they make unrealistic assumptions.
Look, tech start-ups rarely make profit in the first couple years. That’s fine if there is a solid pricing strategy and long-term plan to monetise at the possible 80%+ gross margins in tech. But why do a lot of start-ups get to IPO or SPAC stage and drum up massive valuations when they operate with negative net margin? Because early stage growth is valued at the customer level in Silicon Valley. Not at the bottom-line level.
The innate problem with this is that incentives are misaligned. Investors want outsized returns in the long-run. But they value user growth in the short to medium-term, because this is a proxy for success and a pipeline for monetisation in the future. (Read more about this in rational vc’s memo: Technology Markets are Irrational). So, what do founders prioritise? Short-term bursts of user growth. Founders typically look past the fact that their user base growth is due to a free / very cheap product or in other words, their market penetration pricing. Founders that find the right product-market fit early on, will typically translate the value of the service to the customers very well. And as such the customer’s perception of value relative to price is high. Put simply, customers feel like they’re getting value for money.
With financials, there are two main areas I want to focus on for new start-ups:
(1) Pricing
(2) Revenues, Costs, Margins
(1) Pricing
There are a bunch of pricing strategies start-ups should employ, often simultaneously.
a) Market penetration pricing:
As the name suggests, this is just about pricing to get initial market share. Uber did this very well in the early days (and it was later copied by their competitors) by providing free trips for referrals or money off the first few rides. Often start-ups offering free services have secured funding for a period of free-pricing runway – they’re using investor money to grow users at a loss.
b) Bundle pricing:
This is where start-ups will sell multiple products for a discount compared to if they’re purchased individually. The best thing about this strategy is it allows businesses to shift deadweight stock and simultaneously increases a customer’s value perception of the brand and product.
c) Premium pricing:
Only novel or luxury services should price higher than the competition. The more unique your service is, the more you should aim for a premium price segment. But this only works if your customers see value in paying a lot for your product. How do you ensure this in the luxury market? You brand/market your product in a high-end way. You also make your service seriously over-the-top in terms of bringing value to the customer. It really is the little things in this scenario.
d) Economy pricing:
The opposite of premium pricing. People who want no frills, don’t particularly care about the service to the nth degree and are willing to pay a discounted price for that. This obviously requires a higher quantity of sales (in the market sizing equation).
e) Price skimming:
The opposite of market penetration pricing. For the introductory phase of a service or product, start-ups will charge a high price. Why would a start-up do this? To build exclusivity. The problem is, I don’t think start-ups should ever do this with their first product. This works better for established tech businesses like Apple, who want to show off the individuality and exclusivity of their products, while maximising revenue from their early adopters.
f) Psychological pricing and price anchoring:
This is where things get weird. Businesses can price based on emotional / irrational perceptions of their customers.
The ’99 effect’ is one example. It’s proven that customers are more likely to buy a product or service when it’s priced at 99c, rather than $1. It’s apparently based on customers’ emotional incentives aligned to big denominations, rather than small denominations. Basically, customers feel they’re getting value for money.
Another example is ‘price anchoring’, whereby placing a premium product next to a standard one, makes the standard product appear as a bargain in comparison.
(2) Revenues, Costs, Margins
This is pretty simple. You need a financial plan. But it doesn’t need to be complicated.
Your financial plan should be made up of 3 segments: Income Statement, Cash Flow and Balance Sheet. I dive into these in Appendix C.
You can use tools like Causal to build a financial plan if this is all alien to you (not sponsored).
Fundamentally, stakeholders will only want to see a simple articulation of long-term revenues (derived from sales projections and price projections) and your profit margins (at a net and gross level).
Some clarifications before we continue:
Gross Margin is all revenue a business retains after accounting for the direct costs of producing its goods/services (COGS).
Net margin further removes interest, taxes, and operating expenses from net revenue.
COGS = Cost of Goods Sold. This just includes all of the costs and expenses directly related to the production of goods.
Typically, tech companies, and in particular, SaaS companies, will have gross margins in the 60% - 80% range. This is because COGS are low when you’re building products that can be deployed at massive scale and at rapid pace. This is the target. Try to articulate, in real terms, how you can get your gross margins up to the 80% mark. But don’t put unrealistic assumptions in your plan. Think about how the service you’ve created can scale, both in terms of the product and in terms of its fit into the market (i.e. customer need).
If you’re making 10% gross margin or negative bottom line, that’s not a problem either. But you must show that you have thought through methods of increasing profit over time (e.g. premium pricing, more products, lower costs over time). Realistically, all forecasting is bogus – no one can accurately forecast what their costs will be in a year; Covid’s a great example why. But the point is, you can make an educated guess, so that Angels and VCs nod their heads in rational agreement.
(vi) Team
This final piece of the puzzle is probably the most important.
Everyone wants to bet on the winners. In his appearance on Chris Williamson’s Modern Wisdom podcast, Jason Calacanis (a serial Angel investor) talks about this (in the first 45 seconds). Even if you fail in your first few ventures as a founder, if you are clever, coherent, charismatic and you have the right team, the biggest investors will invest in you (read bet on you) over and over again.
This is vital to understand. No one is going to put their hard-earned money into a person they can’t trust, even if that person creates the next Google, Amazon or Facebook. But, soon enough, the cream of the crop rise to the top.
Let’s say you’re a non-technical (non-coding) Economics undergrad and you’ve got a cool idea for a business solution based on a daily problem you have in your life. Say you link up with a Computer Science undergrad from your university who you trust and get along with. The CompSci guy also has the same problem, and is willing to build something quickly to address it. Together, in a couple months, you build an MVP and a Value Proposition pack.
If you’re able to communicate well, you are credentisalised (e.g. good school or interesting work experience) and you present your Value Proposition / pitch pack well, Angels will be interested. Follow the guidance in this memo, and Angels could be more than interested, they could be jumping over themselves to meet their social subsidy quotas and invest in you.
So how do you find the right team?
It’s trial and error or it’s working with people you already know and trust in a business context. Cliché as it sounds, you’re not going to find the right team, if you don’t know yourself – but that’s way too philosophical for this memo. Understand how you work and how you like people to perform under pressure. Set the culture of the business upfront when thinking about your Statements. Once you have this, you’ll have a better idea of who to hire.
Y Combinator (an accelerator-cum-VC) and in particular its CEO Michael Seibel, say that you should start a business with your mates or colleagues. This is based on the fact that you know and trust them. But they also say they look for start-ups where all founding team members have quit their jobs, are bootstrapping and as such, are fully committed to the business. I agree with this in theory, but in practice, we all need to have a roof over our heads, eat and pay the bills. Starting a business on the side and scaling slowly isn’t a problem either!
How do you present the team?
You put everyone on a page. Founders, technical and non, early / key employees, board members, advisors. For each of these people, outline briefly their background and their role in the business. Mention their education establishments and their work experience. Don’t forget pictures; always good to put a face to the name.
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5. Conclusion
A lot is covered in this guide.
The core components of a strategy hinge on getting the ambition right and communicating it well. Then comes the action to back the ambition up. All this sounds relatively oversimplified, but those businesses that can truly articulate their business and the Value Proposition straightforwardly and succinctly, typically attract the most interest and investment.
Keeping in line with the idea of simplicity and clarity, I will finish this guide with a short and sweet summary of the process:
Find a problem in your life. Get a team. Figure out how you can solve the problem. Test what tech can help you solve it. Build a purposeful business ambition. Put together an action plan / Value Proposition. Bootstrap. Work really hard. Get funding. Get more funding. IPO or SPAC. Maybe positively change the world and make $$$ in the process.
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Appendix
Appendix A. Statements
(i) Vision
Your goal of what you want to be / achieve
This doesn’t need to be based on your product or service. In fact, actively move away from this. Be abstract. Focus on the broader picture in the future. Be short and simple
Eight things to tick off with your Vision:
Brevity: 11 – 22 words
Clarity: simple language
Central goal: point to 1-3 main things
Memorable: easy to recite
Future-focused: not today, but tomorrow’s aim
Challenging: hard to do quickly or well
Abstract: capture interests and strategic direction
Inspirational: rally people
Examples:
Patagonia: “Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis”
McDonald’s: “To be the best quick service restaurant experience”
Amazon: “We aim to be Earth’s most customer centric company”
(ii) Purpose
Your reason to exist beyond the financial
What value are you bringing society and why does that matter?
Companies will often have their purpose as part of their Vision – this is fine, but ensure you can break out the two
Examples:
Disney (2012): “To make people happy”
Nike: “Bring inspiration and innovation to every athlete* in the world. (*If you have a body, you are an athlete.)”PwC: "Build trust in society and solve important problems”
(iii) Mission
How you achieve the Vision and how that enables the Purpose
Much like the Vision, this should not focus on product / service
How you intend to reach your vision based on
Who your customers are
What you intend to solve
How you are solving it (at a high level, not at a product/service level)
Six-point checklist for your Mission:
Based on competencies: competitive strength, unique capability / resource
Realistic: not too broad, nor too detailed
Brevity: 20 – 40 words
Clarity: simple language
Memorable: easy to recite
Inspirational: rally people
Examples:
Amazon: “To continually raise the bar of the customer experience by using the internet and technology to help consumers find, discover and buy anything, and empower businesses and content creators to maximise their success”
Google: “To organize the world's information and make it universally accessible and useful”
(iv) Values
The beliefs of the company / moral direction of the company
How people in the company are expected to behave with each other, with customers and all other stakeholders
Three things to consider for Values:
How your company operates (e.g. its activities, standards, quality, etc);
How your company is perceived externally (i.e. in the eyes of the public or other external stakeholders);
How staff and volunteers carry out your company’s services and activities
Appendix B. Market Sizing Example
Pike is a new sneaker start-up with technology in the sole that tracks your form and gives live feedback through haptic nudges into your feet. It also connects to your smartphone and provides live vitals information (including heart rate, bmi, metabolic rate etc.). The product needs a smartphone to work. Pike intend to enter the European market first. There are no clear plans for expansion beyond Europe. Pike only has distribution partners serving 10% of Eastern Europe and 25% of Western Europe.
PAM = (7.8bn x 1) x €40 = €234bn
Quantity:
Population of the world = 7.8bn (I know we are not targeting the world, but PAM does not limit the business to here and now)
Average number of sneakers purchased per person per year = 1
Price:
Average price per pair of sneakers = €30
TAM = (300m x 1 pair x €20) + (450m x 3 pairs x €40) = €60bn
Quantity:
Population of Eastern Europe = 300m
Pairs of sneakers purchased per year per person = 1
Population of Western Europe = 450m
Pairs of sneakers purchased per year per person = 3
Price:
Average price per pair of sneakers in Eastern Europe = €20
Average price per pair of sneakers in Western Europe = €40
SAM = (24m x 1 pair x €20) + (101m x 3 pairs x €40) = €12.6bn
Quantity:
Smartphone penetration in Eastern Europe = 80%
Smartphone penetration in Western Europe = 90%
Customers in Eastern Europe = Population of Eastern Europe x 80% smartphone pen. x 10% distribution capability = 24m
Customers in Western Europe = Population of Western Europe x 90% smartphone pen. x 25% distribution capability = 101m
(You can also further segment by age at this point too, if we consider that people >65 and children <12 may not buy the product)
Price:
Average price per pair of sneakers in Eastern Europe = €20
Average price per pair of sneakers in Western Europe = €40
SOM = €12.6bn x 5% = €631.5m
Quantity:
The traditional sneaker market is super competitive, with big players like Nike and Adidas
The smart sneaker market is also established with other large players like Puma releasing similar products to Pike
As such Pike only believe they can realistically win 5% market share
Appendix C: Financials
a) Income Statement / Profit and Loss (P&L)
This is basically an overview of the revenue (income) and costs the start-up has generated and will generate over a specific period of time (typically 5 year forecast) and shows whether the start-up is profitable
Useful metrics include Gross Margin, Net Margin and EBITDA. The latter is quite important as it’s a simple measure of operational performance, or efficiency of a business - although Charlie Munger would disagree…
b) Cash Flow
Does exactly what is says – it’s just a view of all cash in and out of the business over time
There are three parts to this:
Operational cash flow: cash inflows and outflows of the core operational business
Investment cash flow: changes in investments (can be positive if you’re selling stuff like real estate, but will almost always be negative for start-ups as they need to splash cash to grow)
Financial cash flow: cash in from loans or equity injections, and outflows from paid dividends and interests on debt
c) Balance Sheet
This is just an overview of everything the business owns (assets) and owes (liabilities). But it shows a snapshot in time, e.g. year-end (as opposed to across a time series like the P&L)
Liabilities show obligations of a business and financing e.g. debt
Whereas assets show how these funds are used in the business (e.g. as capital to pay for supplies)
The difference between assets and liabilities consists of equity, which is the paid-in capital by investors that finance the assets not covered by debt (assets = liabilities + equity).
Because of this the balance sheet is always ‘in balance’. Shareholders' equity represents the net value of a business, i.e. the money returned to your shareholders if all the assets were liquidated and all its debts repaid.
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