You Can Bootstrap Your Asian Startup From an Excel Spreadsheet With This Founder’s ‘Agile Financing’ Model
But don’t just adopt the spreadsheet model. Adopt the focus on profits and smart investments.
PHOTO CREDIT: Getty Images
Pini Yakuel is the co-founder of Optimove, an AI-driven relationship management platform that lets brands like 800-Flowers, Adore Me and Freshly divide their customer base into micro-segments and send them extremely personalized, emotionally intelligent communications at a huge scale.
Sounds great, right? It is -- but when they launched the company almost ten years ago, they kept their day jobs, bootstrapped Optimove, and created a simple Excel spreadsheet to handle accounting.
And as you'll see, even though they now have over 100 employees and offices on three continents, they used that same spreadsheet until last year.
Pini calls the approach agile financing. Want to know how you can use agile financing to grow your business without significant capital or outside investors?
If you've started a self-sustaining business--one that prioritizes profitable growth--your financial situation is unique. You aren't governed by an arbitrary valuation, nor do you need to report to investors. Your growth depends on chasing revenue. And if you're a young company that's growing quickly and constantly changing, you need to be nimble.
My company, Optimove, now has 140 employees, more than 250 clients, and offices in three continents. An agile financing method helped us grow from a two-person startup to one with 140 employees and offices in three continents. It seems unreal that until a year ago, and for six years running, we managed our entire financial operation from a single Excel sheet.
Could "Agile Financing" Work for You?
This method worked for us because it kept us focused on staying profitable and investing in the highest priority areas of our business. From day one, my co-founder and I knew we weren't going to take any funding until we were ready. We kept our day jobs as university lecturers and bootstrapped the business by taking on consulting work--analyzing and segmenting customer personas for companies that were sitting on a goldmine of data.
As the consulting money came in, we invested every available penny into the product, which would automate the work we were doing for our clients. By starting with a consulting model, we were able to get valuable customer feedback and build a client base while developing our SaaS product.
While we had a plan in place for making money, our business was growing and changing rapidly. Creating an annual forecast or measuring estimated vs. actual spend wouldn't have told us much about our business.
What To Put In Your Model
We engineered an agile financing model based on the monthly economics of our business. Based on a snapshot of our net revenue in a given month, we made quick decisions about where to invest.
We tracked four numbers:
- Monthly revenue (total booked across all signed contracts, averaged by month)
- Monthly costs (total spent on salaries, rent, equipment, travel, etc., averaged by month)
- Revenue gap (the difference between numbers one and two)
- Cash buffer (savings in the bank
Key to this approach was its real-time nature. We tracked all expenses as they happened; for instance, we would add a new hire's salary to our calculation of monthly costs, even if their start date wasn't for another 90 days.
Similarly, we added new client revenue as soon as the contract was signed. We could always see the amount we had available to invest back into the business. When this gap became substantial enough--for instance, after signing a new client--we would invest in the most immediate bottleneck, whether it was engineering talent, a bigger marketing budget, or customer support resources.
A monthly model worked well for us as a consulting-turned-SaaS business with recurring revenue (first in the form of consulting clients on retainer, then a monthly subscription for the product) and regular expenses (primarily payroll and rent). Our business was not yet mature enough to warrant hiring a controller and creating an annual budget or quarterly forecast.
In fact, we had no interest in the future or the past, estimates versus actuals, or projections of any kind. We kept our eyes on the business' financials in the present.
When we first started the company, our cash buffer was about $100,000, saved from consulting, plus our own financing and a small loan. Our recurring costs were about $20,000 per month. Once we reached $25,000 in monthly revenue--a gap of $5,000--we began to take small salaries and rented an office.
Keep It Updated in Real Time
As we grew and had more revenue and expenses, we logged everything in that single Excel sheet. It saved us a great deal of time that would have been spent on forecasting and accounting. Even after we hired a CFO, we used the same method of agile financing. The CFO managed the finances and the two of us allocated monthly budgets to department heads. These budgets were accounted for as part of our recurring expenses; anything beyond this needed to be approved.
The only time our costs exceeded revenue was a period in 2009, just after the financial collapse. During this time we mostly broke even, but it proved the importance of having a cash buffer. We were judicious about where we invested, and our growth was a bit slower.
We used the same agile model until a year ago, when we took a $20 million growth investment. At this point we had a cash buffer of $3 million. Our product was well established in the industry, serving hundreds of clients and in its sixth version release. The fact that this financial model served us through years of growth attests to how well it embodied our M.O.: Iterate quickly, and invest every dollar back into the business.
It also served to maintain our ethos that businesses can grow without burning through VC cash.
A few tips for agile financing:
- Write down recurring costs as soon as you know them--even if one is set to start in 90 days.
In the beginning you may need to take a small loan to establish a cash buffer, and use your gap to pay off the loan.
- Make every decision based on the gap at that particular moment--not based on optimistic forecasting or a yearly meeting in which you make financial decisions.
And a couple of caveats:
- This approach doesn't work for businesses with high churn rates or variable spending. Too much fluctuation becomes dangerous because your buffer may not be able to absorb a significant change from month to month.
- It also doesn't work for businesses with outside investors who require reporting and transparency into the finances. It is a method for bootstrapped startups with recurring revenue and consistent spending, such as SaaS businesses.
As a startup, your ability to predict the future is limited. You are forced to react to what is happening in the moment, prioritize fiercely, iterate, and move forward.
Your financing paradigm should represent this type of agile growth.