Listen to your numbers

Financial statement and business data can help you hear how your business is doing

One of my favourite discoveries this year has been the Tiny CFO Newsletter from Jana Kovacovska. What the Hell is Going On is a clear and simple statement of what financial statements are. 

Some basic implications flow from this. Don’t manage your business to produce your numbers. Listen to your P&L, balance sheet and cash flow and hear what your business is doing.

How is your business doing?

Your financial numbers should represent what your business does. So if the descriptions of costs, revenues, assets and liabilities don’t make sense to you, change them. If your accountant insists on using their own format, change your accountant.

Regulated financial statements are an exception. They are governed by complex rules. Producing and filing them is part of your compliance cost. The numbers you look at daily, weekly or monthly don’t need to look the same.

Data is a message from your customers

Starting from Jana’s excellent post, a couple of wider points are also worth sharing.

The same principle applies to all data. Another post I read this week (from ChartMogul) was  about using churn data to improve your SaaS product. Its a great example of how listening to data can help you learn about your business.

Also touches on another important aspect. Churn data is far more valuable if it comes from users of your product. The best data comes direct from people. Aggregation and averaging get in the way.

I know this from experience. The learnings come from SME or consumer SaaS feedback. Enterprise churn is filtered through the corporate IT/ procurement machine. It becomes a message not feedback. 

Don’t let goals and forecasts get in the way

Targets (goals, objectives, KPIs etc etc etc) get in the way as well. Setting a number to aim for can be a motivator. But its also an incentive to game the outcome. Too often the conversation shifts from “what is this number telling us” to “why did we miss the budget.” At this point you are listening to excuses not to your customers.

One final thing which may be less apparent. All these points apply to actual transactions, events, feedback about things done by real people. Forecasts are different. Forecasts are not data. They are calculations based on assumptions and estimates. Opinions not facts. 

That doesn’t mean forecasts are not valuable. But the value is not in the numbers. Its in the thinking behind the numbers. So listen to the people. How did they estimate growth? Why do they think leads will convert into sales at that rate? Are the answers credible? Don’t be afraid to form your own view. You know your business better than anyone.

Listen to your numbers and your data. Use them to ask the right questions. Its a great way to learn what your customers are saying and how your business is doing.

Observations:

Interesting story about how narrowing the funnel at the start can create massive distortion down the track. In this case (and many others) the result was reduced gender diversity. If you want the best talent, you need to widen the funnel not predetermine what they will look like even in “qualification”ways. We need to look at the whole board to find the best team.

Sweden is one of Europe’s tech hotspots. Lots of reasons for this. Not least the Ericsson diaspora provides a great source of founders and ideas. According to this article: “there was nothing programmed on the Sweden’s governmental side, it just happened.” So why do we think top down Government strategy and policy will make this happen?

Europe - its not a money problem. Dragos Novac - also a view from Sweden. I agree. Government funding and tax incentives have a “look after public money” sub text that reinforces the low risk mindset. So if we want high risk high reward VC model, need a different mindset. Or we need to grow something with a different way of managing risk. That means lots of mid sized, moderate successes not one in a thousand (or less) Unicorns with huge returns for a handful of investors.

A shitload of money is being poured into European VC funds right now. Alongside this, a Dealroom report claims that values and jobs are rising fast. The valuation here is based on private investment rounds not any realised value. So the question is: Do we keep chasing that illusion or try to spend the new cash better as the economy recovers from COVID?