The past matters to your startup

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Mothballed oil rigs - Udale bay

The startup world is all about the future. Founders talk about creating the future. Seizing the opportunities of a golden age. Never been easier to start a company. So you might ask, why bother investing time and effort in past performance?
 
Those board reports feel as if they are nothing but a mechanism for keeping investors and non exec directors happy. Annual accounts are even worse. They feel like ancient history. The numbers don’t make sense. For certain they don’t shine a positive light on the great things your company is doing.
 
Its all pain and no gain. Yet this misses some important point. Here are four simple reasons why that thinking is wrong. This stuff matters.

“I had also, during many years, followed a golden rule, namely that whenever published fact, a new observation of thought came across me, which was opposed to my general results, to make a memorandum of it without fail and at once; for I had found by experience that such facts and thoughts were far more apt to escape from the memory than favourable ones.” Charles Darwin

Four lessons from history

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1. You are incredibly close to the pulse of your business. But it is easy to focus on the good news and ignore the bad. Only well grounded data about past performance will give you a complete picture of how things stand.
2. If you are doing your job as an entrepreneur, you will be experimenting all the time. How can you evaluate the results without looking at past performance?
3. Many people think of control as a matter of detail. Authorising payments. Forensic examination of ad content. That type of thing. Control and governance also need a step back. The specifics may be well managed but does the big picture reflect that. In my experience most control failures are a result of management manipulation. The only way to spot them is looking for exceptions top down.
4. You make decisions every day. If your board is adding value they will review and challenge those decisions at each meeting. The best way to do this is to combine real data with hopes and aspirations. That needs good data on past performance.

 
Any of these is a good enough reason to get some consistent reliable metrics about your SaaS. What about accounting numbers though. Aren't those for the birds? 

Accounting rules are relevant

​In some respects yes. The rules vary from country to country. Part law and regulation, part accounting standards. Accounting standards in turn are half local and half international. All before you get to the interpretations of well paid professionals (like what I used to be). 
 
It can be quite hard to understand the story published accounts are telling. That is not a good reason to discard this data altogether. For a start standardisation and rules are limiting but also useful in some cases. Investors like comparing numbers. Knowing they are all prepared to the same standards adds a lot of value. And you need to be able to convince investors.
 
Most angel investors don’t make a big deal over this. Take a longer view and the situation changes. VCs and corporate investors want to see proper accounting numbers. The same is true for or any form of exit - trade buyer, financial buyer or IPO. Tom Tunguz wrote a good article on this exact point. Published when the accounting rules for SaaS changed this year.
 
Not only that, they want to know how you get from the figures you look at every day to the formal accounts. When I did due diligence, one of the first questions on the checklist was “Have the management accounts been reconciled to the financial accounts?” Its still there.
 
So you need to ask yourself, what happens when someone appears with deep pockets. Do you want to present the numbers with confidence? Or scramble around delating diligence until you are ready?

The Chairman's View

​So numbers matter. Get the right financial information and you can make better decisions. Use your numbers to present your business with more credibility. Yet preparing and managing this stuff is still a burden. And it can feel that there is very little help out there. I plan to change that. Share your opinion and be among the first to hear how managing financial information can be faster, easier and better. 

Please share your opinion - Sunstone Financial Information Survey