Webcast: How to approach a discussion about unit economics with investors
Having a good relationship with investors is of paramount importance. Well, really, any key stakeholders for that matter.
We discussed the importance of communicating with investors in times of crisis in a previous blog post, so If you want to read more about that, check it out here.
However important, striking up that relationship doesn’t come without its difficulties on occasion. There is room for disagreement, tension and frustration at times, especially with more traditional investors. An example we have found is that there’s sometimes a disconnect between founder and investor regarding the best metrics to use to assess the company’s current and future performance. What do you do if you’ve decided unit economics is the best way to go, but your investor is on the fence?
Andre and Sara share some tips on navigating these types of conversations, so that you can become a step closer to business-board alignment.
Follow along with the conversation between Sara and Andre in our webcast below!
I’m not going to say it’s easy, with investors who haven’t been exposed to it. You need to articulate and explain why it is that you’re focusing on that.
Sara: That discussion about, ‘are we looking at balance sheet and P&L and break even, or are we optimising for unit economics?’ What’s the ideal conversation to have, and how do you convince your board to look at the right things?
Andre: It’s tricky. I’m not going to say it’s easy, with investors who haven’t been exposed to it. You need to articulate and explain why it is that you’re focusing on that.
It’s the same as with any other KPI that could be important to you. They need to understand why. And most rational investors, if you can explain why you’re assuming this or why you’re looking at a particular KPI, they will listen.
So, it’s about knowing what unit economics are and being able to explain them.
So, if I go to an investor meeting and the investor or the VC say’s, ‘can you walk me through your unit economics?’, what is he or she asking me really?
Sara: Yeah. I also think there’s also a big difference from if you work with or if you’re raising investment from high net worths or angels, it might be a bit of a different generation as to if you go and pitch to a venture fund or startup founders that have just exited their business and have been through that whole thing. Then, the conversation will always been focused around unit economics, in my experience.
So, if I go to an investor meeting and the investor or the VC say’s, ‘can you walk me through your unit economics?’, what is he or she asking me really? What would be your approach to going through those?
Andre: So, you need to know:
Your customer acquisition costs
The revenue per customer
The cost of goods sold to that customer
Your churn rate
If you know those things, then you can discuss everything around that.
Ultimately, the key to persuading your investors to optimise for unit economics is for you to truly understand them and have confidence in discussing them. They are an effective way of presenting your business’ current and future financial health. So if you’re able to discuss what the numbers mean, there’s no reason why you can’t bring your stakeholders round to using them.
If there is resistance, it’s about appealing to their way of thinking. If they have a more traditional style, you need to think about why they may have reservations. Ask them, if they question your approach, what it is that makes them apprehensive. If you can show them that you’re interested in their point of view and want to learn more, there’s no reason why you can’t get a productive dialogue going.
The key takeaways are that:
You need to be empathetic.
Show your investors that you understand their concerns. Voice to them that you realise this is something that might be new to them. Give them the opportunity to question you and show them that you’re listening.
In a similar ilk, another main point is:
You need to be confident.
Undoubtedly you will be quizzed on your approach, so it’s about delivering your responses in a confident, well prepared manner. Just because something makes sense to you in your head, it doesn’t mean it is always well translated to others. It’s important to think about how you deliver information and counter peoples arguments or concerns.
You need to be prepared!
It’s no use brushing up on your unit economics the night before your investor meeting. You need to understand them and truly know them inside out. All of those things; churn rate, ARPU, CAC, LTV, you need to know what they are and what they mean. If you have the capacity to explain them it shows you understand your business at a deep level and there’s no reason why your investor won’t hear you out. After all, what they’re looking for is something they can have confidence in, and confidence is bred from preparation.
If you’re unsure on LTV, CAC and the other key terms and ratios, we have another blog post that digs a little deeper into that stuff you need to know to fully optimise unit economics. Check it out here!
If you’re feeling confident with unit economics now, then why not try them out? Sign up for Canaree today.