Measuring your business

Money isn't the only way to measure business progress, but lack of it makes developing new stuff harder ...

Fred Wilson (Union Square Ventures) has been doing a series called 'MBA Mondays' - this week about how a profit and loss statement (the P&L) works. It introduces revenue recognition, accrual accounting, gross marging, net income .. all terms you need to know to have a sensible conversation with an accountant, and to have a grasp on the money side of your business. He also strongly suggests that everyone employed by the business should get a monthly snap shot of the P&L, and should understand it - that way everyone can have a conversation from the same starting point about whether a particular project (and its associated expense) should happen.

Accrual accounting is explained in more detail in the comments; another investor explains the progression from part time book keeper through internal accountant to Controller, but says that for his best investments he ignores the acquisitions' books - instead he asks for the check book and has someone put all the numbers into QuikBooks to get a fresh start.

Understanding the P&L

Expect straight talk if you are looking for funding

Stuart Ellman from RRE Ventures has an interesting post on the differences between giving straight answers and giving 'politically correct' answers. The US has had at least a couple of generations of education where competition, at least in sports, and in some schools for academic subjects, is discouraged - instead we get the Dodo saying "everyone has won, and all must have prizes" (Alice through the Looking Glass). VCs make tradeoffs between telling entrepreneurs the right answer and being regarded as arrogant ogres.

This is rarely useful; if neither the entrepreneur or the investor can communicate directly there are going to be misunderstandings and disappointed expectations. Look out for political correctness - if the conversation is about something critical, and you suspect that you are being given the 'nice' response, have the confidence to ask if that's what's going on - in the end it will save time, money and reputation for everybody.

All shall have prizes

Cunning Systems evaluates product and service ideas in computing and communications. If you would like to discuss an idea, contact us at info@cunningsystems.com Follow me on twitter at @annejohn and @vcwatch