Thread by @jspujji

Bootstrapping is hard.

You feel lost and stretched constantly.

Cash flow. Working capital. Inventory. Where do you focus?

I wish I had a top metrics cheat sheet when I started my first co.

So I wrote one.

Pay attention to these 5 metrics to make bootstrapping easier👇🏽👇🏽👇🏽

1/ #1 - Debt capacity against assets/sales

One of the most important things we did early @ampush was borrow (factored) against our receivables.

Back then, it was still pretty old school/sharky but today there are myriad of options like @getclearco and @AssembledBrands

2/ The important metric is: how big is your AR, Inventory or subscription revenue (whatever “denominator”) you are receiving debt against?

How much can you borrow against that?

And what are your ongoing cash costs to fund operations?

3/ e.g., If you have $100k in ARR with 70% capacity, you have access to $70k to fund cash costs.

I recommend knowing this number offhand and only borrowing to fund profitable/breakeven operations (see #5 below).

Don't use this debt for funding “risky initiatives” (see #4).

4/ #2 - “True Cash” - another balance sheet metric.

If you’ve never raised outside capital to have a slug of cash padding, your cash balance will be volatile.

Collections matter. Payroll timing matters.

When you send the check matters.

5/ Even after you have working capital financing (see #1 above), you’ll still see a cash balance that moves around a lot and IS NOT directly tied out to the profits of the business.

So always know your “True Cash” number

(this is not an exact metric).

6/ It’s not retained earnings, it’s not cash.

It’s most similar to the Quick Ratio: Cash + Accounts Receivable- Accounts Payable - Short Term Debt.

How much cash is “sitting” in the business?

7/ Note: we operated Ampush for several quarters or even years at a time while this number was NEGATIVE despite a large cash balance.

Knowing that is the case and planning against it was important to decision making.

8/ #3 - CCC. Cash conversion cycle - Know it in days.

If I spend $ today on inventory, ads, etc, how many days does it take for me to get my $ back?

You pay $25 day 1 for inventory and $25 day 2 for marketing, you get paid $100 in 30 days...

9/ Even though the sale is profitable, if you only have $50k to spend, you can only sell 1000 units before you run out of money and have to wait.

The detailed equation: CCC = Days of Sales Outstanding + Days of Inventory Outstanding - Days of Payables Outstanding.

10/ The holy grail is a negative cash conversion cycle and it explains how Bezos took Amazon public with less than <$10M in VC raised!

In short, a negative CCC means that your suppliers "finance" your business. I linked 2 articles below to help explain further.

11/ #4 - Number of Initiatives per 10% of profit margin - this is a weird one but the 2nd most important.

Consider for a second that your bottom line profit margin is “arbitrary” - you can target -20% all the way to +20%.

12/ At $1M in sales, do you spend $1.2M or $800k?

I believe that choice is tied directly to how many initiatives you are pursuing at once. It’s easy to convince yourself that you have to DO EVERYTHING and DO IT NOW.

But...

13/ In my experience, you can cut the bottom 20%+ of initiatives which aren’t getting much attention anyway because they are number 500 on everyone's' priority list and still maintain (or even grow) your revenue.

14/ In the $1M sales example, the diff between 20% and -20% is $400k annually or 3-5 people.

Each incremental initiative is costing you.

Cut down your initiatives until you are showing a solid profit and stay disciplined in only growing expenses when you grow revenue.

15/ The easiest hack to identify the "cut list" is look at your calendar and the initiative(s) you are making the least time for, skipping the meetings, that have emails piling up in your inbox you don't want to respond to.

THEY ARE NOT A PRIORITY. Cut them.

16/ Build a system for investing ahead a bit (but within your chosen margin threshold).

Get rid of the notion that profit and growth are at odds with each other.

In fact, use the framework that initiatives must yield profit AND growth to make the cut in your priorities.

17/ #5 is: UNITS SOLD TO BREAK EVEN!

With even $1 in profit per month, your runway is infinite.

Know how many units of your product must be sold per month to cover your overhead.

18/ The calculation: (Rev per unit - cost per unit)*Volume of units = Overhead + $1.

Know that # and do all you can to hit that volume of sales/units before increasing overhead.

At each level of overhead, know the units to breakeven.

19/ For example, if you’re a SaaS business with $120 per month subscriptions at a cost per sale of $20 and you have 5 employees at ~$100k each + $100k in office/ads/other overhead.

That’s $50k in monthly expenses. You need to sell 50k/100 = 500 subscriptions.

20/ That's it, my top 5 metrics for bootstrappers.

Add yours here too so we can create an amazing repository for bootstrappers. Or share edits/feedback!

21/ If you enjoyed this thread, follow me

@jspujji

I've bootstrapped multiple 8 figure businesses, grew Ampush to $400,000,000+ in FB spend, and now run a venture studio launching a profitable company every quarter.

I'm posting threads every day in a race to 100K followers

22/ For a deeper dive on negative CCC and how Amazon leverages it, check out these articles from @jayvasdigital and @recode

jayvas.com/the-power-of-h…
vox.com/recode/2019/8/…