For (Product) it is essential to understand why customers are buying or not buying at what potential product shortcomings are. The problem is that most feedback is meaningless because it does not come from the target customer. The only why to ensure that within the sales process is disqualification.Read More
Defining OKRs or Metrics for Product Managers is tricky. Based on the assumption that a product exists and the market is not yet saturated, this piece argues that product management OKRs should follow the funnel. In addition win/loss analysis as an OKR serves as a key business intelligence toolRead More
OKRs or KPIs for customer success team should be clearer than "making the customer successful". In this post I outline the link of customer success team work to the company (product) strategy.Read More
The relationship between a product and a company is not obvious. Financial statements are rarely broken down into products and the ultimate drivers of the value of a product are not obvious for the overall company. I try to tie it together here.Read More
Pricing is extremely important but has many 2nd and 3rd order effects that were not obvious to me. Summarising what I learned about pricing and unit economics from a product management perspective in this post.Read More
Again, I just want to get this out there. Venture capital, other private equity and alternative asset classes often get paid in the following way: x% of the total money they are investing plus Y% of the returns they generate above some hurdle. Classic case is 2/20.
There are a many stories where this comes from: whale hunting, spice trading and other stuff. According to a fascinating book I want to recommend More money than God this is not actually true but what dreamed up by the first Hedge Fund guy. This is fascinating to me because the whaling and other stories are told soo often and apparently it is bullshit.
The size of a market is a crucial input for management decision making. However, most approaches result in large but meaningless numbers. Here I provide a unit economics based approach to market sizing that provides much better insights. Recommended for (product) managers.Read More
As stated previously I will analyse German Software companies. Most financial information is meaningless to me for the purpose of arriving at an attractive price. I can of course compile benchmarks and understand why current coverage, cash cycle theoretically matter but I don’t feel comfortable with it.
What I will do instead is put a value on the whole business then divide that by the number of shares. That will give me the price that I’d be willing to pay for more shares.
But, before I do this I want to share my approach so that I do the same thing for all companies and can improve. This is also written fast and based on common sense. I write we because I own a share of each company.
I will keep this part purely financial, some of the questions serve as preparation for qualitative research or asking the management.
Questions I want answers to:
- Does selling the current products make more cash than it costs to make them?
- Are there more customers for the products with similar acquisition costs in the future?
- Have less people bought our products in the lastly?
- Are we making a lot of investments?
- Have we made a lot of investments in the past?
- How good have the past investments been?
Definition of “Investment” and “Investment” in the context of Software businesses
An “investment” is something that you do today to generate cash in the future. If it does not generate cash it was a bad investment. But, if it does generate cash it is not automatically a good investment. Because it could also not be an investment at all.
Example: If I am in the business of selling balloons on the Oktoberfest, than the thing to put gas into the balloon is not an investment. Yes, it generates cash. Yes, it is re-used when there is gas filled it. But if I buy a new one, I cannot tell my investors that I have “invested” in something. The new gas thing will not generate more revenue at the next Octoberfest, it will just allow me to do any revenue.
Normally, I would expect to find the “investments” in the assets on the balance sheet. Now, in case of software, most likely there will not be an asset on the balance sheet but I expect it to be somewhere on the incoming statement - hidden as labour costs.
Enough theory, let’s start
I feel there has been too much theory from me. I will start and later come back to this article. The questions above still stand.