This article first appeared in Entrepreneur.
As an entrepreneur with big dreams and a killer idea, walking into an investor meeting can be a bit of a reality check. VCs aren’t just going to fall over and swoon about your huge vision.
To sell VCs on your billion-dollar idea, you are going to get a cornucopia of questions thrown your way. Most questions dig into four issues for a company: market, strategy, financials and team.
While some may believe VC questions are off-base, realize there is a method to our madness: We want to know how prepared the entrepreneur is for the startup journey.
Here I break down a few common questions and provide insight into why are random inquiries, actually have logic behind them.
Q: Why hasn’t there been a big company in this space yet?
A: When VCs ask questions centered around an industry or inquire about the number of companies in a sector, they are trying to assess the market size and timing of your product or service space.
Don’t make the mistake of just saying, “This is going to be huge.” If there is a lot of potential in the market for growth, you must support your claims with facts and a reason for why now is the right time to act.
Providing detailed, specific insights into technology and societal or business-model trends that make your idea ripe now will help a VC understand why the market is, or will be, large when you are serving it. For example, when my VC firm Scale Venture Partners invested in cloud-sharing company Box, we focused on the cost trends of cloud storage and broadband, and concluded a theoretically large market was about to emerge.
Q: Can you talk about customer acquisition costs?
A: When you are talking to VCs, you are talking about money. VCs will ask entrepreneurs all sorts of questions relating to financial information, as they want to invest in companies that can become market leaders and highly profitable on moderate amounts of capital.
For growth-stage companies, a lot of diligence centers on your ability to scale profitably. Questions about sales cycles, retention rates and account expansion possibilities let us mentally build a growth profit and loss in our head. We look at your financial model to understand your business sense. We then use that information to build our own model to predict the company’s profits and our returns.
Q: Why won’t a big company copy that feature?
A: Questions about your startup’s features, advantages and uniqueness are asked to suss out what strategies you have in place to make your company sustainably different, lower cost or both. They are also used to probe your plan’s longevity.
And don’t get caught off guard, if VCs ask detailed, but seemingly unrelated questions regarding strategy. Some of the ones I have tossed out there include, “Where will you source your raw materials?” and “How did Company X gain advantage over Company Y back in 2005?” I am looking to assess the entrepreneurs understanding of her or his industry and strategy potential.
Also, if a VC asks why you decided to get involved in the market, it isn’t just about your passions. This question also presses on your unique insights on customer needs and market dynamics to illustrate an emerging opportunity.
Q: What storms has your team weathered together?
A: “Tell me about your team” gets asked in almost every meeting. In addition to your resumes, we want to understand your relationships: Are your people naturally complementary? Did the leader attract great talent, or have to hunt for it? How does the team deal with stress? Can your initial tight team also attract and absorb new talent? While you may be able to spew out anecdotes about how wonderful your team is, keep in mind, VCs also watch your body language. Your actions speak volumes greater than words.
Understanding how you approach opportunities, people and problems color every question. Venture capital is a long-term investment business. If we invest, we’ll be working together for years. Keep in mind, we’re watching how graciously you manage the meeting, get us on topic and react to stress: It isn’t a secret that every interaction is evaluative. The process helps you too, as you should be assessing whether the VC is the right partner for your endeavor.
Codifying how people, and the company, act toward one another isn’t a new idea. The need to publicly declare our culture arises from a need to assert who we want to BE, not merely what we want to DO.
Dharmesh Shah is co-founder of Hubspot, and keeper of their culture flame, among his numerous responsibilities as CTO. Hubspot recently updated and republished its Culture Code. He allowed me sneak peeks on his manifesto while it was in process, then I circled back with him after its 2013 publication. Hubspot has added hundreds of employees in the past few years, integrated acquisitions Performable and @oneforty, and partnered with BigCo’s Google and Salesforce.com.
Here is what he had to say when it comes to HubSpot’s culture:
What got you thinking about culture at Hubspot such that you invested in creating your deck?
DS: The original culture deck was started over 2 years ago at HubSpot. We decided to do an “update” in Q4 2012. The reason we decided to do it was a result of our fast growth. The team felt that, although the original culture deck was useful, it didn’t go far enough. It focused on the “who” and didn’t talk at all about the “how” or “why”.
What research did you do internally to assess/evaluate/describe Hubspot’s culture?
DS: A lot of the thinking in the code culture deck came as a result of an internal employee survey (with over 300+ comments). Another item that was super useful was a series of internal meetings and discussions (1:1 and small groups) to go over early versions of the deck.
Did that lead you to believe you wanted to modify it, or just codify it?
DS: Much of the “core” was a carry-over from the first version of the deck. But, most of it needed to be modified/extended. We had never really put most of that material in a document before (though much of it was sort “understood”).
How has the culture changed as you scaled?
DS: One of the big leaps of understanding for us was to recognize that our goal was not to try and preserve the culture we had, but to craft the culture we needed and wanted to have. Many of the things from our early startup years needed to be revisited. For example, in the early days, we didn’t use job titles much. But, as we scaled, we recognized a need to have job titles.
What was precious in the early scaling phase that you want to keep?
DS: One of the biggest things was a willingness to take risk and try things. As the company grows, this becomes harder and harder to do (it’s classic “Innovator’s Dilemma”).
How do you assess cultural fit as part of your hiring process?
DS: We’ve identified people “attributes” that we’ve determined are correlated to success at HubSpot. We specifically look for these attributes during the interview process — and actually score people on them. These attributes are also on the list of things people are assessed on during their performance reviews at HubSpot. This helps ensure that our team recognizes that culture fit is important and they’re not just things printed on posters and hung on the wall (in fact, these things have never been hung on a wall at HubSpot).
Talent acquisition is rightly regarded as a strategic issue. Start-ups are born out of innovation and ideas are given life through the infusion of capital, but companies are built by people. In this piece I look at how environmental factors impact executive-level time to hire.
Innovation is abundant and new entrepreneurs are stepping forward all the time—witness Nick D’Aloisio, who took his idea for Summly from launch to acquisition by Yahoo! for $30M, all before his 18th birthday. What was previously the preserve of MBA-trained and industry-hardened executives is now open to all comers. Repeat entrepreneurs, reinvigorated, not satiated, by success return time and again with fresh start-up ideas. All these people need people.
Removing obstacles for entrepreneurs has created vibrant economic conditions in the Bay Area technology industry, along with an unprecedented demand for talent. Those start-ups that evolve beyond the stage of testing an idea and embark on the journey of scaling a company immediately confront one of their most significant challenges: acquiring high-quality talent in a grossly imbalanced labor market.
Entrepreneurs should be thinking strategically about their executive hiring needs and forecasting requirements accordingly. In reality, however, the pace of change for most start-ups is such that executive hiring decisions can move from awareness to need in a matter of days. In this context, time to hire becomes critical, and is a KPI we track in terms of days from search-launch to candidate start-date.
At Riviera Partners we focus on three key strategic e-staff hires: those individuals tasked with defining, building and taking to market software products. Like our entrepreneur clients, we measure and correlate our success with a variety of criteria. We are very familiar with the tension entrepreneurs face when striving for the best available talent balanced against the time taken to have the executive on-board and productive. Anybody involved in executive hiring in the Bay Area will have their own ideas of what impacts time to hire, but here we’ll show the environment factors that create the swings in our data.
Bigger = Slower
We looked at time to hire based on stage of company, and the evidence is conclusive: the more mature the organization the longer it takes to complete the hire. The difference between Series A and later-stage companies is stark. Series A companies necessarily limit the number of decision makers and as a result time to hire is almost 20% faster than the baseline average. The more convoluted recruitment process associated with later-stage companies extends time to hire by an average of 14%. Limiting the number of decision makers is easy in a small company, but later stage companies should take note of the penalty they suffer as they involve a greater number of people in their hiring decisions.
Location, Location, Location
Viewed from afar, the subtle nuances between locations for a start-up within the wider Bay Area seem as far-fetched as the myriad of micro-climates claimed within a 10 block radius in San Francisco. The data would suggest, however, that there really is a significant difference in time to hire between those start-ups in the city and those on the peninsula. The jury’s still out on the micro-climate debate.
Companies have been migrating up the peninsula to SF for some time now, leading to the wholesale regeneration of SOMA and the creation of a new tech scene. Those entrepreneurs who are attracted by San Francisco’s vibrant community of entrepreneurs and start-ups are confronted with scarce space, SOMA rents, and an exodus of mid-career executives heading south and east as they flee the city’s rising property prices and declining public schools.
The relative scarcity of executive-level talent resident in the city extends San Francisco companies’ time to hire by a punitive 9% over baseline, whereas those companies on the peninsula that are within easy reach of desirable neighborhoods benefit from hiring processes that execute 8% quicker than average.
While the data is clear that executive level hiring is adversely effected by being in the city, anecdotal evidence from the hundreds of individual contributor placements made by Riviera each year strongly suggests that young engineers prefer working in San Francisco over anywhere else. By choosing to place your start up outside San Francisco you may find it easier to compete for the best executive talent, but will find it harder to do the same for the best engineers.
Friends with Benefits
At Riviera we encourage our recruiters to get out into the field and build relationships face-to face with the top executive talent. This requires investing time in people even when there may not be an immediate opportunity for that candidate. By taking a long-term view on the value of relationships we are making an assumption that those relationships ultimately translate into value for us and our clients. In a world where LinkedIn provides ultimate transparency, we believe it’s no longer about who you know, but how well you know them. We tested this assumption by looking at the impact trusted relationships have on time to hire.
Riviera’s investment in relationships is vindicated by the data, but founders and entrepreneurs should take note too. Start-ups are a risky business, and while differentiated technology and a massive potential market are necessary, it’s the trust that originates from a relationship that has been nurtured over time that can often be the decisive factor for candidates. The next time someone suggests you meet that killer product/marketing/engineering gal, remember what return you might make from investing in that cup of coffee.
Dharmesh Shah is co-founder of ScaleVP portfolio company, Hubspot, and author of OnStartups. Hubspot is growing its team by extraordinary numbers, but extraordinary growth requires an extraordinary team.
Here Dharmesh offers founders four tips for better hiring:
1. Your investors are unlikely to be very helpful sending you amazing candidates. This will come as a surprise — because great VCs have great networks, but it just doesn’t pan out. What investors *will* be super-helpful with is helping you sell/convince amazing candidates that you’re trying to recruit to join your startup. They are helpful on this front because they have credibility and they can say positive things about you that you can’t say yourself.
2. It’s a really good idea for the founders to be the “last stop” before someone gets hired. This way, you can ensure a culture fit. This does get harder as you grow and can become a bottle-neck. Try to work around this limitation. Perhaps start by requiring only one founder to interview every person hired. If that doesn’t work, have an interaction over email. Some sort of involvement is better than no involvement at all.
3. Get some sort of system in place early to track and manage applicants. Just like you track your marketing funnel, you should be tracking your hiring funnel too. How many candidates are applying? How many make it in for an interview? How many offers? How many acceptances? Picking a system might be hard, because there are lots of choices but all of them are going to be a problem in some way. Pick the one that’s the least offensive and run with it.
4. Try to come up with an objective way to measure the “success” (performance) of people you hire. This way, you can get a sense whether quality of candidates and recruits is going up or down over time. There’s no perfect way to do this, but even an imperfect way is better than having no data at all.
There are two miracles in startups: companies invent wholly new things the world decides it wants, which makes the companies grow. And the companies themselves survive their extraordinary growth. A company experiencing explosive growth can expect both revenue and headcount ramping at 100% plus per year. Being in that environment, and managing it, is both a blast and an incredible stress.
Before I joined ScaleVP, I worked in a startup with a revenue trajectory that went $1M-$16M-$140M in 1998-1999-2000. We were always bursting at the seams, and often it felt like our rocket ship was about to explode as we tested all the boundaries of recruiting, hiring, training and managing. Now, as a board member, helping a company think through scaling talent, whether recruiting new executives or articulating goals, is critical to both the company and ScaleVP realizing the promise of our mutual investment.
So what does explosive growth from a talent perspective look like?
Here’s the headcount growth over three years for six classic “scaling” companies, startups that we backed when they were early in revenue and beginning to ramp.
These companies together added 1500 net employees in three years, an average employment growth rate of 84% per year. Assuming 20% of net additions churned (I don’t have the data on this but hope to explore it later), these six companies recruited and on-boarded 1800 new employees. If you add just two of ScaleVP’s later stage companies, another 1000 net new jobs were created and filled in the same time frame.
Where does this growth happen in companies? Across the board. There is not just a single function the company can focus on when growing. Here’s an example, this company grew from 15 employees in early 2009 to 107 at the start of 2013. Even though we often focus on “scaling” sales and marketing, most of the departments grow rapidly, especially in that early scaling phase. As companies approach later stage and their steady state operating margins, “scale economies” kick in, and G&A and R&D become more like fixed expenses, while sales & marketing grow.
So, just as sales management must “ABC” Always Be Closing (NSFW classic movie), founders, executives and managers in startups must ABH: Always Be Hiring. CEOs must be magnets for talent, attracting top executives who share the vision and will do the early work hands on. This doesn’t mean CEOs pass out offer letters like Halloween candy. Leaders must be looking at the horizon, understanding talent needs to come and who is best and most likely to fill those needs. Strong leaders cultivate relationships with people whose skills lie in the company’s next new need, whether strengthening security, expanding sales channels or professionalizing HR. As companies grow, management fans out at middle layers, and the hunt for talent percolates down as well as across the organization. Be sure that you, and the leaders you bring in, continually attract the best.
This article first appeared in Young Entrepreneur.
How to scale a business is a perennial question in entrepreneurship circles. Not only is the answer different for every company and every industry, it’s also fairly tricky.
Growth leads to increased revenue, profits and valuations. But spending aggressively on scaling anything form adding staff, regions or new products — can lead to pitfalls, pains and sometimes the end of a business.
As a young entrepreneur, knowing when to grow can play a major role in your company’s long-term sustainability. The key is to find the right balance of acceleration to maximize the business and capture market share without breaking the bank.
Here are a few tips to consider when looking to grow your startup:
Know when to scale.
Founders going for growth need to consider the markets own growth rate or the expansion of total spending in a given space. This is basically the pace car you need to beat to gain a share. While it may be enticing to jump into the land-grab race, its important for startups to focus on your product and its interest from target customers rather than growing too fast. Once you’ve nailed the product and caught the audiences attention, then it’s time to go big and fast.
Understand your cash flow and budgets.
Heres a scary thought: High growth businesses can easily go bankrupt. That horrible outcome of great product, bad business happens when growth consumes cash. Get intimate with your cash flow statement. Understand when money comes in, where it goes and when, as you don’t want to let your bank balance fall below zero. As for your marketing budget, expenses should be targeted towards activities that generate customers quickly and inexpensively. Also, try to direct more of your budget toward clients who will stay with you long enough for you to recover your initial customer-acquisition costs. This way, you’ll have a more consistent flow of money coming in.
Recognize the trade-offs.
Continue to manage the balance between growth and profitability. If you raise prices too high, too early, you could curtail growth while widening profit margins. Further, if your prices are too high, you could lose market share, as a more moneyed competitor that can afford to undercut you for longer could step in. It is a tricky balancing act but one that needs constant attention. Remember that you must continue creating value to outpace the market.
Get the capital.
Being able to sustain a company while generating losses requires capital. If you have a business that is venture-fundable then gaining VC investment provides long-term capital to continually invest in differentiation and growth. To have a top returning venture-funded company, you likely need to be at least doubling revenue every year for many years. If your company is going to grow more slowly, then seek other forms of startup capital, such as loans or starting with sweat equity from yourself and your partners. Either way, you need to focus on having a stream of capital to keep your business afloat.
Hire, hire and then hire some more.
Before you decide to go full-speed ahead with your growth strategy, make sure you startup is prepared for scaling with human capital. Do you have the team to execute in a high-growth environment? If not, the best advice I can give you is hire well. Look for folks with senior-level experience. You will have to make some hard calls, not just in hiring but also in letting go of employees whove been with you since the early days but haven’t grown with the business.
The power curve is stark: Silicon Valley has always had a massively disproportionate share of VC deals. I spoke on a panel recently to review 2012 financings, which following a 20-year trend were mostly in Silicon Valley.
Today, I met with an entrepreneur who recently returned to the Bay Area after 2 years trying to scale companies in Austin, TX. He moved there looking for a lower cost, family friendly startup zone. Now he and his family are re-ensconced in the Bay Area. From him I got a taste of why the Bay rules in VC.
Californians are generally allowed to change jobs in a fluid labor market. Nationally, it’s common to have a “non-compete” clause as part of an employment agreement, restricting employees from joining another company or starting one of their own in a competitive space. In California, non-competes are not only unenforceable, they’re illegal. In other states, they can reduce labor flexibility. Texas in particular generally enforces non-competes, sometimes with limitations. Is Governor Perry going to change that law in his quest to draw high techs to Texas? Harvard Business Review says non-competes cause brain drains.
The founder told me that Austin has a smaller pool of super-talented execs than the larger Silicon Valley, but the bigger problem was that getting someone to leave a job for a startup in an adjacent space was very hard. Incumbents, whether existing employers or investors would threaten a lawsuit and keep people in place. Interestingly, non-competes signed in other states can’t be enforced in California, so if someone moves OUT of Texas, they’re free and safe. The other states that are most employee-friendly on non-competes are Louisiana, Alabama, Florida, Oregon and Michigan.
The two largest venture capital regions outside Silicon Valley, New York and Massachusetts have far more restrictive (for employees) non-compete laws. Massachusetts considered changing their laws to enhance job mobility coming out of the recession, but left the proposals un-enacted in 2010. ScaleVP has had great portfolio companies built in a variety of environments: ExactTarget (NYSE: ET) in Indiana, virtually bans non-competes, Omniture (Acqd: ADBE) in Utah allows restrictions on employees and Vitrue (Acqd: ORCL) in Georgia which recently changed to reduce non-competes. Law firm Beck, Reed, Riden conducted a useful survey of where each state stands on non-competes.
A non-compete isn’t the only reason why the abundance of VC $$ remain in Silicon Valley but it is an important item to consider. In the technology landscape, talent can make or break a business and the more fluid the resources, the better the chance of building a viable business.
The first e-commerce wave brought incredible convenience, endless choices and great prices to our desktops. It revolutionized the retail industry, first by disrupting and then annihilating traditional retail of commodity products such as electronics, books and CDs. Soft-goods retailers had a bit more breathing room to figure out their e-commerce strategies, but now, for example, clothing and home goods are the two largest e-commerce verticals, and retailers that have innovated are thriving, but those that didn’t adapt are dead. The recession of 2008-2009 accelerated extinction of merchants with undifferentiated product and channel, see Mervyn’s and Linen ‘n’ Things for detail.
Now, with more than half of America using smartphones and tablets, we don’t even have to step to our desks; stores are in our hands round the clock, and new technologies make shopping even easier. Phones fully equipped with high-resolution screens, real-time notification and easy-to-use interfaces, browsing and fulfillment …shoppers’ budgets best watch out, the shopping experience is good. I spent last Black Friday curled up by the fire with my iPad rather than in a parking lot at 5am, and I wasn’t alone. 18.3% of all 2011 Christmas Day shopping came from mobile devices, which was 8.4% higher than 2010. (Source: Retail Industry)
There is no doubt that mobile commerce will continue to rise dramatically. We are more likely to leave the house without our wallet then without our phone. It’s predicted that by 2015, mobile shopping will account for $163 billion in sales worldwide, 12% of global ecommerce turnover. (Source: ABI Research, 2010)
So how are consumers using their mobile devices to shop?
Mobile shopping, especially on tablets, mixes the lean-back leisure of flipping through a magazine with the lean-forward capabilities of search to help a shopper buy both the items she knows she needs with the delight of surfacing things she didn’t yet know she wants. As retailers have taken the mantle of defining style by mixing in editorial content, as for example, at Net-a-Porter or StyleMint, they close the cycle between consideration and purchase.
Flash sales and auctions have spurred the use of mobile to catch the deals. Hot mobile apps like Gilt and RueLaLa have seen more than 20% of sales coming from mobile (Source: Internet Retailer) and master auction site eBay attributed $5bn to mobile sales in 2011, more than 2x the previous year (Source: Mobile Marketing Watch). Consumer shopping habits can be stoked at the stroke of the hour, even during a pesky meeting or long commute.
Are mobile phones turning into the new sales clerk? 66% of US smartphone owners use their phone to aid in shopping. (Source: Leo J. Shapiro and Associates, 2012) Whether that is reading reviews, looking at competitive prices or seeing if it comes in another color, consumers are turning to their phones and tablets to make an informed buying decision.
Clipping coupons has gone mobile. 21% of consumers search for a coupon on their mobile device while in a store (Source:Mobile Audience Insights Report from JiWire, 2012) and 55 % of consumers express an interest in mobile coupons but only 10% have actually received one from a merchant (Source:Mercator Advisory Group, 2012). Missed opportunity? Definitely.
These innovations are driving emerging opportunities for mobile commerce, mobile marketing, mobile commerce infrastructure and mobile payments. Perhaps this Black Friday, I’ll be curled up with my iPad, DocuSigning a termsheet for a company leading the way in mobile commerce. Or sooner.
ScaleVP invests across a broad spectrum of a company’s lifecycle, and sometimes it’s hard to explain what we’re looking for within “in-revenue tech deals in our sectors.” We co-led an investment in BeachMint in June 2011, and that team just earned a new round from Accel, Goldman Sachs, New World, and others in January of this year. Our original investment is a great example of how we work.
First, we focused on emerging ecommerce opportunities in the first half of 2011. We thought that with major product categories coming online at scale, there would be numerous new companies and categories spawned in the next generation of ecommerce. ScaleVP spent months meeting startups and incumbents, companies with mature business models and hypothesized ones, in narrow categories and broad horizontal markets. We studied financial and market share trends. Internet Retailer is a great resource as was our network of industry contacts at eBay, Amazon, Wal*Mart, Guthy-Renker, and in BeachMint’s case, Columbia House and Bertelsman’s subscription businesses.
Throughout our research, a few themes emerged that we wanted to tap into, which are described in more detail here.
Of course, we also were keen to find entrepreneurs who were right for the job, and Josh Berman and Diego Berdakin at BeachMint bring a unique combo of access to both celebrity and technical talent. Who else has Joe Green and Joe Simpson on speed-dial?
We invested in BeachMint after their seventh month of revenue. To us, that is early in the “scaling” phase, just our sweet spot when those seven months provide a strong trend. BeachMint showed consistent progress in their metrics. We cared not just about “up and to the right” total revenue, but more about the underlying drivers of long term growth: cost of customer acquisition (CPA) and lifetime value (LTV). Both those were headed sharply in the right direction. Our analysis caused us to pour over their detailed monthly results, and to compare them to industry benchmarks, see this related post. But to really see the LTV, you need more time; since BeachMint sells a subscription; the certainty of “lifetime” value grows every month. By December 2011, they had twice as much information about the value of a subscriber as they did when ScaleVP first invested. That knowledge became incredibly valuable in attracting later stage funding, because the marketing spend and company scaling became much less risky. In a matter of six months, BeachMint jumped from being early in revenue to being a predictable later stage grower.
BeachMint proved another big upside between the two rounds, that they could scale multiple categories. At the time we invested, JewelMint was their only live site, but they had plenty of product in the hopper. They launched StyleMint three months after we invested, then later that fall launched ShoeMint and BeautyMint within a couple of weeks. These new sites launched with strong metrics, leveraging the expertise they’d built on JewelMint.
Josh and Diego not only attracted celebrity talent to build the new “Mints”, they dramatically built out the management team in those six months. New people joined to analyze results, acquire consumers, seek out and secure new “Mints,” build the technology and service the growing customer base. ScaleVP typically invests when key members of management are still to come, but we need to see that the leadership team is going to be a magnet for quality talent across disciplines.
BeachMint’s round ScaleVP led had classic hallmarks of our investment strategy and process:
ScaleVP is delighted to see BeachMint thrive, along with other portfolio companies we selected through similar processes, including Box, Axcient and uTest. Those founding teams have what it takes to scale.
When we looked at BeachMint, we wanted to compare it’s customer economics to other subscription services to benchmark BeachMint’s current performance, and see what it’s model might evolve to over time. We chose three public companies to analyze, Ancestry.com, Netflix and GameFly because they are pure subscription models, and they provided information in their public filings about their cost of customer acquisition. We also tried looking at Nutrisystem (diet food products delivered as a service), but marketing expenses isn’t broken out in a useful way.
This analysis pre-dates Netflix’s changes to it’s subscription plans, so is subject to change, but represents 12 years of it’s financial performance, and 4 years for each of the others.
The answer: in these successful companies, a subscriber’s stream of gross, margin dollars is worth 4-6 times it’s marketing cost. For example, an average sub at Ancestry costs the company $96.87 in advertising and other marketing costs, but churns slowly at 3.9% per month, and with the 80% gross margin, yields $377 of margin over his or her lifetime on the service. Netflix and Gamefly each have lower LTVs based on higher churn and lower gross margin, but with lower CPA, they also make the same return multiple.
|Monthly Churn||3.9 %||4.3 %||7.7 %|
|Acquisition Cost (CPA)||$96.87||$18.03||$23.98|
|Avg. Monthly Rev/Sub||$17.78||$12.19||$20.41|
|Avg Gross Margin %||80%||35%||50%|
|Implied Lifetime Value* (LTV)||$377.75||$105.56||$114.41|
|LTV/CPA||3.9 x||5.9 x||4.8 x|
|* based on gross margin $|