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As a founder, managing financial resources is one of your most critical tasks. Without a solid financial strategy, even the best ideas can struggle to reach their full potential. Financial Risk—the risk of running out of resources before reaching key milestones—is a universal challenge for all founders, but it’s especially important for those who don’t have a technical background and may need external resources for development.
In Part 1, we talked about Technical and Product Risks—the challenge of building a product that’s feasible, functional, and able to deliver on its promise. These risks are often the most immediate, as they focus on making sure your product is both technically achievable and aligned with user expectations.
In Part 2, we’ll delve into Market and Competitive Risks—the challenges of ensuring your product resonates with its target audience and stands out in a crowded marketplace. These risks are critical to address, as they determine whether your product can capture demand, build traction, and maintain a competitive edge.
In this third and final part of our series, we’ll look at financial risk and provide a Roadmap for Sustainable Growth that ties together all the insights from this series. With the right planning, non-technical founders can manage these core risks strategically, positioning their startup for resilient growth.
Financial Risk: Can Your Budget Carry You from MVP to Growth?
Managing financial risk is about balancing ambition with resources, ensuring that your budget aligns with achievable milestones. This can be particularly challenging for non-technical founders who don’t have the experience or knowledge to estimate development effort and costs.
At Thought&Function, we recommend a staged approach to financial planning, breaking down investments into phases that match the growth journey. This staged investment approach helps founders avoid overcommitting resources before validating the product and securing market interest.
Key Strategies for Financial Risk
- Adopt a Staged Investment Approach Instead of allocating your entire budget on one big round of development, divide it into milestones that remove risks and validate your assumptions. For example, you might allocate funds for a prototype and initial testing in Milestone 1. If the test shows positive results, move onto MVP development with another portion of your budget. If the tests show negative results, you can decide if you want to make a small pivot and re-test or quit before wasting further resources.This approach helps you manage resources based on real progress and gathering real evidence, minimising the risk of exhausting your budget prematurely.
Example: If you’re building an educational platform, you might begin with a basic MVP that tests core features like course hosting and user progress tracking. Once this version proves viable, additional funds can go toward scaling content and refining the user experience based on early feedback.
Why This Matters: Staging investments aligns spending with measurable progress, ensuring that you only move forward when there’s proof that risks have been mitigated or assumptions are true.
- Plan for Budget Creep Budget creep occurs when costs gradually increase, often due to unforeseen changes in development. Planning for this common issue means setting aside a contingency fund—ideally, 10-15% of your overall budget—to cover unexpected expenses. Thought&Function guides founders in tracking costs closely, helping to prevent budget overruns before they become a significant problem.
Why This Matters: Having a contingency buffer gives you the flexibility to adjust for minor changes without jeopardising your overall financial health.
- Prioritise Cost-Efficient Infrastructure and Scalable Tools For non-technical founders, managing financial risk means minimising upfront costs and choosing infrastructure that scales with growth. By leveraging frameworks and APIs with pay-as-you-go models, founders can access essential functionality without significant initial costs. Typically, the free tiers are sufficient for MVP and early product phases, keeping expenses manageable while validating core features.
Additionally, Thought&Function deploys code into the cloud, enabling a flexible, scalable environment that adjusts to meet user demand. Cloud infrastructure operates on a pay-as-you-go basis, with many cloud providers offering thousands of pounds worth of startup credits, meaning costs stay minimal during early stages, with the ability to scale affordably as user engagement grows. This setup ensures that resources are allocated efficiently and only as needed, further mitigating financial risk in the early stages.
A Roadmap for Managing Risks as a Non-Technical Founder
With technical, product, market, competitive, and financial risks now addressed, it’s time to bring everything together. Below is a roadmap summarising the core strategies for each risk and providing a comprehensive guide for ongoing risk management as you scale.
Recap of Key Risk Types and Core Strategies
- Technical Risk
- Prototype Early: Start with a lean prototype to validate core functionality.
- Iterative Development: Develop in phases, validating each step before moving forward.
- Use Proven Tools: Rely on stable, well-supported tools and frameworks.
- Product Risk
- User-Centred Design: Design prototypes and user interfaces that align with user expectations.
- Feedback Loops: Create continuous feedback channels to refine the product based on real user needs.
- Market Risk
- Validate Demand with Minimal Testing: Use landing pages or social media to test user interest.
- Conduct User Interviews: Gather direct insights from potential users to confirm the product’s value.
- Competitive Risk
- Define a Unique Value Proposition: Clarify what sets your product apart.
- Craft a Compelling Brand Story: Create an emotional connection that resonates with users beyond features.
- Financial Risk
- Staged Investment: Allocate funds in stages tied to specific milestones.
- Budget for Contingencies: Set aside a portion of the budget to cover unexpected costs.
- Prioritise Spending on Core Features: Focus on the functionality that adds the most value early on.
Practical Tips for Continuous Risk Management as You Scale
Once you’ve established a foundation for these core risks, it’s essential to adapt your risk management approach as the product and company evolve. Here are some practical tips for ongoing management:
- Tackle the biggest risk first
- The biggest risk is the thing that’s most likely to prevent your startup from succeeding. Avoiding tackling this risk first wastes money as you might end up resolving many small risks but still be unable to get past the biggest one.
- Increase your investment in proportion to how much evidence you’re gatheringsome text
- If you’re spending faster than you can gather evidence (to justify your assumptions or mitigate your risks) its likely that you’re spending on things that may not be needed. Focus your resources and spend only as fast as you can gather quality evidence.
- Iterate and Adapt
- As the product grows, new risks and opportunities will emerge. Revisiting and adjusting your strategy periodically ensures that you’re always spending on things that make the biggest impact.. Staying adaptable, especially in the early stages, gives you the flexibility to pivot based on what works and what doesn’t.
- Keep User Feedback Central
- Even as the product scales, continue to prioritise user feedback. Consistent feedback keeps the product aligned with evolving user needs and prevents product drift, where the product moves away from its core value.
- Build a Support Network
- Building a network of advisors, mentors, or strategic partners, like Thought&Function, can be invaluable as you grow. Experienced support provides additional perspective, helping you address unforeseen risks and make strategic decisions that support long-term growth.
Closing Thoughts on Building Resilience as a Non-Technical Founder
Building a startup as a non-technical founder may come with unique challenges, but by addressing these foundational risks, you’re positioning your company for resilience and growth. Technical, product, market, competitive, and financial risks all require careful planning, but they’re also opportunities to learn, iterate, and refine.
At Thought&Function, we’re here to support you at every stage, whether you’re validating an idea or navigating growth-stage challenges. With the right approach to risk management, every step forward becomes more resilient, helping you build a product that’s not just feasible, but impactful.
1 - Prioritise new features / Address User Drop-Off
When you're running a SaaS company, deciding which features to roll out next can make or break your product's appeal. Additionally, understanding why users leave your SaaS platform can be as important as attracting them in the first place. By keeping an eye on KPIs like Churn Rate and Engagement Rate, you gain invaluable insights into what keeps users satisfied and what might be pushing them away. Let's look into some crucial KPIs which can guide you in making well-informed decisions about your next big feature update:
1. Feature Conversion Funnel:
This KPI measures how effectively users move from initial engagement to full use of a feature. It helps SaaS companies identify where users drop off, guiding improvements to enhance feature adoption and prioritising development efforts.
You can use the following formula to calculate this KPI:
2. User Engagement Rate:
For SaaS companies, engagement rate measures how actively users are interacting with the application. High engagement rates are often indicative of a valuable and sticky product, reducing the likelihood of user drop-off.
The calculation for this KPI can be done using this formula:
3. Customer Satisfaction:
This KPI measures how satisfied customers are with a product or feature, typically through surveys. High satisfaction rates correlate with lower churn and higher loyalty, making it essential for evaluating user experience and identifying areas for improvement in SaaS offerings.
The calculation for this KPI can be done using this formula:
2 - Accelerate User Growth
Growing a user base is one of the most exciting challenges in the SaaS world. It's not just about bringing in new sign-ups but ensuring they stick around and find real value in your product. We'll delve into effective SaaS KPIs like Monthly Active Users and the Growth Rate of New Signups that can help you craft strategies to not only attract more users but also engage them deeply:
1. Customer Acquisition Cost (CAC)
The CAC is a crucial KPI for SaaS companies, as it quantifies the cost involved in acquiring new customers. Understanding this metric is essential for evaluating the effectiveness of your marketing strategies and ensuring sustainable growth by maintaining a balance between expenditure and incoming revenue.
To find this KPI, use this formula:
2. Growth Rate of New Signups
This KPI tracks the percentage increase in user signups over a given period. It's particularly useful for SaaS businesses to monitor momentum in market penetration and user interest, helping to direct marketing efforts and product development.
This formula is used to calculate the KPI:
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3. Monthly Active Users (MAU)
In the SaaS world, the MAU KPI measures the number of unique users who interact with your software within a month. This metric is vital as it indicates the active reach of your product and helps gauge the overall stickiness and appeal of your platform.
The following formula can be used to calculate this KPI:
3 - Provide Product Metrics to Investors
Communicating effectively with investors is crucial for any SaaS business. Clear and precise metrics like Monthly Recurring Revenue (MRR) and Churn Rate not only showcase the financial health of your company but also reassure investors about the scalability and stability of your business model. Let's walk through the vital KPIs that paint a transparent picture of your SaaS company's performance for its stakeholders:
1. Monthly Recurring Revenue (MRR)
MRR is a key financial metric for any SaaS business, reflecting the total predictable revenue generated from customers every month. It's essential for investors as it provides a clear picture of the company’s financial health and growth potential.
Here’s the formula to calculate this KPI:
2. Churn Rate
Churn rate is an indispensable KPI for SaaS companies, indicating the percentage of customers who discontinue their subscriptions within a specific period. A lower churn rate suggests a higher customer satisfaction and product-market fit, which is critical for long-term success.
This is the formula for calculating the KPI:
3. Lifetime Value (LTV)
LTV measures the total revenue a SaaS company can expect from a single customer throughout their relationship. This KPI is crucial for understanding how much a company should invest in acquiring customers and for determining the profitability of long-term business strategies.
Use this formula to find the KPI:
4 - Optimise Revenue Generation / Monetisation
Turning your SaaS platform into a robust revenue-generating machine requires more than just great software; it needs a smart monetisation strategy. By focusing on KPIs like Average Revenue Per User (ARPU) and Conversion Rates from Free to Paid, you can really dial in on what makes your users upgrade and how to boost your overall profitability. Let’s break down these KPIs and explore how you can use them to fine-tune your monetisation efforts for maximum impact:
1. Average Revenue Per User (ARPU)
ARPU is a critical financial KPI for SaaS businesses, measuring the revenue generated per user. It helps in assessing the revenue impact of different operational strategies and in fine-tuning pricing models.
Here's the formula you need to calculate this KPI:
2. Conversion Rate from Free to Paid
This metric tracks the percentage of users converting from free trial versions to paid subscriptions. For SaaS companies, a higher conversion rate indicates effective monetisation strategies and a compelling value proposition.
The following formula can be used to calculate this KPI:
3. Revenue Growth Rate
The revenue growth rate is an essential KPI for SaaS businesses, showcasing the rate at which the company's revenue is expanding. This KPI is vital for investors and stakeholders to assess the overall business growth and scaling capacity.
You can find this KPI using this formula:
5 - Improve Business Resource Allocation and Strategy
Ensuring sustainable business growth and operational efficiency is paramount for any SaaS business. Key performance indicators (KPIs), such as the LTV:CAC ratio, provide a clear picture into the returns generated and optimal resource distribution. Let's dive into the KPIs that will help you strategically allocate resources, adjust marketing strategies, and effectively balance customer acquisition with retention:
1. Customer Lifetime Value to Customer Acquisition Cost Ratio (LTV:CAC)
The LTV:CAC ratio is a vital KPI in the SaaS industry, providing insight into the relationship between the lifetime value of a customer and the cost to acquire them. A healthy ratio indicates that a company is spending efficiently on customer acquisition while maximising revenue from each customer. The bigger the multiple, the more budget you can put into growing a team and customer growth.
To find the KPI, apply the following formula:
2. Customer Acquisition Cost Payback Period
The Customer Acquisition Cost (CAC) Payback Period is a critical metric for SaaS businesses. It measures how long it takes to recover the costs of acquiring new customers, helping companies evaluate the efficiency of their marketing and sales efforts. A shorter payback period means a quicker return on investment, guiding better financial and strategic decisions.
This formula will help you calculate the KPI:
3. Market Penetration Rate
The Market Penetration Rate is essential for understanding a SaaS company's market impact. It measures the percentage of the total addressable market that the company has captured. This metric helps assess competitive position and growth opportunities, indicating how well the product is adopted in the market.
Use this method to calculate the KPI:
