#LifeatMest4 — God, I want to be a Baller 😭…
Not a mathematician, not numbers running through my tiny skull. I came to MEST because I wanted to run a business that makes a shit ton of money while sitting back to relax, but this whole thing is showing me sheyge 😭. I decided to compile all the “Shey-ges” I’ve had this week to show you want I mean. Sit back, relax and enjoy.
Hiya 👋🏽, welcome to #LifeatMest, a casual review of the lessons, insights, activities, and interesting conversations I enjoyed as an #Entrepreneur in Training at Meltwater School of Technology (MEST).
The Pressure is Getting Wesser…
I only have to remember the look on everyone’s face when LadyO began to get into the details of Unit Economics, the smiles disappearing and the confusing looks on our foreheads were apparent we didn't know what the hell this was.
As we did deeper into learning how to build a business, we are beginning to learn more about the technical aspects of things, this week we focused on the technical aspects of starting a business with a core focus on Unit Economics and Startup budgeting.
Unit Economics: The Business of Startups
“How do startups determine pricing?”
“How do they know they are profitable?
This is where unit economics comes in, unit economics is a way of measuring a startup’s business revenue by seeing everything that brings value to the business as a unit. If a product brings in revenue, it becomes a business, if a customer brings money in, the customer is seen as a unit, like a profit-generating machine.
Based on having a customer as a unit, KPIs are created to measure up the value each customer brings, this is where business metrics like; Customer Lifetime Value (LTV) and Customer Acquisition Cost (CAC) fall under.
If that was all we had to deal with that would have been great, but then we learned about churn rate and retention rate, and Average Gross Margin and Gross Value per Customer Lifespan and Predictive LTV, and after a while our brains began to look like this;
It was a lot to take in, but here’s what helps me keep track of all these figures;
Customer Acquisition Cost (CAC) is simply how much it takes to “acquire 1 customer”. It is always valued in currency.
Customer Lifetime Value (LTV) is how much your customer can give you before they stop buying from you. For E.g: A Farmer would know how much he can make from a cow before it stops producing milk, that is the cow’s “Lifetime Value”
Church rate and Retention rates: are exact opposites, one measures how quickly customers leave, and the other how long they stay
An average is always a total divided by a figure, Average Gross Margin, or Average Order Value, figure out what should be on the denominators and numerators and you will always know the definition.
Game Activity: Bring in the Bucks
Let’s call the name of the game, Bring in the Bucks because it definitely felt like that. In about 15 minutes, we had to bring in as much money as we could by offering a higher value to current products in the market
To begin the Game, we were split into 5 groups, each group had two types of roles, the customers and the Engineers. All customers had to move to a different room, where they were given “paper money” & told criteria products had to meet before purchasing them.
The Engineers in each group had to stay back, and brainstorm on the “higher value” they would have to offer to these customers.
Oh, I forgot to mention that each group had a team lead, our team Lead was the amazing J. J selected the brand and product we would be strategizing; Amazon’s Audible.
We had 3 bankers, people who were responsible for disbursing marketing funds to each group.
Now we were ready, each group, had to figure out their brands' current pricing, value proposition, and marketing channels and come up with a feature that they can take to the market (aka, the customers chilling in the order room).
The Goal: Get as many sales as possible and use that to calculate your CAC:LTV ratio
Startup Budgeting: Knowing Your Business Numbers
I often think about how software companies raise funds. when they seek investment how do they know what to ask for. as a startup owner, that has been a key challenge for me? it's easy to know what to ask for if you are selling a physical product. you can say;
I would need $3000 to produce 30 cards, and $400 to market them, I would pay $ 600 for printing services, therefore I need $4000. as a software business, how do you quantify nothing
Activity 2: Knowing Your numbers
For this next activity, we had to work with our capstone team. We worked with a spreadsheet to figure out our budgeting cost for our business idea. This was an interesting exercise because we kept asking ourselves;
“How much would we pay each other for the roles we occupy in the company? would this be different if we were bootstrapping or if we raised funds”
Knowing where and how to distribute your money for the best result is crucial for every new business
Current Hacks
- Participating in every game and immersing myself deeply into them helps me learn these concepts faster. I even got two cool ideas from doing the “Bring in the Bucks” exercise
- Helping other team members figure their stuff out. How I do this is by taking notes of ideas I get while teams talk about their solution
- Reading and Research: Almost every class has a list of articles and recommendations, reading this helps to reinforces my learning
Current Challenges
- Figuring out Target Market: understanding the target market for any industry and product is an unfolding concept that I’ll have to keep iterating till im good at getting perfect guesstimate
- Figuring out Tech: trying to understand what program to focus on, as time is always running out
- Balancing it out: Rest and Fun, are two things we always want but are always short on, it's always like a sacrifice between the two.
- Finally, keeping boundaries with peers, what is acceptable and what isnt. Sending recommendations, giving feedback, or even taking pictures, what would they be concerned about, and what would they appreciate
Future ballers, how do you come down to the numbers, if there are so many ways to get to your market research? How do you remember all these relevant business values: CAC, LTV, etc, finally, how do you make a tangible budget that is believable, especially when you are just starting out?
I appreciate every feedback given, so write to me here: favour.onukogu@meltwater.org or reach out to me personally if you are an EiT.
#UnitEconomics #StartupBudgeting #BusinessMetrics
Shege (pronounced as “shey-geh”): A Nigerian word term used to describe intense frustration
