Decode Startup Finance: Metrics, Board Decks & AI Efficiency | CJ Gustafson by Kazuki Nakayashiki

Decode Startup Finance: Metrics, Board Decks & AI Efficiency | CJ Gustafson

Kazuki Nakayashiki

Apr 25, 2025 3:33 AM

Summary

Introduction to CJ Gustafson (00:06): CJ is the creator of the Mostly Metrics newsletter and Run the Numbers podcast, focusing on business models, metrics, and monetization strategies. He has experience as the CFO at PartsTech and has worked in finance and tech roles at companies like Snyk, Veeam Software, and PwC.
CJ's Journey and Content Creation (01:04): CJ was inspired to write about finance and business metrics while working at a startup and realizing the importance of playbooks for CEOs and CFOs. His initial newsletter, "Steal My Idea," evolved into Mostly Metrics, reflecting his interest in simplifying complex financial concepts.
Audience Growth and Engagement (03:05): Although his newsletter took two years to gain traction, CJ emphasizes the importance of consistency and creating valuable content. He advises potential creators to start regardless of audience size, as persistence can lead to eventual growth.
Financial Metrics Insights (10:35): CJ discusses various financial metrics like ARR (Annual Recurring Revenue) and net retention, explaining their importance for startups in understanding growth and making informed decisions. He encourages founders to track metrics relevant to their specific business models.
Advice for Startup Founders (20:08): CJ recommends that startup founders focus on key financial terms specific to their businesses to aid in their understanding of finance. He also emphasizes the importance of customer retention and effectively preparing for board meetings.
Role of CFO in Startups (24:35): CJ shares insights on when startups should hire a CFO, highlighting that it often coincides with the complexity of their business model. A good CFO helps balance organizational risk and supports strategic growth while being a fiduciary for the company's finances.
Future Plans and Legacy (51:08): CJ expresses his desire to create content that makes finance accessible and enjoyable. His current focus is on a benchmarking report for private companies, aiming to assist others in understanding financial metrics better and fostering a culture of continuous learning in finance.

Transcript

Hi everyone, welcome back to another episode of Glasp Talk. Today we are excited to have CJ Gustafson with us. So CJ is the sharp mind behind the Mostly Metrics newsletter and the Run the Numbers podcast where he breaks down business models, metrics, and the nuances of monetization with clarity and wit. Currently based in Naples, Florida, CJ brings a wealth of experience from the finance and tech world, and he mostly recently served as CFO at PartsTech where he led strategic

initiatives and played a key role in the company's successful exit. With a rich background spanning those at Snyk, Veeam Software, and PwC, CJ has built a career at the intersection of strategy, operations, and financial insight. And today we will dive into CJ's journey, his approach to simplifying complex financial topics, and how he's building community through content. Thank you for joining us today, CJ.

Thanks for having me on. This is going to be a blast. Thank you. So first of all, we are a huge fan of your content, like a newsletter and a podcast, but we want to know what got you interested in finance and business metrics. So I was learning so much at a startup and I was afraid I was going to forget everything, and I realized pretty quickly that everybody who's at the position that I wanted to be in,

which is a CFO or a CEO, had what you call a playbook. So it's basically, how do I hire the right people to sell the product at a rate that's really fast to grow a company? And there are a lot of playbooks in the world of technology. If you're running a marketplace, you may do certain things to get the product off the ground. If you're running a security company that's focusing on, say, developers, you may do something

different. And I was really intrigued by how you price something, how you monetize it, and then how you allocate resources within a company. And about 70% of the costs of any company are usually people. And so getting that part right was critical. And so I was kind of always the guy behind the guy who was doing the budgeting. And for those out there, it's a position called FPA, Financial Planning and Analysis.

And that's kind of where I got my feet wet with learning how to allocate resources, how to build what you call an operating model, and basically figure out how much can we spend and how much do we expect to return. And so along that journey, I started writing online. And to make things a bit more confusing in the background, because I can't sit still, I was also trying to start my own company on nights and weekends.

And so me and my wife were doing that. And so basically, I was at this time where I just wanted to write stuff down. And honestly, I think you don't really own a topic. You just kind of rent it until you can teach somebody else. So being able to teach other people what I was learning was pretty energizing for me. And then you've been running really great newsletter, Mostly Metrics, for about four and a half years now, I think.

Yeah. It's been a while. But yeah, what inspired you to start Mostly Metrics newsletter and the podcast, if you can share? So I've been writing online for like four and a half years. But it's funny because like nobody listened to me at all for the first two. I was basically writing for I think 400 people. And like I on the podcast that started two years later. And at first, I couldn't get a warm body to come on.

So just all those people out there who are thinking about starting something. If you're afraid to just like begin, don't be. There's like no angry person who's like waiting for you to fail. In fact, you have to jump up and down and scream and beg people to listen or to read it, which is what I ran into. But like consistency paid off over time. I call it compound effort. I call it like the eighth wonder of the world.

I forget how many wonders of the world there are. But yeah, compound effort. And so back to your question, I started it while I was trying to memorialize these playbooks I was learning. And I think like all newsletters either die a newsletter or live long enough to become a podcast. And when the newsletter started to take off, I got the chance to talk to really, really smart people. I think like the Internet's the last democracy in that sense that

you can write yourself into any room. And I was kind of like, holy crap, I can't believe this person wants to talk to me. I wish I like recorded that. And so I started to record some of those conversations in the form of interviews, kind of like you're doing now. And what's really cool about that is there's a network effect where at first I was like, what if I run out of things to write about? But now I know I won't because I bring smart people on to talk about stuff

and then I can write about it after. Okay. That's a mystery. Like, yeah. Yeah. What are we doing? You mentioned that they can, you know, nobody reads, you know, your newsletter for the first two years, right? But what the motivation, so to keep doing it. Also, what was the trigger that your newsletter bloomed? I think I'm just a psychopath. I don't know why I kept just screaming into the void. But I think it took me a while to find audience market fit.

So what not many people know is Mostly Metrics actually started out as a different newsletter. It was called Steal My Idea. And so if you go back far enough, I was making up these crazy business ideas, like a monthly box of vintage concert t-shirts that you could get, like a subscription thing or like a new way to keep track and organize of your home videos. Nobody cared about my stupid ideas. What they did like was how I was talking about metrics

and how I was explaining concepts like total addressable market, how I was calculating things like CAC payback period or net dollar retention. And that's what Mostly Metrics became. So nobody cared about my business ideas, but they liked the way that I had fun talking about business and stuff that was very academic. So you could Google how to calculate CAC payback period, but it's a lot more fun if somebody's doing it through a stupid idea around

vintage concert t-shirts. And so that's what led me to shift the subject matter that I talked about. And that's when it started to take off. But I still had to market it out there. And I don't know if you want me to go into that, of how I got that part off the ground. I see. So meaning, so does it like, is Substack Newsletter recommended to your newsletter, then it went viral or like someone picked out your newsletter and shared on social?

So there was never one viral moment, honestly. I think it was having this base of knowledge that people could turn to over time. Like, I think for anybody to subscribe to your newsletter, you need at least like five really kick-ass posts on there. Because it's kind of like if you wanted to binge a series on Netflix and you watch one episode, there's not another one there. You may forget about it later. And so you have to create like this home base for people to come to,

to serve them whatever that job to be done is. And for me, it was to create this honor ramp for talking about metrics and business models and having fun with it. And so it took me a while to build up that home base, to have enough stuff to make someone stick around and keep coming back. So there was never a viral moment. But I think there was a moment where it went from me pushing to the market pulling. And that's when I started, I noticed that like I was,

every day I was getting at least 50 new subscribers. It was like I could predict what the engine was. And it was no longer like, oh, a spike of 20 subscribers from like this Twitter thread that I did. Whereas before you could trace it back to events in like the social media ecosystem or somebody sharing a blog post. I see. And I'm curious, you know, I enjoy reading your content and you show, you know, this is a best read, you know, like about ARR, net retention, revenue retention, and so on.

But what's from you, you know, what's the most popular topics in your newsletter? And yeah. Most popular topics are on board meetings, how to prepare for board meetings, how to make your materials for them, and how to talk to your audience, actually. Oh, interesting. Could you share a bit about, I'm also interested in, you know, how we should prepare for board meeting and- Yeah, yeah. So the majority of my audience works for either venture-backed

or private equity-backed company. And as a part of that, you have to prepare materials that summarize the last period's performance for your investors. And that's a nerve-wracking experience for a lot of founders and for a lot of CFOs because you're kind of being judged by your boss, for lack of a better term. And you want to come across as smart. And you want to be able to tell a story with the numbers, not just report on them,

but be dynamic in the way that you explain it and get your point across in a way that is meaningful so they can help you make decisions. And so I created a guide, I think it's a three or four-part guide for the paid audience on how to basically ace your board meeting. Everything from how to create the sections of what you should talk about to how to templatize your slides so it's less of a lift internally.

Like, honestly, I feel like 50% or more of my career was in service of board meetings. How do we make sure we look good for the board? How do we make sure we have good results for the board? And so it was kind of like I was dumping out 20,000 hours of experience in that onto paper. And, you know, since we are like, more like a startup founder site, and then we don't have like a formal, formal board meeting.

Actually, when I read your content about ARR, net potential revenue, that was eye-opening because we are building product for consumers, not B2B. I didn't know the concept of CARR, like a contracted ARR, but you mentioned that it's a way to trick investors, and that was a really interesting concept. Could you share a little bit about ARR, and also CARR, and also like kind of- Yeah, so I guess to start off, they're all different flavors of revenue.

So there's one-time revenue, like, I don't know, I need a plumber to come over and fix this thing, and I pay him once and he does that job. Then there's recurring revenue, which is like a Wall Street Journal subscription or your Calendly subscription where they charge you every month. What happens in the B2B world with larger enterprise deals, they call them, which is like if you're selling to a bank and you have a security product, many times it's a multi-year

contract and they pay up front for it. So let's say it's a three-year contract, many times it increases over time to scale with their headcount. They say, hey, we have 1,000 people working here today, in a year it'll be 1,200, in the third year it'll be 1,500, and so they get a discount for signing up for three years with increasing amount of licenses so everybody on board can use it. One of the most common ways to trick investors, and I say trick because it is, I don't know,

it depends if you are actually trying to trick them or if you're just reporting it, and I've been complicit in this many times, is you can state the third year, which is the largest amount. You look at their ARR and you go, oh, wow, it's $120,000 deal, or the ARR is worth $120,000, but it's really only $90,000 in this year. There are all sorts of different ways that you can skew the numbers and make them dance

to look good, and a lot of times it's the finance team that's behind that, working with the CEO or CFO, and then they have to tell the story on why it's true. Interesting. So in that sense, when you talk to startup founders or companies doing financial things, and do you ask, oh, what's this ARR means, or do you care about definition now? Oh, yeah, 100%. I did this piece on Mostly Metrics where I pulled the definition for 25 of the top tech

companies out there of how they defined ARR, and it was crazy how different the definitions were. Some took it at the end of a period, some did looking back, what was the average spend over 12 months? There's all sorts of deviations, and I think it tells you a lot about what they value at the company in terms of how the business works and the money they expect to get from it, but when I talk to founders, I also just ask for metrics around how much cash they've collected

too. You can blow a lot of smoke up, you know what I'm trying to say. Basically, you can change the goalposts a lot, but at the end of the day, you need cash to live, and if your revenue isn't tying out to what you're actually invoicing and what you're collecting, then no bueno. Also, you shared about RPO, remaining performance obligation, and you used the example from Snowflake in your popular content. Since I don't have a financial background, and that was kind of an eye-opening moment

to me. Damn, you went deep, dude. Yeah, I love that. That's basically how much revenue, remaining performance obligation, you have left to serve your customer. Investors can get confidence in companies like a Snowflake because the customers have signed up for these huge deals, and so down the road, they're going to pay them back. That company, CoreWeave, that just went public, they made big headlines. They had a huge RPO balance, so their customers are saying, listen, we're going to buy this

down the road. We've signed up for it. They may not have given the money yet, and so it's a way to de-risk the future because if there's one thing investors hate, it's uncertainty. Yeah, but it won't be shown in the gap financing rate. Exactly. It's not in there because what will be shown is deferred revenue. Deferred revenue is the amount that's left, the balance on the contract left over the next 12 months, but if it's a multi-year deal, that's not going to be there.

Think about it. It's like an iceberg where you have this deal, but only the top of the iceberg is seen on the financials. It's like, well, what other data can I get to be more comfortable around this company's RPO is a metric that is, I think, incredible for doing that. That's also why I like writing about this stuff because it's a metric that helps you understand a business, feel more confident in it, but they may not teach that in a basic

accounting course. There are all these different signals you can get from a company if you go outside of just the profit and loss statement or the balance sheet. I see. Would you recommend a CFO, let's say, for startup founders, CFO at startups, learn from how public companies showing the numbers, let's say, oh, using RPO, convince some investors when they are raising money, or would you recommend that? Yeah, but it has to be specific to your business model.

Everybody wanted to use the metric snowflake used for two years because they had the highest valuation multiple. Basically, they were valued the highest for how much revenue they were bringing in. If you're a marketplace, maybe you should be looking at Airbnb or eBay instead. I think that's a mistake that I've made in the past too, just having a bad comp set. I tell everybody and I track this every Sunday and mostly metrics like, here are the key

metrics for security companies, for infrastructure companies, for marketplaces, for vertical software. If you're running a car dealership, it's going to be very different than what Adobe is reporting on for their metrics for a Marcom product. I think it's very important to figure out where you play, how you monetize, and who else looks like you, because you want to see what great looks like, but relative to your

company. It makes sense. At the same time, we have so many metrics in finance, like a CAC, CAC payback period, and also net retention revenue. You mentioned if you have 140% net retention revenue, but with less than 18 months CAC payback, and you should invest more. How should we see the metrics around this? Let's say the audience is startup founders or early stage founders. I'll start off by saying that the best customer to have is the one that you already have,

rather than having to go out and get a new one. You have to spend money, which is called customer acquisition cost, on salespeople to call them, marketing people to run ads in order to get a customer. Then you want to basically pay that down over time using that customer's revenue. If a customer is giving you $100,000 and you spent $120,000 to get them, it's going to be a little over a year until you get the money back.

CAC payback period is a measure of how fast you get to pay down that cost. Net dollar retention rate is one of my favorite metrics. It's basically how much does your current customer base expand or contract in a given year. You take all the customers on board as of one date, and then you see how much they've paid you at the end of another period. Usually it's measured on a trailing 12-month basis. If you have net dollar retention of 140%, that means hypothetically, I'm saying this

somewhat in jest, but you could go on vacation for a whole year and your business would still grow 40% from the same customers. That's power. That's leverage in your model. If you know that, then you can be willing to pay more in customer acquisition cost to go out and get them because you're like, whoa, this customer is just going to keep paying me this annuity stream, and it's going to get bigger over time, therefore I'm more comfortable

in getting over my skis a little bit, leaning in more to that customer acquisition cost. It's like squaring two things in your mind to try to find this balance. That's why I get excited about it because it's not just science, there's some art in it too. Yeah. I get it. Yeah. I like it. Yes. Thank you. If there are many financial metrics or measurements, where do you find those information? I mean, where do you catch up those information or see those metrics?

Well, I learned most of the metrics because I had investors myself and I woke up one day and the spreadsheet or dashboard I was tracking in Excel had 140 of them. I was like, this is way too many, first of all. Which ones are important here? I remember I had 14 different cuts of retention, which is just a measurement of keeping your customers around. These can't all be equally important. That put me more down the rabbit hole of like, okay, if I can only pick two, what would it

be? Okay, it would probably be net dollar retention on a trailing 12-month basis and it would probably be gross account retention, keeping the customer around regardless of what they spend on a monthly basis. I think that's where my curiosity came from. Since then, I've had all these metrics in my head. Now, it's like when I look at the news, it's just like a lens that I digest things through. It's not necessarily me out there searching for stuff on metrics.

I hear a piece of news and my head just naturally either calculates directionally what I think it means, or I take it and I do a mental bookmark to come back and write about it later. Interesting. If you give advice for startup funders who has no background in finance, what should funders start with? reading or collecting information, of course, mostly metrics. Yeah. But yeah, but you know, any other recommendation? Like Twitter? Yeah,

someone on x, or someone on LinkedIn, or like governance? So one of the funny growth hacks that I not even know if to hack, it was more just hard work that I started out with, is like, I tried to own basically 20 terms on Twitter, that were very specific to finance things like net dollar attention things like employee stock options. So if you ran in, if you searched it, you're going to run into me. That's how I got to my first 10,000

subscribers, by like maniacally trying to post content under those terms, so you would find me. And so if you're a startup founder, what I would encourage you to do is research about 20 terms that you think are relevant to you. And then go and search those keywords on Twitter. And just like get as smart as you can about them. I think people get overwhelmed with how many different metrics are how many different business concepts there are. But like if you're

like I said, a marketplace model, you probably want to know about things like liquidity, which is a measurement of like how many suppliers you have versus how many customers. So like figure out 20 terms to start with that are relevant to the business that you're in, and then go after it from there. And like if you're in a b2b model, you're selling security software, it's gonna be very different than like if you were b2c, like Strava running app, maybe you

should study things that are concepts or metrics specific to those. And what I find is if you get your arms around, like, just enough that feel manageable, you'll eventually go down these rabbit holes, and you'll find repositories of information. That's what I was trying to design mostly metrics to be like a place you would land on and be like, Whoa, I found like this goldmine of stuff. And it's relevant to what I was trying to research and I can go deeper

on it. That's interesting way to start. Yes, thanks for that. And I'm curious, like about CFOs carriers, you know, transition. So if you, you mentioned that, you know, metrics using a snowflake is different from Airbnb and you know, PayPal, for example. So if you, if you are working at Airbnb as a CFO, you can switch. So job. So to like snowflakes as a CFO, for example, it would be hard to do that. I think because you like, listen, CFOs are

smart. I'm sure they could figure it out on the fly. But companies usually looking for someone to come in, like I said, with a playbook. And so it's not to be said that like, Oh, I work in auto tech, I have to work in auto tech for my whole life. But that's a pretty drastic swing from like a marketplace to an enterprise sales company with like multi year contracts. So I think it comes down to like, curiosity, playbooks and like speed of learning. And usually

the people that are at these companies have something in common with those three that they've taken from somewhere else. But usually in the same domain or similar domain, so as a CFO, like financial person. Yeah, I mean, like, if you look at CFO, Mike Scarpelli, who is that snowflake before that he was at ServiceNow before that he was at Data Domain, they all have longer enterprise sales cycles with highly paid field reps and their

critical infrastructure to a company and somewhat of a similar buyer. And so they're definitely threads. And it's not to be said that, you know, like I said, you guys stay in the same industry, but you do want things to lean on like, Oh, I've seen around that corner before. I see totally makes sense. And it reminds me a story that, you know, we interviewed a designer at snowflake before, and he was talking the same

thing. So yeah, you know, designer at snowflake or data industry should be working in data industry, again, so not in a different domain. Yeah, interesting. Yeah. And I think, like subject matter expertise in a lot of these is important. Even if you're working with databases, like what type of databases this company work versus this one, it's similar to like a coder, like, are they really going to learn PHP overnight? I'm sure they could

because they're smart people. But if they're being hired for Java, it's probably because they did that in a previous company. I see. And I had a question regarding the CFO too. So in a company, I think, for startups, you know, we need a CFO after after I think series A or B, I guess. And but I was always curious, you know, what kind of goal set CFO should set and we could and also how, how can we know CFO is

working better or not? Yeah, that's a lifetime question. Yeah, I'll work. I'll work from the first kind of question there. And I think you really need a CFO when your business model becomes complex enough to need it. So some companies need a CFO at 5 million in revenue, because let's say it's like a healthcare software app with, you know, co pays. And there's all sorts of sorts of like, complicated stuff within the

industry, like healthcare is notoriously complex. But like a $50 million enterprise SaaS business with, I don't know, a couple hundred customers, that could be pretty straightforward. And maybe they outsource a lot of it and have a VP of finance. So I think it all depends on the complexity of the business more so than the stage like, yeah, most companies probably get a CFO around series B, C. And they usually bring in

some some of finance or accounting around series A and build up from there. But like, there are different, different ways to skin the cat there. In terms of like, what good looks like, in my opinion, the CFO should be the person who's always pushing the pace of the org, right? They're always advancing the org's objectives by giving financial support to the things that are most needed. Because I look at CFOs kind of like an investor in the

sense that they're making portfolio allocations, but the portfolio is their company. It's how do I get the best return out of the money I spend throughout the org. So CFO can't do a ton in terms of like making the product great. But conceptually, if the product is serving the customers that it should, and it's priced the right way, the company overall should have success. So a lot of ways to measure, I think the CFOs position end up coming

out and how fast the org is moving, and if they're hitting their goals, even if the CFO can't directly impact some of it. And that's probably why you're seeing a lot of responsibilities between what you traditionally call the COO, Chief Operating Officer and Chief Financial Officer merged together. It's interesting. I mean, when things are going well, as you mentioned, it's easier to see. I mean, it's easy to see. Yeah, because it's things are going

very well. Maybe it could be the contribution of CFO or COO, but if things are not going well, how can we know if this is because of the CEO or CFO, because of the COO or product is not working? How should we, I don't know how to say, allocate the responsibility? Yeah, how do you figure out in bad times if it's their fault? Well, you actually probably need a CFO even more in bad times, because then you have to

make tough decisions around where to cut. And if 70% of the costs walk on two legs, that's like the beauty and the horror of tech businesses that at the end of each night, your most valuable assets go home for the night. And so you do need a CFO there to help with reallocating resources, like maybe the plan wasn't correct, maybe the market moved. And so I think the best way to figure out if the CFO is working in bad times is how confident do the leaders

around that CFO feel and how well the plan has been communicated? And do they trust that the person has the company's best interests in mind and shareholders best interests in mind, which is like harder to measure on paper, but a lot of it does come down to is this the person I trust, to make sure that like, there's a goalie in net that's helping to make sure nothing gets by us. And I can sleep better at night. And a lot of that will come down

to the founders relationship or CEOs relationship with the CFO. I see. That makes a lot of sense. Yes. Thank you. So switching topic to AI. So since you know, now AI is crazy. And some people say, Oh, we have AI tools to buy coding. And some people say, Oh, we can make like buy revenue, you know, AI using AI, we can make money at startup can make money easier so that they get profitable earlier and soon. So but how do you see the impact of AI in financing

or even business metrics is there's so much written out there around how to make more revenue using AI like new chatbots that new product features. What's not talked about enough, though, is how to get more efficiency out of your organization using AI. And I think there are two real levers that companies can turn to internally, no matter how big or small you are. So the first is identifying things where you can deploy

an AI agent across a task that is very rote. It's very defined. It's very repeatable. So like customer support is the example people is used because like, hey, I forgot my password. That's pretty simple to write something there. And you don't need as many people because traditionally, customer support scaled linearly with revenue. Another spot could be potentially in finance of scanning the receipts that come in and matching them to things that occurred.

Then there's like the more nebulous area, which is efficiency gain. So instead of cutting people, it's getting more out of the existing people you have. And we hear all the time like the 10x code or like, I hope that's out there. I haven't seen one yet. But I think it's more like how do you get incrementally 1520 25% better or more out of people each year? How do you move faster within defined roles that exist? And that's not something

that you can like deploying agent on to do someone's job, but it can speed them up and say closing the books faster to get to like accounting outcomes or to take huge data sets that would have taken a while to tag for the BI team and getting those tagged using AI, or to help with outbound emails that BDR is going to use. So there aren't like spelling errors in them, like you probably still need the same number of BDR is

to a certain extent, or like how do you help a salesperson prepare for a meeting so they can take four in a day instead of three. Those are the real efficiency gains where I think people lose the forest through the trees because they're like, oh, there's a 10x engineer out there. It's like, well, 10 20% year over year compounds pretty awesome over time to Yeah, yes. And let's say startup leverage AI and 10x quota and

so on. Then so the revenue increase, so then they get profitable. In that case, as a startup, or series AP company, should they stop fundraising? Or would you recommend fundraise? Yeah, totally. I mean, like, I think the biggest outcome from AI is companies hopefully are more efficient, which means they don't have to take on as much capital. It's kind of a perverse incentive to take on more money just because, like, we're

conditioned to think that that's like the sexy, cool thing to do. First of all, there are a ton of companies that should never take on funding, like, I don't know, like a newsletter, like, is that going to return a venture outcome? Probably not. But it can be an amazing lifestyle business, which is like a bastardized term. We forget like that the goal in any company is to make money. So if you're making money, which is the goal

in and of itself, because value is predicated on the forecasted future cash flows from your business, then you're doing great, then it's like, can I make this go faster to an extent that would outweigh the dilution I would take. And so I'm excited about AI, in the sense that it can help founders skip fundraising rounds altogether, maybe you only need seed and series A, and then you don't need more, which means that you

get to keep more of the company and decision making power and economics. I see. And this is also another, like my long term question, I heard it because in startup finance, usually nowadays, you know, thanks to or because of AI, like company, the valuation gets super high, like 100x or more ARR. But in the PE market, or public market, usually it's like five to 10x. Yeah, it depends on the business model, but it's high to 10x ARR, right?

But eventually, the private company matches with the public company's kind of financing valuation system. And how do how do you see or what's your thoughts on this, like a gap between private market? It's an amazing question. Yeah. So right now, in late April, the top 10 companies are trading at a median forward revenue value of 13x 13 to 14x, which basically means if they're gonna do if they're forecasted to do a billion dollars in revenue next

year, the market saying you're worth between 13 and 14 billion. And historically, anything over 10x is looked at as a premium, because you're basically pulling forward 10 years worth of revenue, not even profits revenue, which is uses the shorthand for measurement because not all companies are profitable in the public markets. And then in the private markets, we're seeing a bit of dislocation where some of these,

like really fast growing companies like a cursor, or I don't know, there are a million crazy tools that have raised at these meteoric valuations. I mean, it could be 60x forward revenue 100x. And so then what you're basically signing up for is an outcome that puts you on par with like, I don't know, like a, like a five or, or 6 billion minimum valuation, which means you'd have to be like, basically doing a billion

dollars or more in revenue, considering that the median company, not the top 10 is trading at like 5x forward revenue. So it's all to say that, if you take on a massive valuation, you're you're signing up for a deal where you you have to basically be perfect in the future, you have to hit revenue targets, and grow to become a scale that is rarely seen, you basically have to go public is what I'm trying to say. And you

have to be a decent, really decent public company, if you sign up for like 100 forward, forward revenue, which we saw a lot of those valuations in COVID. And a lot of companies didn't make it out some did. But even then, it's like the investor probably only returned three to 5x, and they wanted 10x so everyone's sitting there saying, Why did we sign up for that deal? And I recently saw a tweet or X post that that was a couple of

years ago, but it's supposed to listen to it. And oh, like a guy joined the Dropbox in 2008. And at the time, they raised CDC or something and valued at 10 billion 20 billion. I forgot. Sorry, I forgot the number. But then 10 years later, then eventually public market reach 10 billion or the same valuation. So yeah, yeah. I see this. Isn't that crazy to think that you may work at a place and well, like, we were talking

about Snowflake earlier, Snowflake is still trading below their IPO price right now. And they have, like, I think 8x revenue since then. So that just puts into perspective how wild the market was valuing companies. Wow, interesting. So, but then that reminded me of another question regarding IPO, like offering the price, initial price. And I remember Steve Jobs, you know, was try to hit higher, like IPO, the initial value at the beginning. But I

know some companies, most of the company try to hit how to say, price higher, but when they when they go public, but if the price goes down, and I was always curious, why don't they put the lower price? Yeah, so they go up, right? It's a great question. So people forget that an IPO is a fundraising event, it's just done publicly, not with private market investors. So the amount that a stock goes up afterwards, the company itself does not

benefit from that in terms of getting to put money on their balance sheet. So you want to price it at a not too hot, not too cold level where you closely try to maximize how much money that you sell the shares for, because what you're doing in an actual public offering is you're creating more shares in the company, and offering them to the public. And the public gives you money that you put in the bank and can use to run your

operations. So if you IPO for a share price of $20, you get $20 times every share to put put away. And then if it goes to 25, that $5 goes to the shareholders who are holding it outside of the company, right, who sell theirs, it's those that $5 per share doesn't benefit the company in any way. But it does make the shareholders who maybe will buy more shares and help your company stock price go over time, pretty happy. And so you

just have to think like, who's the one who's benefiting from holding the share at that point. And you also don't want to shoot yourself in the foot and overprice yourself, and then there isn't enough demand for it. So that's where like the art and science meet around market dynamics and supply and demand. Thank you for answering. Yeah, many questions. That was a good one. And at the same time, also, this is a question I was thinking

always, but for early stage startup, let's say, engine round, pre-seed round, seed round, they usually have higher X, ARR, right? Because let's say the company just started, then in three months, oh, we are making 100k ARR, but we are raising 10 million, or 20 million valuation, and then it's 100x or 200x. So, but is that common in early days, higher X, you know? Yeah, I mean, that's the law of small numbers. And then the

revenue multiples will never make sense. In fact, that's why the idea of a safe came out of Y Combinator, the simple agreement for future equity, which is basically like, listen, I don't know what this is worth, you don't really know what it's worth, instead of arguing over price, let's kick the can down the road. And so earlier on, startups will raise to build the product. But like, once you hit, say, Series A, you

should have decent product market fit. Once you hit Series B, you should definitely have solid product market fit and real metrics. And then at that point, I think it becomes a lot more indicative of what the valuation is. And you can start to use those multiples. But earlier on, like the math will never truly make sense. And since you mentioned like product market fit, and this morning, I received a newsletter about market fit. And so I

haven't checked the content, but like, but product market fit is not the goal, right? It's the startup keep improving to meet product market fit. And could you share about your thoughts on like a product market fit? Yeah, and not all these ideas are my own, like, Harry Stabbing's did a really great podcast on it. I'm a fan of 20 minute VC. And what him and Jason Lemkin were discussing is, basically, if you found product market fit, which is like people pulling the

product out of your hands wanting to pay for it, it solves a problem. If you'd like a really decent team, you'd a five year run where you could just continue to make money and sell it. But now I think companies are falling out of product market fit a lot faster. Where like the market will shift, like a new AI product will come and it just does whatever your thing did a lot better. And it's because innovation cycles have been cut down. And it's kind of changed

the game in terms of how companies think about incubating their second act. And I think any billion dollar company out there has had more than one good product, it's really hard to get to a billion dollars in revenue with just one product. And so what you have to do is continue to jump s curves, they call it. So if you think about the shape of an ass, it's basically a company grinding it out until they find product market fit,

then you have the hockey stick growth, then eventually the market gets saturated, and competitors come in and channels of distribution, like Google ads dry up, and then you have to create another s curve to stack on top of it to keep going. And so I think companies are having to stack s curves earlier than they would have in their lifecycle, or they risk getting beat out by other competitors out there. I see. So in that sense, when should the founder of startup,

you know, prepare for the next innovation? Like, is that a during the s curve? Or, or when they see Oh, it's, I think getting saturated. So I think we should innovate again. Well, usually, like, historically, you would start to launch a new product around, say, year three of having sold the original product. But there's no real, like hard and fast rule of when it should be, I think you should be highly attuned, though, to what your customer needs are, and then

where the expansion areas are. So like a good expansion areas to sell a new product to the same customers, right, you already have them, that's the net dollar retention rate that will expand over time. And you don't have a customer acquisition costs, because you already have them. Or you can make a new product and sell it to new customers, which is like playing on hard mode, because you have to go and find new

customer and you have to prove that you can technically create something. Or you can go into a new geography. So maybe you haven't sold in Europe yet, you can sell the existing product. But now you have the risk around creating distribution there. And so there are different ways to go about it. But it's like, how do I, how do I make it easier for myself, like to either distribute this or to build something else? If you're going

to build it, do I have a code base that I can build upon where I don't have to recreate the whole thing. And all of these are different ways to create different s curves. So different ways to sell to the same customer different products to sell to the same customer, different geographies over time. So a lot of people think that jumping s curves or incubating a new engine for growth is like I have to. I was a marketplace

I have to come up with a security product like no, that's not what it is. It's you have to think of something tangential that expands your total addressable market. Yeah, thank you. Yeah, that's great tips. And, and this is kind of question, because you have so much knowledge, and that's really useful and valuable. So do startup founders reach out to you? Hey, hey, CJ, can you be our advisor or investor and so on?

Yeah, I get I get a good number of requests, especially if it's a tool that's used in finance or back office or productivity, or just CFO type stuff all the time, which is interesting, because it keeps me fresh with thinking through that the problems that they're going through. But you don't take the CFO job, you know, do you do you help them like on the spot? Or? Yeah, I, I haven't taken a CFO job just off of that, because I

enjoy being the CEO of my own company now that I've gone full time, which is interesting. CFO became a CEO. But at the same time, I do try to invest in a handful of companies every year with a small check, and then just try to give advice on on what I'm seeing, or try to help them promote their own product to my audience, which is the real distribution benefit there. Because like, I look at it, all investors provide a couple of

things. First thing is they provide money. Second thing they can provide is introductions to employees to help you work. And then the third thing they can do is provide customers. For me, I can help usually with that third one, because I have an audience. And so that's kind of my advantage of trying to help out companies advise or invest. I see. Yeah, I think sort of founders have you as an investor or advisor, happy at the same time, they feel pressure,

because when they share monthly report and metrics, and you know the numbers, like, oh, don't you know, trick me in. But then I can help too, because I can understand it quickly. Look, I'm pretty reasonable when it comes to that stuff, because I've seen what good looks like and what bad looks like. And I understand that nothing's perfect. Like, starting a company is really hard. Getting people to put down a credit card

and give you money. Like that can't be understated how hard that is, like selling something is the hardest thing in the world. So I get it. I've been through it too. Like I've, I've had my failures along the way. I mean, I've had companies that I've started that didn't work at all. So there's something to be said about have developing empathy for founders. Yeah, it's a different question. But so when you hire CFO, so

yeah, what is the definition of good, great CFO? And you know, what kind of experience or what kind of things do you see in the candidate? So there are certain table stakes, like you understand financial statements, you know how to report on the results, and you know, the metrics, the best CFOs don't know how to broker risk within the company, because you have a startup founder that's got to that point, because they're very

aggressive, they have this idea, like it's a it's a disagreeable thing is Mike Maples of floodgate would say to start a company to begin with, you have to be somewhat crazy. So of course, you're going to want to do crazy stuff. How do you broker risk along that frontier to make both the investor happy and to achieve their vision and to break down barriers for them and pave the road with like coming up with a plan that can

be achievable, while also being like a good steward of capital because the CFO does report to the CEO that is their boss, but you're also what they call a fiduciary to shareholders. So you it's your responsibility to look out for the money in the bank, and for how the company invests and to make sure that you're doing things honestly. So I would say that the best CFOs have a good view on how to how to lean into risk or how to pull

away at the right times. And they're very honest and can say things to people that in a nice way that they may not want to hear sometimes you do have to call the baby ugly when you're building something that's just not working. And I saw this tweet or post on x sometime but the guy was saying that, you know, Oh, hey, startup founders, your mission vision don't matter unless that your product serves you serves the

customers program. And when they pay money to your product, it means solving, solving the problem. And in that sense, as a startup founder, I care about mission and vision at the same time as a business, we should care about revenue, right? To make business sustainable. How should we balance the revenue and mission vision? Because startup a company start, you know, the usually founders start a company with a mission vision

and, but at the same time, revenue models. Yeah. Yeah, I mean, I think you need a great mission and vision to create a product that people want, like the two things go hand in hand. That being said, like, there's nothing wrong with working for a charity or not taking on venture money. But it's hard to say you don't really care about the revenue, you only care about mission and vision if you took money from an

investor who expects a risk adjusted return on it. Yeah, it's all it's all like the game that you sign up to play. There's no wrong game. But if you play a stupid game, from a stupid strategy perspective, you want a stupid prize. So, what I was curious, you know, what you are currently focusing on, like, what's your current focus and interest in like, what are you going to write? Do you have some ideas you want to write on next?

I'm putting out a benchmarking report in the coming days on what good looks like across different private company stages. So if you're under 5 million in revenue, if you're between 5 million and 25, if you're between, you know, 50 and 100 million, what should your net dollar retention be like? What should your CAC payback period look like? And how does that translate to what we're seeing in the public markets? So

I'm really excited about creating what I call, like, an operator benchmarking report for people running companies. There are a lot of reports out there for investors vetting companies, but like, I'm trying to create the report that I would have wanted five years ago, when I was trying to make decisions based on my business model and company size. So that's what I'm going to be putting out on mostly metrics.

Well, if it's private companies, so how do you see those companies metrics? Like they don't publicly, you know, announce or we have, sometimes they have, they have announced like, oh, we have a 5 billion ARR, for example, but usually it's not Yeah, exactly, and that's the benefit of having an audience, and now it's over 65,000 readers, and so even the paid readership is big enough now, statistically, to survey, and so it's

something where I couldn't have ever done this if I didn't write hundreds and hundreds of pieces and gain an audience, so it's like me evolving my own business model on the fly, which is most fun to me, I think. You get these different opportunities because you do something else well. No, I still have to make the main thing the main thing and put out great content. I also get other opportunities to do things like survey smart people like yourselves and

business owners on what their metrics are, and if I give them something back that's more valuable than the time that they gave me to fill it out, then I did my job, and I think they'll do it again. That's kind of the unspoken deal. That's interesting. By the way, do you have a role model in your career? Is that Warren Buffett, Charlie Munger, do you have any future vision or plan? Of what? Can you say it one more time?

Sorry. Role model. Your role model. Oh, like what's my mental model around stuff? Yeah, like CEO or investor, or whether you want to see yourself in 10 years, 13 years, for example. I don't know. If you told me even three years ago that I could make enough money to support myself writing online, I'd be like, you're crazy, dude. I don't know. I think I just want to be able to create a place that helps other people do their jobs

better and makes finance and business stuff fun. I always thought it was cool to be a fan of business, not a critic of it, but a fan, and to enjoy it, and to have fun along the way, and to learn something. I want to try to create a place that people can do that, and in the process, make some money too. It's been fun so far, but I don't know. I've always had the vision of this benchmarking report, but I didn't know if I'd ever have

enough people to survey to do it. Who knows? In a year, we'll have to check back. Yeah, we can re-watch this in a class talk again. Yeah, later. Exactly. Yeah. Thanks. Yeah. Since it's been almost one hour, two things, and one is advice. Do you have any advice to start-up founders, or content creators, or newsletter writers? Yeah. I think general life advice is usually generally pretty bad, so I'll try to hone in on newsletter

and content creators, and this is just what I've experienced. You want to write really selfishly, and then give away generously. What I mean by that is you want to create content that is interesting to you, and specific, and serves a need that you would have needed or need now, because if you don't do that and you try to write for some fictional smart person that you think or hope is out there, it's never going to land.

That's what I tried to do for the first couple of years. I thought there was this smart person that was interested in these smart business ideas, and that wasn't true. When I started to turn inward and say, what would benefit me the most, and then I gave it away for free, and eventually you can charge for it if you give enough value away, but that's how you find true what I call audience market fit. That's what I've experienced.

Yeah. I like the concept of audience market fit. Yeah. Thank you. It's kind of like investor mindset. Yeah. I think there's also a hierarchy of content, too, that people and brands, like for sponsorships, because I monetize through sponsorships, too, are willing to pay for, and the North Star is if it ends up in a financial model for someone to make a decision, that they're willing to pay a lot for it. If it's just something that's going to make them laugh or they're going to read in passing,

it's probably not as useful to helping them make more money or be better at their jobs or improve their lives. You got to think where on the hierarchy of content does this land? Nice. Thank you. Also, do you have advice to those who, let's say, have higher net retention revenue, like 140%, and then less cash-check payback period? Keep investing in your business. That's the market saying that we want more of it.

Those are the signals that you look for to say, hey, I feel comfortable taking the risk, like I said, to spend more on the company, and that's what a good CFO will help you make that choice. I remember the company that I joined to be CFO, when I had them send me their profit and loss statement just to check before I joined, I was like, I think they made a mistake. I emailed them back. I was like, hey, you forgot to put in the marketing spend, and they're like, oh, no,

we've never spent money on marketing. I was like, sold. I want to work there because I know that this product is just being pulled off the shelf and you can pull more gasoline on the fire. You want to see if the market is telling you that it wants more and if you should invest. I think we need you because we don't spend money on marketing now. Wow. Well, congrats on all the success because I've seen the name everywhere and you got

quite the following. That's impressive. Thanks. We need an aggressive CFO, I think, at some point. Anyway, this is the last question, and it's a big one, but since Glasp is a platform where people share what they're reading, learning, as a digital legacy, we're going to ask this question to you. What legacy or impact do you want to leave behind for future generations? I think it would be continuous self-improvement and curiosity and to have fun while doing

it. There are a lot of areas, finance included, where people try to put up walls to say, I'm so smart and almost keep people out. I would want to leave a legacy that I helped bring down walls to let people understand something, have fun, improve their business, improve their life in a way that they couldn't have got to before. Making it more accessible and enjoyable in the process to engage in any sort of business.

Thank you. Very beautiful. Thank you again for joining today's talk. Thank you. Thanks for thinking of me. This was a blast. Excellent questions. I'm blown away and flattered by the research you did on my stuff, so thanks for reading it. Thank you for writing it and learning a lot. I'll keep it going. Thank you. Thank you.

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Decode Startup Finance: Metrics, Board Decks & AI Efficiency | CJ Gustafson

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