May 22, 2023
You're familiar with the concept of Minimum Viable Product - if you've spent any time at all in the startup game, it's been beaten into your head! I'd like to introduce a related concept which I believe has a similar degree of importance - Minimum Viable Revenue.
Your MVR (Minimum Viable Revenue) is the level of revenue which provides you with control, with independence, with optionality. Even simpler - MVR is the level at which your company is breaking even after you and your cofounders are taking home enough income to live at a long-term sustainable lifestyle.
Control: At MVR you don't need to raise money, because now your runway is infinite.
Independence: If you haven't raised, you still answer to yourself, and perhaps to your family - getting to MVR shows them you have a level of stability, that you're not on a fool's errand. If you've previously raised, you've got other board members - but in the current environment they will likely be quite happy to see you get to a self sustaining point.
Optionality: When you're burning capital, you have a time-til-death clock ticking away. As you get down to mere months of capital left, it gets harder and harder to focus on the business as you are more focused on getting that next round - which in turn can impact your ability to grow and meet your actual business targets! Being at MVR means you have choices: invest your free cash flow to grow, or raise strategically, without a gun to your head.
So how do you know what level of revenue to target for MVR? Defining MVR is essentially an expense driven exercise. What are your core business expenses that you can't do without? Examine the facets of your startup from top of the funnel down:
In each of these categories, what's the lowest level of spend that keeps your startup able to continue making progress?
When you are early stage, you can eliminate expenses that the founders can handle. Once you've accounted for the hard expenses and HR expenses across the business, you've got to add in minimum viable founders' compensation. This is a salary large enough for you to pay your bills, and not much more - not starvation wages, but likely well below what you used to make in Corporate America.
Here's a sample budget - your mileage will vary, but I find this to be roughly accurate:
Let's assume two Non-Technical cofounders capable of handling Sales, Customer Success, and Ops:
Total = ~23k/month = 280k per year
If you have one technical and one business founder, you could cut this by almost 100k - but overall, you'll likely land in the 200-300k range for MVR in the US.
All this calculation is in pursuit of one goal - how many sales do you need? This presumes that you have an idea of pricing, of course - but you need to know what you are making per sale at the outset! If you plan to focus on user growth instead of revenue growth, you'll need funding, full stop. The MVR concept doesn't apply as well to such businesses. But in every other case (which is most) - getting some sense of pricing enables you to set a concrete sales goal to hit MVR.
And once you have that, you can set yourself a deadline - the subject of my next post.
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