I have a couple of trains of thought to share today...

I am in the process of seeking a source of income to pay the mortgage next year after the Fellowship is over and my savings are depleted.  I seem to expend a lot of energy on this process, meeting people, doing research, trying to follow up...  Although I am making some progress and I now have an offer of some consulting that will bridge a part of the gap, I'm by no means at the end point yet.  So how can I tell whether the activities I am consuming my time and effort with are the right ones?  This is exactly the question that was the focus of my placement at Sun Microsystems, and the answer turns out to be the same as well.  Instead of seeing only the desired endpoint (which is really a range, from avoiding eviction to immense riches with which to take my wife on extravagant holidays) I need to see milestones along the way - to measure my achievements as a pipeline.  When I think about things in those terms, it's no different from managing sales.

My prospects are people or companies I have not yet talked to but are on my radar. I have about 10 meetings set up at the moment or in my "to do" list, with maybe 30 companies or potential companies covered by these meetings.  My leads are companies with which I have already had some sort of contact and agreed further contact.  I'd say I have about 3 in this category.  Next are opportunities, which are companies with whom I am having fairly specific conversations about a particular role which they have a realistic possibility of funding for - just 1 here.  The "proposal" or "bid" stage of the pipeline doesn't really have an analog here, but in terms of Sales I have 1 definite offer of some consulting work.

Prospects: 30

Leads: 3

Opportunities: 1

Sales: 1

When I look at the fruits of my labours like this, I can see that I am actually achieving quite a lot, and my ratios (the proportion that drop out at each stage) aren't actually too bad.  Furthermore, many of the prospects don't just fall out of the pipeline, they also open doors to other prospects.  I've still got a way to go to either get the perfect sale (full time job), or get a handful of consulting type sales through (but I'm on the way with the 1 I have already) but it is measurable progress.  Now if I track this, I can see whether I am directing enough effort into different areas.  When I look at it like this I feel a lot better!

The second train of thought I have been following was inspired by reading Dharmesh Shah's recent blog post on OnStartups about a VC round he has just closed.  The full text is here but I'll copy the bit that really got me thinking: 

"One quick calculation I’ve been doing in my head since the early days of starting the company is this:  Figure out your run-rate annual recurring revenue.  Multiply this by some conservative industry multiple (somewhere around 3X).  Then, make sure that the total money you’ve “consumed” is less than this number.  When it is, you’re basically operating on an “accretive” basis (i.e. the actual enterprise value built — even if sold to a conservative financial buyer — is greater than the amount of money used to build that value). "

Essentially what he's saying here is that if your total cumulative spend is less than a sensible/conservative valuation multiplier of your current revenue (e.g. 3x) then you are accreting value because you are gaining value faster than you are spending money. 

I understood this principle, but I haven't seen this expressed as a metric in this way before.  My concern is that it lacks a crucial temporal factor - the whole purpose of risk capital is to generate a future return.  For many high-tech companies revenue will be zero for a number of years before picking up slowly with a reference customer or two and then scaling significantly.  Until you're into scaling revenue, the metric is going to give a distorted result.

Even once you hit revenue growth, the accretive rule ignores desire of the investors to make a return (often 10x for a VC and more for an Angel) and by all shareholders desire to minimise dilution if more funds are raised.  So in fact the 3x valuation multiplier really needs to be multipled by a 10x ROI multiplier for planning and targetting purposes... 

I shall continue to ponder on whether I can apply this to some of the work I'm doing at the moment.