Ask HN: Should I Stay or Should I Go? Insights Needed for Series A Startup | Hacker News Reader

Ask HN: Should I Stay or Should I Go? Insights Needed for Series A Startup

5 pointsyoungelderly8 comments

Hi guys,

I’m reaching out for some advice and insights on my startup's current situation.

We secured Series A funding in 2022 and we're operating a niche marketplace in an emergent country where each customer typically makes a purchase every year. Financially, we have about $9MM in the bank, giving us a runway of approximately 18 months. Our monthly burn rate is $500,000, with 15% of that dedicated to online marketing across google, meta, and TikTok.

The company consists of 40 people: 20% are c-level, 40% are in tech/product/design, and the remaining 40% are in bizdev/marketing/operations.

Customer acquisition has been solely through online marketing, bringing in around 3,500 new customers per MONTH (4% monthly growth rate right now). However, our customer acquisition cost (CAC) is $20/customer ($65,000/month), and we generate a gross revenue of $6/customer ($20,000/month), resulting in an LTV/CAC ratio = 0.3 .

My concerns are mainly around our lack of significant growth and the competitive landscape, where our product lacks a distinct competitive advantage. Additionally, I'm worried about whether I should stay or move on to something new. Both my team and I are highly unmotivated, feeling a lack of learning opportunities and a sense of stagnation in our careers.

Given this context, I’d love to get your input on a few things:

1. Are there any red flags in our current situation?

2. Is our current approach sustainable in the long term?

3. Am I being overly pessimistic about our prospects?

4. Should I consider moving on due to the stagnation my team and I are experiencing?

I would greatly appreciate any thoughts, experiences, or advice you might have. Thanks in advance for your help!

Even if the $6/customer is recurring revenue, you need to retain every customer for 4+ years to make back your CAC.

So with costs of $65k/mth and revenue of $20k/mth you are going backwards at $45k/mth. But you say your burn rate is $500k/mth. Which suggests that there is a further $455k/mth being burnt on whatever. I just don't see how you'll ever become cash-flow positive.

Based on your numbers, I'm guessing you have about 40k customers. Even by the most optimistic estimates you need over 1 million retained customers to break even. To get there you will need to invest a further $20M based on your CAC.

Sorry, the numbers just don't make sense. Of course, I could be reading stuff between the lines that is wildly incorrect. But for me it is red flags all around.

> But you say your burn rate is $500k/mth. Which suggests that there is a further $455k/mth being burnt on whatever. I just don't see how you'll ever become cash-flow positive.

$455k/month is allocated to salaries, software's, and office expenses.

> Based on your numbers, I'm guessing you have about 40k customers

Every month, we acquire approximately 3,500 new customers. Our retention of existing customers is low due to the nature of our marketplace, which has low-frequency usage.

Edit/Fix: 3,500/Month -- not week, sorry :-(

Thanks for the additional data.

With low retention, the situation looks even more dire.

I understand the outgoing for salaries, software, office expenses. But in overall business terms all of those, too, need to be supported by the revenue generated. A viable business is one that sustains all its expenses and has a surplus to be re-invested. From the data so far, I'm guessing that it is unlikely to ever happen. Thus the suggestion that your gut feelings are spot on and it might be an idea to move on.

Red flags: you only have 40 people and consider some c-level; most of your spend is on marketing content that is fleeting (no lasting value); with as many people in marketing as product, it seems like you want it to work more than it actually works.

Say goodbye to everyone not in product and focus on “marketing content” that shows how to effectively use the product. Maybe keep one marketer to do this.

I'm old enough to remember when companies tried to make more revenue than expenses and we called that "profitability." But these days there's so much money out there, you just jeep going back to the VC.

How closely related are your co-founders parents to the guy running the VC fund that gave you a series A?

The co-founders are closely connected to the VC funds, and they are individuals with strong networks and an exceptional ability to raise money.

It's true. I remember when profitability was the goal for companies. It's disheartening to see how much dependence there is on VC funding these days, rather than striving for self-sufficiency through revenue generation.

Just like the right answer to "when should I let this person go?" is the first time the idea of firing him crosses your mind, maybe the right answer to this situation is the same: You should be looking for a new opportunity and move on the first time that idea crosses your mind...

When you think something is off, it usually is... and waiting on it will not change its trajectory.

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