Sustainability Health Check For Tech Startups

What Is Health Check

Health check is a high level of review of your company’s performance and status, it also drives into your status regarding your employees, idea, reputation, brand and products. It is a very structured process if you have an entire team you can dedicate to this or you are able to afford an external advisor/ consultant it is a good start but if you are still in a early stage startup where it is just you, co-founders, and few staff, it can be a light process.

The key objective is to ascertain status and create a plan for improvement. It is a process you are looking at to get a sense of where the company is.

Importance Of Health Check

  1. Awareness: A health check reveals your company’s status. This could reveal opportunities, threats or risks.
  2. Optimizing Resources: By assessing your status and performance, you are empowered to optimize your resources and allocate resources effectively.
  3. Improve Decision Making: Health check provide valuable insights that can inform data-driven decision making.

What Is Important?

  • You cannot afford to carry out this exercise every month or quarterly
  • Identify key areas and themes that are important for sustainability
  • These themes may change over time but ideally should not be more than 4
  • These themes form your reference point and guide for a health check

Sample Key Themes

Financial Well-being: This makes you identify where you are financially and what you should be tracking and these are the questions you should be asking, what are your key financial metrics? This is something you need to understand as it plays a crucial role, also what are your top expenses and revenue sources? If you are a product led company and your revenue is supposed to come from subscriptions or product purchases by users, is it increasing or decreasing?

What is your primary source of funding, this is also very important depending on what stage you are. The last question is your significant financial obligations, Actual or Contingent? For example, you have a facility that you are taking from (bank) and you need to be paying out something every month or you have an investor that has a convertible note which is short-term and you require to either pa them out or convert them into equity in the next few months. That is an example of your financial obligations.

Operational Assessment: Here you are looking at what can be optimized, what are you doing and what can you do differently or how do you currently run your business, what is the dependencies? For example, if you are a fintech, you may find out you do not have a license but you are dependent on a banking partner or another fintech company. Those are dependencies that could really impact your business. What is broken or is about to break? This is from a technology/ process perspective.

What can be automated? What are you currently doing that is manual but can be automated.

Regulatory/ Compliance Position: This is for companies that are either regulated because you have a license by CBN, NCC, FCCPC or you are working with companies that are licensed. Regardless of whether you have a license or not, the regulations are applicable to you. Tax, Company, Data, and Consumer protection regulations apply to you. The way you would look at your regulation compliance will be why will make regulators/ your partner shut you down today? It ascertains where you stand. Why would a customer report you to authorities? Is there anything you are doing that will make a customer report you to a regulatory authority, this will make you aware of your processes. The last question is what are you doing now that exposes you to fines over a set threshold? It is important that you are very mindful of what you are doing that may cause you to be fined by regulators. These are things you need to assess.

People Evaluation: For example, you are doing a B2B product and you need business development or sales person to create a system to reach out. If you have just one person that understands your user interface or without that person you cannot do anything else, that is a key man risk. So you need to identify and ask who are your key talents? Any key man at risks?

To the next phase which is your key resource, you must have your founders, operations manager, finance, marketing. There are some key functions that you should have as you start to grow. This is all depending on the type of business that you are running, what are the key resource is missing on your team?

Some companies have a ratio in determining how much expenses payroll should amount to. Meanwhile other companies are not incurring as much because they are trying to cramp a lot of people with work or gone overboard because the payroll is bloated for the revenue that is being generated. The question is, are you overstaffed, understaffed, rightly staffed?

An Example Of A Health Check Report

– CAC is way higher than our peers

– Cost to revenue ration is increasingly rapid

– Significant adverse media from customer call-out

– Our cash reserve can not withstand stress events

– Ex employees have been poaching current employees

– No line of credit from bank

– Our bank partners have sent us three warnings on KYC deficiency

– Missed all release deadlines for the last two quarters

– We need to hire an accountant

– We are spending too much on vouchers e.t.c

Take Note Of These

Financials

  • Subsidizing customers or partners
  • Not tracking your expenses, no budget?
  • Not tracking your financial metrics
  • No contingent funding plan

Processes

  • Key process is dependent on a partner
  • Ignoring quality assurance for product led companies
  • Undocumented/ non-standardized processes
  • People ignoring rules

Product

  • Burning cash excessively on marketing or freebies
  • Constant deviation from product road map
  • Increasing CAC with no tangible return/LTV
  • Current bugs and platform failures

People

  • Hiring specialists too early
  • Revolving doors
  • Culture dilution

Next Step After Identifying Key Themes & Notes

A Plan of Action: This is something you should do on a quarterly or annual basis , it indicates from this process you have been able to identify four or five big things that you want to correct between now and the next quarter or year.

A Timeline for Execution: When you do the next health check, you want to be sure that you have rectified your issues and it is no longer a threat to the sustainability of your existence or if it is, the risk or impact has been minimized and something is being done about it.

Review Date: This is your mini health check to go through things what you have identified. It lets you know if you are doing it right and have the capacity to innovate or extend your products through another channel. This process will reveal to you.

Key advantages of this are, it helps you see where your leakages are, it helps you know what your status is and what you should be doing about it. It also helps put what is important as top priority, what your key metrics are for you, what your bond rate is. And having a contingent funding plan.

Conclusion

You give yourself a better chance of fighting if you are constantly looking at the right things. Things that impact your users, licenses, fines. What sustainability means to you, identifying the key metrics and drawing out a plan to make sure you are on top of those metrics.

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POSTED BY EKO INNOVATION CENTRE

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