Kalon Ventures chief executive Clive Butkow urged start-up founders to fully understand six survival metrics: cash runway, customer acquisition cost, gross margin, net burn, sales pipeline, and customer retention.
This, said Butkow at AfricArena’s Johannesburg summit, enabled entrepreneurs to identify any potential risks to their business. Butkow’s keynote address focused on the steps entrepreneurs needed to take to survive economic headwinds and to preserve their start-up valuations.
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The former Accenture South Africa chief executive spent the first decade of his career building technology companies and has advised and built at least 100 companies. He has seen economic downturns in 2000, 2008, 2016, and 2022 and has first-hand experience in helping businesses survive and thrive during these challenging times.
During his presentation, Butkow suggested interventions that businesses could take to ensure their survival during tough economic times. He recommended reducing expenses, increasing revenue streams, and raising funds, if necessary.
He furthermore advised entrepreneurs to focus on building a strong team and staying in communication with their customers to ensure they understood their needs and pain points. “We are the operators behind the operators,” said Butkow.
The CEO emphasised that there is no one playbook for surviving economic downturns and that businesses needed to adapt to their specific circumstances. He urged entrepreneurs to make a plan of action and to be willing to pivot their business model if necessary. “We don’t wanna just take our business from South Africa, we wanna take it from South Africa, Africa, and globally around the world as well to get that big exit.”
Butkow stresses the importance of several key metrics for businesses looking to secure investment, including burn multiple, sales efficiency and gross margins. He emphasised that “for every dollar that goes into your business, how many dollars are you generating?” and warned that companies with burn multiples above three are in “very, very bad territory from a unit economics point of view”.
He advised start-up founders to aim for a high sales efficiency or a magic number, and warned that gross margin is a “very, very critical number” and that he does not invest in businesses with gross margins of between 10% and 20%.
Butkow explained that gross margins are critical for valuation, noting that companies with lower margins are valued lower than those with higher margins. He advises businesses to reduce their workforce and build up enough cash on their balance sheet to reach free cash flow.
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