Founder Puzzles, 2nd Ed.
Founder Puzzles. Financial Modeling for Startups and Founders. Second Edition. September 2022
The Math that matters for your startup.
When it comes to understanding the math behind a startup, an idea or a product, where should we start? What questions should we ask? What models should we build? What if we have no background in finance?
As founders we often start on the wrong foot when it comes to financial modeling for our ideas and teams. Most often when we think we have it sorted, we build the wrong models, we ask the wrong questions.
Founder Puzzles shows you how to use simple frameworks in Excel to identify winning choices by asking the right questions, right at the start.
More effective decisions as a founder using frameworks that give you quick answers. From pricing products to sizing markets. From projecting revenues to estimating optimal bet size.
Real world questions. Real world models. Real world answers.
What do you get? First things first.
Three printable PDF files.
a) Founder Puzzles, 2nd Edition.
b) Better Excel Charts.
c) Reboot, 3rd Edition.
The three PDF files cover frameworks, materials and background reading.
Thirteen unlocked Excel Files. Four variations of Maya Closet Financial Model. Two variation of GEMS Education Financial Model. Seven additional supporting Excel Files.
The Excel templates present models in different stages of assembly so you can you follow through how they evolve across the book.
Why should you read the second edition of Founder Puzzles?
Startup founders need decision-making frameworks that they can understand and relate to. Without needing background in finance, modeling, or business.
We wrote the first edition of Founder Puzzles as a toolkit for founders using language founders could understand. Identifying puzzles we solved, lessons we learnt, taught, and used. In 2020 during a global pandemic print wasn’t an option. But despite that the two digital editions of the book were well received.
When the time came to write the 2nd edition, we asked ourselves what we missed on our first pass. Some important modeling lessons were overlooked, we needed a deeper treatment on growth, on idea selection filters and on respecting data.
Founder Puzzles, 2nd Edition adds 5 new chapters, 4 of which are new frameworks. Of interest because they focused on questions we answered for our own ventures.
- How to size markets using real data
- How to select and filter ideas based on implied or implicit potential
- Understanding investor mindset and why investors say no
- Projecting growth in times of extreme uncertainty
The most important of these is Scale Multiples, the idea filter. Imagine an objective framework to rank relative viability of a business idea before investing years of your life into it. It takes between 2 to 8 years before the payoff from an idea is realized. Wouldn’t it be better to know the odds in your favor before you back a specific concept with real work? Even better it puts you on the same page as venture investors on day one. In the tight rope routine most startups and founders walk on a daily basis, there is very little room or bandwidth for rude unexpected surprises. That is what the scale multiple framework tries to address.
The other three concepts focus on raising capital in down markets, validating assumptions before making decisions, and two paths to a market sizing exercise.
Founders often struggle with sizing target markets, leading to inaccurate assumptions and choices. A large part of this problem is the availability of data. We used five different live market sizing engagements (in retail, insurance, eCommerce, logistics and payments) as context for this chapter. The market sizing exercises leads directly into conversion, growth, scale and valuation discussions.
What is the book about?
As founders we often think about questions that we need to answer for our business. Stuff that often requires us to sit down and build a model in Excel.
- Who do we build that model for? For founders or for investors?
- How complex should it be? How much time should we spend on building it?
- What is the one thing we need to get right?
- What is the question we are trying to answer? How will this model help us do a better job?
- Where do we start? What do we assume? Who do we ask?
Sample frameworks the book reviews:
Understanding unit economics. If you can't make money on a single order, can you make it with on a thousand orders? A clear dissection of break even costs, contribution margin, customer acquisition costs (CAC) and life time value (LTV) of customers. Why CAC < LTV is one of the most important equation we need to understand as founders.
Projecting revenues. If you sell products what is the simplest way of projecting income for the next 3 to 5 years. How fast can you grow and what are the drivers for that growth?
How do you use such a model to decide whether to invest in better servers, relevant content, improved SEO, higher conversion or all of the above. If you could only do one, which one should you pick? Which one would a quick financial analysis recommend?
Getting quick answers fast. Rather than building complex models, our emphasis as founders should be on asking the right questions and then using Excel to find quick answers to the same questions.
Whether its unit economics, projecting revenues or pricing products, spending time upfront in identifying questions we want to ask is a worthwhile investment. Once we understand the questions, it is equally important to start with a simple bare bone model first. Model building, like minimum viable products is an iterative exercise.
Live case studies. The book uses multiple live case studies to based on businesses in the real world to illustrate concepts and examples.
Maya's closet. An online specialized retailer focuses on the toddler and pre-teen clothing and accessories market. A case study with four versions of a financial model ranging from the very simple to complex.
Grant Application. A grant application for a reader revenue supported news analysis and commentary site. The application was used for a Google News Initiative grant competition and made it through two rounds of selection. A simplified model with a detailed review of revenues sources and primary expenses. A case study with a single simplified Excel model.
GEMS Education. A private school system negotiating a new line from their bankers. This is the most complex model of the lot. To give you a sense of how quickly complexity can get out of hand. Two models are included. A data dump along with chapter 16 asks you to complete the model on your own as a capstone final case. A solved solution is included for sell assessment and review once you are done with building your version of the model.
Primary skill set. Teaching financial modeling and analysis for founders, startups and creators using a mix of frameworks, case studies and partially completed Excel sheets with solved solutions.
Real world questions. Real world models. Real world answers.
The 19 chapters from the book include:
- Modelling Revenues
- Unit Economics
- Pricing Basics
- Value-Based Pricing
- Market Sizing. Seven Deadly Sins
- Products versus Services
- A Valuation Primer for Founders
- Selecting Ideas
- Founders' Guide to Venture Investing
- Raising 6 at 18 Post
- Real World Models
- GEMS Education
- Kelly's Criterion
- Launch Lessons
- Reality Checks
- Power Moves
- Modelling Growth in the middle of a Pandemic
- Pricing Models for Content Businesses
- The Case for Pakistan - Estimating Pakistan's Middle Class
Do the math but keep it simple, relevant, realistic and to the point.
The book comes with complimentary copies of Reboot, 3rd Edition and Better Excel Charts.
Who is the Author?
Jawwad Farid has been building, implementing risk models and back office systems since 1993. Jawwad is a Fellow Society of Actuaries, (FSA, Schaumburg, IL), holds an MBA from Columbia Business School and is a computer science graduate from FAST NUCES.
Jawwad is the author of four books of which Option Greeks Primer and Models at Work, were published by Palgrave Macmillan. His latest project is an advance Handbook on Portfolio Optimization Models that he uses to teach Executive MBA students, traders and bankers in Dubai and Karachi.
Founder Puzzles is his 5th book.
Additional sample content
Jawwad Farid at 021Disrupt2020 - Product launch lessons - extended edition - 36 minutes.
Audio recording: Founder Puzzle, Revised Edition. Abridged Preface by Jawwad Farid