Tuesday, 19 June 2018

Improving Defense Industry Technology with Blockchain

coincentral.com
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The global defense industry continues to be a big part of national economies for many nations throughout the world. In the past, defense industry research and development led to the creation of many beneficial, innovative technologies, including the internet and GPS.
Nowadays, defense technology has an opportunity to become even more innovative with blockchain technology. So, what are some of the biggest blockchain research projects for the defense industry so far? And how can blockchain reshape the future of military technology?

Widespread Adoption of Blockchain Expected in The Defense Industry

According to Launchpad to Relevance: Aerospace & Defense Technology Vision 2018,” a recent research report published by Accenture, six in seven (86%) aerospace/defense companies plan to integrate blockchain within three years.
While this industry has been quite innovative in the past, there are a number of stats published that show just how cutting-edge the industry plans to be in the future. For example, 97% of aerospace and defense executives said they are willing to digitally reinvent their business and industry.
Additionally, of the 18 industries surveyed by Accenture, the aerospace/defense industry was ranked as the third most accepting of potential blockchain integration. One of the biggest reasons for the defense industry to adopt blockchain (like many other industries) is the need for better data.
The report goes on to say, “Inaccurate, manipulated, or biased data can have far-reaching, adverse consequences, such as corrupted business insights and skewed decisions.”
This presents a big issue as 80% of firms in the industry surveyed are increasingly reliant upon data to help make better decisions. The veracity and immutability of blockchain-driven technology could very well solve this problem.

defense blockchain

Major Developments to Look Out For

In past years, we have seen a lot of innovation come from the U.S. Defense Advanced Research Projects Agency (DARPA). For example, some of the biggest early innovations in robotics technology were displayed during the DARPA robotics challenge.
This competition lasted for a period of 33 months from 2012 to 2015. It featured some of the world’s top robotics teams, which created robots that worked to complete complex tasks in dangerous, degraded, human-engineered environments.
Now, we are beginning to see DARPA and other defense agencies work towards increasing the adoption of blockchain. For example, DARPA is working internally on the creation of a blockchain-based encrypted messaging service that is designed to be secure and impenetrable to foreign attacks.
The U.S. DoD is also working with companies with expertise in blockchain innovation. In May 2017, Indiana Technology and Manufacturing Companies (ITAMCO) was awarded a Phase 1 grant(sufficient funding for around 10 months of work).
This was from the U.S. Department of Defense to develop the cybersecurity architecture for a blockchain-based messaging application. Although there isn’t news to confirm whether or not the project has received the green light for Phase 2, this approval would mean that ITAMCO would be awarded a multi-year funding agreement to take its concept to a fully-functional prototype.
Phase 3 approval would give the project the ability to start real-world implementation and commercialization of its decentralized blockchain messaging app.

U.S. Future Blockchain Defense Spending Outlook

Although it’s uncertain for now just how much money, resources, and personnel will go towards the development of blockchain applications for military defense, it’s clear that the overall adoption trend is positive for blockchain.
For instance, in December 2017, President Donald Trump authorized a $700 billion defense spending bill, part of which calls for a mandate for conducting a research study regarding blockchain-based cybersecurity applications.
The bill includes the following section, “an assessment of efforts by foreign powers, extremist organizations, and criminal networks to utilize such technologies;…[and] an assessment of the use or planned use of such technologies by the Federal Government and critical infrastructure networks.”

Global Outlook: Defense and Blockchain

Several other nations besides the United States are also looking to adopt blockchain technologies in defense programs. For example, news sources have reported that Voentelecom, a telecommunication company that provides communication and integration services to federal executive authorities and the Ministry of Defense in Russia, is considering possible applications for blockchain in the Russian military.
Similarly, report published in a 2016 military journal proposes that China should also use blockchain for its ability to quickly distribute funds and protect sensitive data (i.e. personnel locations and weapons lifecycle statuses).
In 2018, there are still a few defense publications in China such as this one with a positive outlook on the potential applications of blockchain in defense.
In most cases, it appears that the current focus of potential applications of blockchain technology in militaries around the world is more defensive in nature. Essentially, data protection and accuracy seem to be at the top of defensive spending agendas when it comes to blockchain development.

Potential Long-term Impacts of Military Defense Research of Blockchain Technology

Currently, it appears that blockchain will play an increasingly prominent role in the future of military applications. Regardless, if military research and development ultimately have a direct benefit for defense applications, the general public could also see major benefits.
As we have seen in some past defense research and development programs, the gains of technological progress made by militaries are not limited to just the defense industry. Advancements in cryptography could ultimately benefit the security of the future Web 3.0 by protecting user data on decentralized social media platforms and allowing for greater security of cryptocurrency payments.
Even though it might be easy to think that governments will be extremely secretive about the technology behind such innovations, history has shown that this isn’t always the case. For example, SHA-1 and SHA-2, two of the most important cryptographic hash functions in the history of data security, were actually originally developed by the U.S. government.
So, not only does the defense industry benefit from blockchain technology. But with a new age of blockchain research amongst the world’s top military powers, we could realize the benefits of more secure blockchains on the public side as well.

This article by Delton Rhodes was originally published at "CoinCentral.com: https://coincentral.com/defense-industry-technology/

Monday, 18 June 2018

How Businesses Use Mobile Marketing to Their Advantage (Infographic)

appgeeks.org
Among the vast array of modern technologies that have changed the way companies handle marketing, one of the most prominent innovations are smartphones. Just think about how often do you check your smartphone on a daily basis.
The number of active smartphone users has surpassed the one billion mark and, according to research, people check their phones 80 times on average within 24 hours. This, in turn, gives marketers an excellent opportunity for advertising.
In a nutshell, mobile marketing is a multi-channel strategy which includes a wide range of activities that connect advertisers to a broader customer base through mobile devices and networks. This is excellent for marketers since it increases the value of the advertising that gets through.
On the other hand, when done right, this type of marketing provides customers with personalized information so that they can get what they need exactly when they need it, even on the go. Basically, it’s a win-win!
Being early adopters of this marketing trend gave many renewed brands a tremendous advantage over their competitors. Our team at App Geeks has created the infographic below where you can learn their mobile marketing campaigns, as well as many interesting facts that you didn’t know about the mobile takeover.

Wednesday, 13 June 2018

The First Business Model Blockchain is Upending: Payments

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The Payment Industry is a Business Model Blockchain Will Upgrade

Blockchain technology is providing the payments industry with the unique opportunity to upgrade their efficiency and security while lowering operating costs significantly.  The immutable and unalterable nature of this revolutionary technology makes it ideally suited to handle the demands of the payment processing sector. There has already been considerable effort put forth by major financial firms to integrate this game-changing protocol into the industry.
Already, the major credit card firms, Visa, Master Card, and American Express are working towards implementing a blockchain-based system to improve their current business models.  The advantages of blockchain technology are clear. At this point in adoption, companies that fail to join the “blockchain” train will get left at the station.  In other words, blockchain technology could soon be the new standard for the payments industry and if all goes as planned; the transformation could happen much sooner than you think.

6 Ways Blockchain Changes Payments

Blockchain technology is transforming business on a global scale. The payments industry is benefiting greatly from the integration of these two economic sectors.  The demand for blockchain-based services has grown so much over the last 5-years that blockchain providers such as HEFFX are flourishing in the market.  HEFFX provides companies easy access to blockchain-based protocols. Since its inception, this firm has seen steady growth as the benefits of a blockchain business model become better understood in the marketplace.

1. Increased Security

Cybercrime has become a plague to the internet over the last decade and analysts are predicting over $6 trillion in losses to be incurred by 2021.  Payment processors hold a lot of responsibility for protecting personal data and blockchain technology could help to keep your information safer in the future.
credit-card data breaches
Chart Showing Data Breaches of Credit Card Information
Blockchain transactions can hold an incredible amount of details including the date, time, amount, account profiles, smart contract agreements, and the list goes on.  All of this information could be used to verify your transaction and confirm your purchase.

2. Verification Services

Taken a step further a blockchain personal identification system could be integrated to allow for the authenticity of a payment’s sender, or receiver, to be confirmed.  Payment companies such as VISA report billions in stolen revenue due to unauthorized transactions every year. By switching to a blockchain-based system, they could eventually eliminate much of the fraud encountered due to hacking and identity theft.

3. Computer Breaches

Blockchain technology is nearly impossible to hack because of the decentralized nature of the technology.  A hacker would need to attack thousands of computers at the same time to alter one piece of code on the blockchain.  This makes it very cost-prohibiting for a hacker to choose this course of action.   Companies can gain additional client trust by selecting a blockchain-based business model.

4. Cross-Border Payments

The global economy is shrinking. Today, it is common for corporations to have to send large amounts of capital internationally.  Such cross-border payments can be an extremely cost prohibitive due to exchange rates and third-party verification fees associated with transferring large sums to a different country.  While these fees can be troubling for corporations, they can be debilitating for an individual attempting to send funds internationally.
Thankfully, the peer-to-peer nature of blockchain technology eliminates the need for any third party verification systems. A company can send $1 million worth of Ethereum just as quickly as an individual could send $10.  The streamlining capabilities of the technology are undeniable and precisely what the payments sector needs to curb the excessive waste the current business model possesses.
International Money Transfers
International Money Transfers

5. Cost Effective

A traditional fiat currency transaction can require the involvement of over 30 different third-party processing and verification systems.  Each one of these firms adds a small fee to the transaction.  A business model that incorporated blockchain technology could eliminate all of these fees while providing a more secure solution to the industry.

6. Blockchain Transaction Times

Not only is sending fiat currency expensive but it is also slow.  Depending on the amount and destination of your funds, you could be waiting for over a week to receive your money.  Considering that the average blockchain transaction takes under 20 seconds, the winner is clear.  Firms such as the African-based processor BitPesa allows companies to send money via the blockchain without the delays found in traditional fund transfers.

Growing Adoption

Blockchain is the #1 emerging technology of our time and all aspects of our financial sector will be changed thanks to this upending-technological advancement.  There is already a slew of cryptocurrencies that focus primarily on providing solutions to the payments industry. You can expect this list to grow over the coming years as the market continues to develop.
When speaking on blockchain integration into the payments sector, one would be remiss if they didn’t, at least briefly, touch on Ripple (XRP).  Ripple is a real-time gross settlement system that was specifically designed to provide banks access to the benefits of blockchain technology with affordable implementation cost.  It has become hugely popular since its release in 2012. Over the last year, Ripple has managed to secure partnerships with some of the largest financial institutions in the game including 61 Japanese banks, Santander, and MoneyGram – to name a few.

Upgrade the Current Business Model with Blockchain

Given the continued success of platforms such as Ripple, it is easy to see the direction in which the payments industry is heading.  Investors and financial institutions alike can benefit from the advancements brought to the payments industry through the integration of blockchain technology. Already there are numerous Ripple-like coins gaining momentum in the sector.
This article by David Hamilton was originally published at "CoinCentral.com": https://coincentral.com/the-first-business-model-blockchain-is-upending-payments/

Wednesday, 6 June 2018

The Must-Have Tools to Run Your Digital Agency Like a Boss

clicktime.com
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The key to running a successful agency is to not let it run you. Your job — in addition to providing great value for your clients — is to make sure that operations, billing, HR, etc., are working like a well-oiled machine.
We’ve put together a list of tools and technology to help you focus on the things that make your agency successful and stay focused on your customers.

Time Tracking Software

As a digital agency, it all boils down to how you and your team spend, bill, and manage time. While some agencies may have started with (or may still be using) an Excel spreadsheet to track hours, it can be quite painful to maintain accurate data — especially as you grow.
Because every minute counts in an agency environment, you'll want to get your time-tracking technology squared away quickly.
But, what are some of the things you might want in a time tracking platform? Let’s have a look!

Easy Timesheets

You want something that’s user-friendly for everyone on the team, and offers a mobile app, automated time tracking features, and easy-to-access reports and visual summaries of timesheet approvals and completion.
If it's not easy, your team won't accurately track their time.

Agency Insights

Tracking time worked on projects is simple. What is much more interesting, is how employee time affects agency operations.
Beyond just having visibility into how long something took and the associated billable hours, it's important to understand:
  • Employee utilization by person, team, and client
  • How actual costs stack up against estimates
  • How costs are allocated across different activities or groups
There are dozens of reasons why agencies should track time, and while it might not be the most enjoyable part of running a business, it's the most effective way to measure operations and accurately bill clients.

Employee Resource Planning

Knowing the capacity of your workforce is at the core of managing your projects and starting new ones.
Imagine how much more effective your agency could be if you had real-time visibility into employee capacity? Managing employee capacity is key to keeping costs down and knowing when to hire new team members.
That’s what resource planning software is designed to help you do.
While the specific features vary across platforms, the goal is the same: to streamline the management of your people and their hours. And the larger your agency becomes, the more important it is to properly understand and schedule future employee time.

Expense Management

How many expenses does your team submit each month? How much time does it take to enter the data, collect the receipts, submit them to Accounting or HR, and then reimburse employees?
If these questions are making you feel uncomfortable, it's probably time to move to a more modern expense management system. There are literally hundreds of different expense management software that can save your organization time and money, and reduce confusion around who can expense and approve various gifts, drinks, meals, mileage, etc.

CRM

Customer relationship management is critical to running a successful agency.
As your business grows, you'll need a system that will organize and manage the relationships with existing and past customers, as well as your prospects and leads.
CRMs are great for:
  • Storing and maintaining accurate customer information
  • Managing customer communications
  • Understanding and measuring customer engagement
  • Tracking billing and other payment history
  • Improving customer communications for your sales and customer success teams
Unsurprisingly, there's a wealth of great information about customer relationship management on the Salesforce website. 🙂
Also, to add on to the third point, it may also be a good idea to automate your social media for optimal engagement.

Project Management

Every agency needs to manage projects, and there are a number of simple project management tools that can significantly increase your employee's ability to get work done quickly.
Hubspot has a great overview of project management software that we recommend you check out!
Some of the more popular apps include:
  • Asana
  • Basecamp
  • Trello
  • JIRA
  • Office 365
  • Wrike
  • Wunderlist
Finding the right project management software for your business is not an easy task, but much like time tracking, it's an essential part of running an agency.

Team Communication

How do you communicate to your team throughout the day? In-person? Phone? Text?
At ClickTime, we're huge fans of Slack, which makes it easy to chat with anyone in your organization. Slack allows you to create specific topics or channels, which help guide discussions, and makes it easy to build simple integrations with your CRM, time tracking, expense management, and other software.

Monday, 4 June 2018

Google play app store optimization

By Michael Kordvani
Image result for google App store optimization
App store optimization is daunting. It is complex, it is tough, and chances are you will mess it up the first time. If you want to avoid all the hassle, we recommend you to hire a mobile app marketing agency, especially if you are in a pinch. We're not discouraging you, it's just how app store optimization is: tough and requires lots of practice.
Regardless of whether you have mobile app marketing services to do the hard work for you or you want to do it yourself – read on to find out how Google play ASO works because either way, you will need to know about what you are investing your resources in.

Keywords, keywords, and keywords
Image result for Keywords in ASOThe crux of any app store optimization whether it is the Apple store or the Google play store is the keyword selection. Start off by creating a spreadsheet to record your brainstormed ideas. To start off, write down any and every word that could be used to describe your app. Alternatively, you could use online tools such as Google AdWords for fresh ideas.
Find out what keywords your competitors are using. With more than 3.6 million apps in the Play store, chances are a lot of your brainstormed keywords will already be in use.
Take your keyword search up a notch by analyzing the reviews on apps similar to yours; the adjectives used to review those apps are what a user will most likely put in the search bar.
One keyword will always rank higher than the other. Mobile app marketing tools will help you out greatly in this step.

A/B testing
Image result for A/B testing
The mobile app marketing strategy doesn’t end with collecting rich keywords. In fact, you don’t even know if one keyword list performs better than the other. With such uncertainty, how is your mobile app marketing plan expected to succeed?
Through A/B testing, of course!
To explain briefly, A/B testing or split testing compares two versions of the app listing with each to find out which performs better or has higher conversion rates. It eliminates guesswork and confusion; whichever version of the two performs better, you keep that one and discard the less successful.
Best part? Google has its own A/B testing tool in the Google Play developer console. You can find out more on the Play Console help page.

Monitor
Image result for Monitor in ASOAre you achieving the goals you have set out? Keep track of key performance indicators to evaluate the success of your app store optimization efforts. The best mobile app marketing companies and mobile app marketing agencies regularly monitor their performance and evolve accordingly.

Lastly, don’t forget to read the reviews and feedbacks your users give you. Actively work on improving your app because no mobile marketing campaigns or mobile app marketing services can replace a great app. Remember, they can only boost it. 

Should Your Company Become a Blockchain Business?

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Blockchain technology is well-known for its ability to disrupt many of the world’s top industries. For consumers, oftentimes, this can be seen as a benefit. However, modern businesses can also benefit from blockchain technology. Previously, we discussed a few key ways blockchain can benefit the creation of new businesses as well as compared decentralized business models and centralized ones. In this article, we’ll look at some of the determining factors to help you choose whether or not it’s practical for your company to become a blockchain business.

Determining Costs and Practicality

Similar to considering any business spending, it’s essential to understand the costs and potential revenues of becoming a blockchain business. For smaller companies, it’s usually not all that practical from a financial standpoint to develop a completely customized enterprise-level technology. If history is any indicator, early adoption doesn’t always bring immediate benefits.
The rise of blockchain certainly draws many comparisons to the emergence of mobile phone apps around a decade ago. At that time, lots of companies saw the need for dedicated mobile apps for very specific use cases. Today, however, a vast majority of companies don’t have this same mentality. While there are plenty of companies that do still use and profit from the development of mobile apps, many didn’t see enough benefits or returns on investment. When considering whether or not your company needs a dedicated distributed ledger system or decentralized application (dapp), it’s important to spend according to anticipated user adoption and not just because you see blockchain as the latest trend.
As mentioned in our post about crypto trading, FOMO is a big issue to overcome. This applies to not only cryptocurrency investors but also businesses who think it’s a must to develop large-scale blockchain projects or even create their own cryptocurrencies. In a lot of instances, it might not be beneficial to go this route.

Becoming A Blockchain Business: Adoption Is the Key

While it might be difficult for some businesses to realize the immediate positive impact of blockchain adoption, it’s essential to consider the long-term possibilities. As we discussed in an article about blockchain and the autonomous trucking industry, many traditional sectors of the economy are already beginning to see the impact of blockchain technology even after its initial implementation. Similar to B2B SaaS, you don’t necessarily have to have one million customers to realize the benefits of blockchain either. 
For many small businesses, blockchain can be a game-changer. For example, blockchain can help small companies better organize the work of internal employees to maximize time, energy, and resources. Shipping logistics, inventory management, and sales analytics could all see vast improvements thanks to blockchain. This could potentially benefit everyone, from solopreneurs to top companies like Amazon. Companies of all sizes in healthcare, real estate, and other major economic sectors could also see improvements driven by blockchain technology.
blockchain business

Increasing Practicality

If you’re an small business owner, you might be thinking that blockchain seems like a good solution, but think it’s impractical or too costly to implement. This might be the case in May 2018 but will likely not remain that way for very long. Think of the adoption of any new technology, from physical products (flat screen televisions, graphics chips, smartphones) to digital products (cloud storage, B2B SaaS, etc). All of these technologies have experienced similar development patterns. Initially, all were pretty costly to create.
Most of the time, the quality wasn’t all that good for the amount of required capital investment. After just a few years, markets typically became increasingly competitive. Most importantly, the technology behind the products became more innovative. In turn, this lowered costs.
Blockchain could very well follow the same development pattern. While being an early adopter important, it’s important to note that investing too much now can mean less budget flexibility in just a few years from now when the technology becomes not only cheaper but also much more accessible and higher quality.

Look at Easy-to-Implement Market Solutions First

For those companies that don’t have the resources or need to build their own customized technology to become a blockchain business, there is an increasing number of solutions looking to provide businesses with the tools necessary to build applications without needing much technical knowledge.
Many blockchain projects already allow businesses to create their own smart contracts, increase file storage space, and much more fairly easily. These implementations can also be done at lower costs and will allow your business to decide whether or not implementing blockchain solutions is practical or even necessary.
We are already beginning to see organizations emerging to bring together traditionally independent lines of work for the common cause of developing beneficial blockchain technologies. From groups like ALLi for authors and BiTA for trucking companies, it’s clear that new industries are beginning to not only advance the mission of blockchain in general but also make it much more accessible even for both individual workers and smaller companies.

Conclusion

Even if you might not currently see how blockchain technology could benefit your business, it’s clear that many changes are already in the works. Being an early adopter is good, but only if you have a well-planned strategy on how such investments could lead to solid direct financial (or time optimization) returns. It’s important to realize that blockchain might not have a big enough potential impact on your current business to make it necessary to change business models or invest in expensive solutions.
Regardless if this is the case or not, you should consider looking at some industry-specific organizations and projects that are looking to promote the development of blockchain that could be applied to your business. For some businesses, quicker implementation could be the most beneficial strategy. For others, it might be better to wait until the technology becomes more accessible. Oftentimes, the best solutions are already available on the market. Some of these solutions are actually the easiest and cheapest to implement. 
This article by Delton Rhodes was originally published at "CoinCentral.com": https://coincentral.com/should-your-company-become-a-blockchain-business/

Tuesday, 29 May 2018

Don't Scale an Unprofitable Business: Why Unit Economics (Still) Matter

www.toptal.com
BY TOBY CLARENCE-SMITH - FINANCE EXPERT @ TOPTAL

Executive Summary


Unit Economics Measure the Intrinsic Profitability of a Company
  • Unit economics are a measure of the profitability of selling one unit of your product or service.
  • The way in which they can be calculated vary according to how one defines a unit, but if a unit is defined as one sale, then the commonly associated metric is Contribution Margin, whereas if a unit is considered as a customer, then the most relevant metrics would be Customer Lifetime Value (CLV) and its relationship with Customer Acquisition Costs (CAC).
  • The key distinction from other, more traditional measures of profitability is that unit economics only considers variable costs and ignores fixed costs.
  • In so doing, unit economics can help determine the output level at which a business must be operating at in order to cover its fixed costs. As such, unit economics is a fundamental part of breakeven analysis.

Including All Variable Costs Is Key to Getting the Analysis Right
  • The most common mistake related to unit economics is omission of quasi-variable costs from the calculation.
  • Variable costs are those that are directly tied to sales, and that therefore vary with output.
  • While some variable costs are obviously so (e.g., COGS, shipping and packaging costs for eCommerce companies, sales costs for enterprise/B2B startups), many are not quite as clear and often get archived as fixed costs mistakenly.
  • Examples of such quasi-variable costs could be: customer service representatives, the cost of returns, technology costs, etc.
  • In doubt, founders should err on the side of caution and include as many costs as possible in their unit economics analysis in order to avoid unwanted cash burn surprises.

Absolute Numbers Matter
  • Another common mistake is focusing on profitability margins and CLV/CAC ratios without remembering that the absolute numbers underlying these calculations still matter.
  • Higher ticket sizes, and therefore higher absolute profits, will help companies grow more easily into their fixed cost base, which are often similar regardless of the ticket sizes involved.
  • This is especially true since in reality there is no such thing as a fixed cost. All fixed costs vary with output to a certain degree, meaning that very small absolute profits make it more difficult to catch up with fixed costs as output grows.

Scaling Unprofitable Businesses Doesn't Make Sense
  • With the frothy market conditions, the amount of founders pitching businesses that are unprofitable on a variable cost basis has increased dramatically.
  • Banking on improvements of one's unit economics with scale is a risky strategy. Prices are sticky, customers are less loyal than one might hope, and cost rationalization becomes difficult once company processes and teams have been in place for a certain amount of time.
  • The whole point of unit economics analysis is to show profitability on a variable cost basis so that one can foresee a credible path to profitability. It's fine for startups to lose money at first, but there needs to be scope to grow into a company's fixed cost base. If a company loses money before fixed costs, the scope to do so is far more limited (if not impossible).

Study Your Unit Economics to Maximize Your Chances of Success
  • Hire an interim CFO to help assess your business' intrinsic profitability prospects, and more importantly, how you can improve your chances of breakeven. The best investors will look out for this type of analysis, making your chances of raising funding far greater.
In 2010, 20 venture capital funds had invested in the then-nascent on-demand space. Over the following five years, that number exploded to more than 200, with “Uber-for-X” businesses cropping up in almost every single vertical imaginable. One of the most prominent verticals in the on-demand space was food delivery. Some companies (DoorDash, Postmates, Caviar) delivered food from restaurants that didn’t have their own couriers. Some (Spoonrocket, Sprig) made the meals themselves. Others (Munchery, Blue Apron) delivered meal kits that were either ready to be heated, or had to be cooked by the customer. Whatever the spin, the concept was simple: Allow customers to order food via an app, deliver it (relatively) fast, sit back, and watch the business scale.
But as is often the case, the hype wore off, and soon many of the well-funded startups started to shut down. The New York Times proclaimed the “end of the on-demand dream” while Pandodaily chronicled the coming “food-pocalypse”. In a May 2017 article, Quartz quipped “For years now, we have been living in a golden era of VC-subsidized meals. As startups piled into the food delivery space, they showered customers with coupons and promotional offers made possible by generous investor financing…[But] It seems that in the end people were less excited about the speed, convenience, and slick interfaces…than they were about having their meals delivered for absurdly low prices. In that sense the last three years have been less an innovation than a giant wealth transfer, from the VCs and startups they funded to the lucky consumers who got a free lunch along the way.”
US food delivery startups' first fundings and subsequent exits
What happened? Usually, the reasons why startups shut down are many and varied, but in this case it seems fairly clear that one reason stood out above them all: poor unit economics. On-demand food delivery startups were simply not profitable and couldn’t make their business models work, even at scale.
In an age when profitability is almost a dirty word amongst startup founders, the fate of the food delivery market should serve as a useful reminder that profit margins, even in Silicon Valley, still matter. Legendary venture capitalist Bill Gurley said so himself, in an ominous interview in 2015: “One thing that happens in Silicon Valley—and this has been highly cyclical—the more we get into peak-y [valuations] territory, the more optimistic we get about business models that are lower margin.”
But investing in and scaling unprofitable businesses doesn’t make sense. If a business loses money on every sale, then growing that business will only increase the amount of money that is lost. And yet I am continuously surprised by the number of founders who fail to internalize this. Having founded and sold an eCommerce company, and then moved over to the investing side, I see time and time again how startup founders embrace the “scale it first, make it profitable later” mentality without spending any time thinking about whether their business can actually ever be profitable.
The point of this article is to call attention back to this, and in particular to one of the most useful ways startup founders can think about their business’ potential profitability: unit economics. By running through some of the biggest issues I’ve encountered, I hope to impart some useful information, not just so founders can improve their prospects of fundraising, but more importantly so that they can make informed decisions about whether they should really be investing years of their lives at extreme personal and financial cost into businesses that might never make any money.

What Are Unit Economics and Why Are They Important?

Simply put, unit economics are a measure of the profitability of selling/producing/offering one unit of your product or service. If you’re a widget company selling widgets, the unit economics will be a relationship between the revenue you receive from selling a widget and all the costs associated with making that sale. For companies offering a service, for example Uber, the unit economics will be the relationship between the revenue from their service (e.g., one taxi ride) vs. the costs associated with offering and servicing the customer.
At a high level, the point of unit economics is to understand how much profit a business makes before fixed costs so that one can estimate how much a business needs to sell in order to cover its fixed costs. Unit economics are thus a fundamental part of breakeven analysis.
For startups who are still in growth mode, this sort of analysis is crucial. It charts a path that the company can follow in order to wean its way off external equity funding. Figure 2 below displays this graphically. As volumes increase, profits before fixed costs (named “contribution” in the chart) tick up and to the right, eventually crossing paths with the fixed cost line. The point in which they cross is the breakeven point.
Charts of graphical representation of contribution margin on the left and graphical breakeven analysis on the right
Going deeper, there are two ways one can approach the calculation of unit economics, and the key differentiating factor is how one defines a unit. If one were to define a unit as one item sold, then the unit economics becomes a calculation of what’s commonly referred to as the contribution margin. Contribution margin is a measure of the amount of revenue from one sale that, once stripped out all the variable costs associated with that sale, contributes toward paying fixed costs.
Contribution margin = Price per unit - variable costs per unit
If instead one defines a unit as one customer, then the commonly calculated metrics are customer lifetime value (CLV) and its relationship with customer acquisition costs (CAC). In essence, these are the same as contribution margin, in that they express the profitability of one customer vs. the cost of acquiring said customer. But the main difference is that they are not fixed in time. Rather, CLV measures the total profit generated by a customer throughout the lifetime of that customer’s relationship with the company. The reason this is important is that startups naturally have to invest in acquiring customers, often at a loss on the first sale. But if the customer makes multiple transactions with the company in time, the company will be able to recoup, and hopefully make a substantial return on the initial investment.
A more detailed explanation/tutorial of what unit economics are and how to calculate them are beyond the scope of this article. But for those who are new to unit economics and how to calculate them, here is a good introductory post on contribution margin, and here are two on CLV and CAC. The latter are admittedly more focused on eCommerce, but the general principles stand for any business. And in any case, the web is awash with tutorials on how to calculate these metrics. For those who want to really nerd out about unit economics, I recommend reading Peter Fader’s work, widely considered the guru on the subject (and incidentally, my old business school professor).

Common Mistakes Founders Make with Unit Economics

To be fair, most founders do have a basic understanding of unit economics and usually include this as part of their conversations with investors. Many startups in fact focus their entire value proposition around improvements in the unit economics of their vertical, common examples being the direct-to-consumer startups that we recently covered in a fascinating article on the mattress industry.
But what has often surprised me is the level of superficiality with which founders in many cases approach the subject. They do the analysis because they have to, but don’t really internalize what unit economics aim to assess and why they are important. In particular, I’ve encountered three common sets of mistakes that founders make, and I’ve chosen to address these in greater detail in this article. (n.b., There are a surprisingly high number of investors who also don’t understand these principles.)

Understanding Which Costs Are Truly Fixed vs. Variable

By far, the biggest mistake people make when performing unit economic analysis relates to the cost side of the equation. As we saw above, whether you’re simply calculating your contribution margin or whether you’re doing a more ROI-based CLV/CAC analysis, a vital part of the equation is what costs you choose to discount from your revenue. In principle, the rule is simple: Unit economics only considers variable costs, not fixed costs. But in practice, the distinction between fixed and variable costs is often not so straightforward.
The textbook definition of a variable cost is that variable costs are those directly associated with sales. Variable costs therefore vary according to the volume of output. Common examples of variable costs are cost of goods sold (COGS), things like shipping and packaging costs for eCommerce startups, or sales costs for enterprise/B2B startups.
But while some costs are obviously variable, others aren’t quite as clear-cut. The cost of providing customer service is a common area of confusion. For many startups, the ability for customers to speak to a customer service rep is crucial, and thus becomes a vital part of the sales process. In such situations, customer service should be accounted for as a variable cost, especially since the size of the customer service team will naturally expand as sales volumes expand. The growth in customer service may not be 1:1, but the relationship is there, making this a variable cost that must be accounted for in unit economics analysis.
There are a multitude of other “quasi-variable” costs that often get mistakenly archived as fixed. For eCommerce companies, for instance, the cost of returns is a good example. Since many eCommerce companies offer free returns, and since all will have some level of returns per X number of sales, this therefore becomes a variable cost that again must be included. Technology costs are another example. There are many types of technology costs (e.g., server costs, software costs) that vary as sales and output increase.
Being thorough about including all variable costs in an analysis of unit economics is vital because this can make a very material difference to the breakeven scenarios. Let’s look at an example to illustrate the point. Sofas.com is a fictional company selling sofas online. Their contribution margin calculation is shown in the table below. As one can see, sofas.com has a fairly straightforward business. For each sofa it sells, the company incurs four standard variable costs: COGS, shipping and packaging costs, and the payment processing costs of the payment provider it uses (e.g., Stripe or PayPal). With these variable costs, sofas.com seems to have a very healthy contribution margin of 38%. Assuming fixed costs of $50,000 per year and a linear growth trajectory, they would break even somewhere in Year 2. Not bad.
A table of unit profit and loss for sofas.com on the left, and a graph representing time to break even for sofas.com on the right
But if we now include other variable costs such as customer service, returns, and server costs, the picture changes substantially. The company’s breakeven moves out by two years!
Updated versions of the previous table and chart
My suggestion to founders, when in doubt, is to err on the side of caution. Include as many costs as you can in your unit economics. That way, you’ll only receive positive surprises rather than the other way around. It also forces you to pay attention to costs that you’d otherwise never think about since in the first two to three years you’ll spend little time thinking about fixed costs. If you mistakenly account for certain costs as fixed, you’ll find yourself further down the line struggling to understand why you’re cash burn isn’t looking like what your business plan was projecting (trust me, I’m speaking from experience).

Absolute Numbers Matter

Another common mistake founders make in their unit economics analysis is forgetting that absolute numbers matter. It can be tempting to focus exclusively on contribution margins as percentages or on CLV to CAC ratios. But the point is that larger absolute numbers tend to be very helpful! A large share of a small number may end up being less than a small share of a large number, and that matters when the fixed costs involved are the same in either scenario.
Let’s stick with sofas.com as our example to illustrate the point further. Imagine that sofas.com is just getting started, and has decided to only sell one type of sofa to begin with. The first option is a compact sofa made with cheaper fabrics that retails at $500. Management believes this will retail well with younger professionals who are just moving into their first apartment. The alternative would be to sell a much larger L-shaped sofa made from premium fabric which retails at $900 but only appeals to a smaller set of wealthier customers. The compact sofa has gross margins of 55% because the supplier is based overseas, whereas the larger sofa has much lower margins of 40% because the supplier is local and much of the work is done by hand. Given the larger margins and the bigger addressable market, sofas.com may be tempted to choose the compact sofa to start. But what they’re forgetting is that their fixed cost base is going to be exactly the same in both scenarios: they’re going to need the same size of office and the same size of team. Even accounting for a larger volume of initial orders and higher growth for the compact mass-market sofa, sofas.com may be better off selling the larger, more expensive sofa.
Side by side charts showing the breakeven point comparison for high-margin, low ticket products versus lower-margin, high ticket products
The overarching point about absolute numbers being important matters especially because in reality, there is no such thing as a fixed cost. Over the long term, all costs are variable. They just vary at different rates and on different schedules. Consider the cost of an office, the most commonly cited fixed cost: while the office may do for several years, as a businesses grows, it will at some point need to expand to larger offices. Same thing with supposedly fixed costs such as the size of your tech team. Just compare the size of the tech team at a large, Series C funded tech company versus a small Series A funded one. I guarantee you that the Series C funded company will have a considerably larger tech team.
Side by side charts showing the break-even point comparison for high-margin, low ticket products versus lower-margin, high ticket products
So if fixed costs are never really fixed, selling products or services with large ticket sizes and therefore larger absolute profit numbers helps add more cushion to support the fixed cost base, making the promise of profitability that much more tangible.

Not All Cash Burn Is Created Equal

The third big issue I see related to unit economics is more fundamental, and pertains to a misunderstanding of the principles behind cash burn in startups and growth businesses. Taking a step back, why is it acceptable to burn cash? Why would VCs fund unprofitable businesses? Why would founders invest their time and energy into businesses that don’t make money?
There are fundamentally two reasons why it makes sense for both parties (management, investors) to back an unprofitable business.
Level up: The first acceptable scenario is when there has been an investment into a fixed asset (say, a piece of expensive machinery or the salaries of an expensive team) that makes the business unprofitable at its current output levels but allows the business to grow to a much larger output level than it otherwise would have been able to operate at. When the business eventually reaches this larger output level, it will be very profitable, perhaps more so than prior to the investment. In other words, you level up.
Go faster: The second reason is that both parties may simply be interested in reaching larger levels of output more quickly. The business could reach those output levels organically on its own, but it would take much longer. If management is willing to sacrifice part of their ownership in their business to go faster, then it’s a mutually beneficial arrangement for both parties.
Looking at the scenarios above, both imply investments, and consequently increases, in the fixed cost side of P&L, rather than the variable cost side. So burning cash because your business incurs larger fixed costs than your contribution or operating profit can sustain can be acceptable so long as there is a realistic path of growth and that, at some point, your contribution/operating profits will exceed the fixed costs and the business model makes sense again.
If you look at large public (or even private) companies, none of them do unit economics analysis (at least not publicly. They may do so internally but for reasons that are beyond the scope of this article). They do financial analysis the old-fashioned way, using P&L statements, cash flow statements, etc. The reason is simple: For larger, more established companies, the distinction between fixed and variable costs is irrelevant. They need to cover their costs, no matter what type they are.
Unit economics analysis exists precisely because startups turn this on its head and instead embrace a strategy of cash burn in the initial years to reach profitability later. But how do you show an investor that your business, which is burning cash now, will at some point stop burning cash? Unit economics. Unit economics analysis can illustrate in a clear and believable manner that your company is intrinsically profitable, and that you just need greater volume to cover your fixed costs.
With all this in mind, it baffles me when I see pitches for startups that are not profitable (or barely) on a variable cost basis. Showing a unit economics slide that omits key costs, or worse still, that is negative, completely defeats the purpose of such analysis.
To be fair, there are certain situations in which razor thin (or even negative) contribution margins might make sense. Here are some:
  1. Economies of scale: There are situations in which sales volumes make a material impact on your unit costs. An example would be in COGS, where retail businesses typically receive far more favorable terms from their suppliers at larger output levels.
  2. High ROIs on marketing: Certain businesses reap substantial returns on the acquisition of new clients over the lifetime of such clients. Investing in marketing, and thus losing money on a unit basis at first, may make sense so long as that investment returns significantly more in time. One needs to be sure about the ROI of this marketing expense, and CLV/CAC analysis is one way of assessing whether this strategy may make sense.
  3. Investing in customer service/loyalty: Similar to the above, certain businesses may be able to run thin margins on their first sale to a customer, because doing so creates loyalty and therefore increases the ROI of that customer.
But the above are all much riskier strategies than if your business had strong unit economics. So many things can go wrong. Customers are never as loyal as you think. Your ability to upsell or increase prices is far more limited than you might expect, particularly if you’ve acquired customers on the basis of discounted offerings, making them more sensitive to price than you’d like. Cutting costs and replacing people with technology is much more complicated than you anticipate. All of the common defenses of poor unit economics are relatively weak, and building your entire business case on these is a very risky path to take.
If you don’t believe me, here are some very well-respected and knowledgeable people who think the same.
“One of the jokes that came out of the 2000 bubble was we lose a little money on every customer, but we make it up on volume…There are now more businesses than I ever remember to explain how their unit economics are ever going to make sense. It usually requires an explanation on the order of infinite retention (‘yes, our sales and marketing costs are really high and our annual profit margins per user are thin, but we’re going to keep the customer forever’), a massive reduction in costs (‘we’re going to replace all our human labor with robots’), a claim that eventually the company can stop buying users (‘we acquire users for more than they’re worth for now just to get the flywheel spinning’), or something even less plausible…
“Most great companies historically have had good unit economics soon after they began monetizing, even if the company as a whole lost money for a long period of time.
“Silicon Valley has always been willing to invest in money-losing companies that may eventually make lots of money. That’s great. I have never seen Silicon Valley so willing to invest in companies that have well-understood financials showing they will probably always lose money. Low-margin businesses have never been more fashionable here than they are right now.”
– Sam Altman, President, Y-Combinator and Co-chairman, OpenAI, Unit Economics
“There’s been a lot of talk coming out of silicon valley lately about fast growing companies with high valuations that are going to face problems in the coming year(s). But how is this going to happen? The most likely scenario is the thing that has been driving growth (and valuations) for these companies ultimately comes home to roost. And that is negative gross margins. We have seen a tremendous number of high growth companies raising money this year with negative gross margins. Which means they sell something for less than it costs them to make it….Why would [they] take this approach? To build demand for the service, of course. The idea is get users hooked…and then…take the price up…
“The thing that is wrong with this strategy is that taking prices up, or using your volume to drive costs down, in order to get to positive gross margins is a lot harder than most people think….
“[M]ost of the companies out there who are growing like weeds using a negative gross margin strategy are going to find that the capital markets will ultimately lose patience with this strategy and force them to get to positive gross margins, which will in turn cut into growth and what we will be left with is a ton of flatlined zero gross margin businesses carrying billion dollar plus valuations.
– Fred Wilson, Co-founder, Union Square Ventures, Negative Gross Margins
“It’s like the old adage, [when you’re] handing out dollars for 85 cents, you can go [infinitely]…Chosen unicorns are being given hundreds of millions of dollars, but you have to ask how much margin is there. The unit economics would be very difficult, I’d think…It’s like, the last time, all this Postmates and Shyp stuff happened [in] ‘99, with [the failed online delivery startup] Kozmo, [and] it’s the same shit. It’s the same shit…The question for all of those things has to do with core economics that’ll be proven out over time.”
– Bill Gurley, General Partner, Benchmark Capital, Interview
Editor’s note: Shyp has since shut down ($50m in funding, valuation of over $250m), and Postmates has been through severe funding struggles.

Don’t Scale an Unprofitable Business

Hopefully the message I’m trying to pass on is clear. If not, perhaps the story of one of the many failed on-demand food delivery startups may help drive the message home. Bento, a startup launched in 2015 that delivered customizable “bento boxes,” raised $2 million in seed capital after an on-stage pitch at one of the more popular startup events in San Francisco. But only a few months after they launched, Bento realized they were burning 30-40% more cash than they had originally anticipated. It was strange, because the company was growing at an incredible rate of 15% per week. After looking at the numbers in greater detail, the answer became clear: Bento was selling their boxes for $12, but it was costing them $32 to make each box. Factoring in the costs of the kitchen staff, the equipment, the ingredients, the drivers, and so on, Bento was losing $20 on every sale.
Running out of cash fast, Bento managed to cobble together $100,000, embark on a rigorous cost cutting exercise which included firing all the kitchen staff and pivoting the business to a catering model. But the new model came with a new set of problems. “It went OK, it grew, but it didn’t grow like crazy,” founder Jason Demant recalled. “I think what ultimately happened is we traded one problem for another, while operationally and from a unit economics standpoint it was better for the business, it was less appealing from a consumer perspective…It still wasn’t enough. While we hit profitability toward the end of the year, margins were thin, we didn’t have a budget to hire a management team or do R&D and really burned through our capital.” Bento eventually shut down in January 2017.
Reflecting on the experience, Demant conceded “I mean, it’s almost a little embarrassing—because I should have been watching [operation costs], especially in an operationally-intensive business like this…What we have learned in the last year basically tells us the way that we started the business was f***ing stupid.”
Don’t scale an unprofitable business. Study your unit economics, make sure you’re contribution margin positive, and keep a close eye on your variable costs.

UNDERSTANDING THE BASICS

How do you calculate the economics of one unit?

There are two main ways to calculate unit economics, and the method one chooses depends on how one defines a unit. If a unit is defined as one sale, then contribution margin is the most common metric. If a unit is defined as one customer, then customer lifetime value is the commonly associated metric.