Flight Instruments is a new series from High Alpha about different tools, models, techniques, products, and resources that startups can use in their research, operations, and planning.
Today, we’re covering the “Nautilus,” a tool we use at High Alpha to describe the potential of a business through big ARR goals and milestones.
The name comes from the creature you see to the left, which is an ancient member of the cephalopod family Nautilidae. The creature has a really interesting anatomy where the shell has several chambers that grow over time, starting off very tight in the middle and expanding over as they move outward.
Similarly, the Nautilus is a tool we use to talk about many facets of a business such as the product, pricing, market, and more as a business scales. It gives an incredibly quick snapshot into a business plan, while balancing the MVP/low-hanging fruit and the overbearing large vision of an idea well.
In the example above, you can see that there are four significant thresholds that we use in our Nautilus — $100K, $1M, $10M, and $100M. These are all revenue/ARR figures that are typically good benchmarks for major success such as MVP creation, product-market fit, scale-up business, and ultimate enterprise size. However, each of these limits is fairly arbitrary and this model can be expanded or shrunk depending on your business and how particular your planning wants to be.
As an example, if you want to build out a very specific plan to get to a Series B or C round, you may have delimiters of $100K, $500K, $1M, and $2M. This model can also have much more than just four delimiters. The power of the model also lies in its ability to flexibly use different aspects of comparison. Above we show customers, market, team, and product, but these fields can be replaced depending on the circumstance of the business.
The power of the model also lies in its ability to flexibly use different aspects of comparison.
The model can be as specific or general as you’d like depending on need. We typically stick to a simple 4x4 model with the delimiters increasing by 10x and using the product, market, team, and customers as our fields.
Now that we’ve looked at the basic anatomy, let’s talk about the specific fields in the model.
The Market
For the Market, we typically like to detail the specific customer profile we are looking for. This may include details like industry, size, tech stack, age, location, etc. for us to understand where this product can fit in initially and as it scales. Beyond this, we also tend to look at the market size of those customer profiles.
This is a critical part of the model because if the ideal customer changes over the stages, it has significant implications on the product, go-to-market, and operational approach of the company.
The Customers
The customers is usually a simple top-down calculation of how many customers we would need to sign in order to reach the revenue number that we’re looking for ($100K, $1M, $10M, and $100M). This is where we also begin to think about our initial pricing. We can adjust our pricing to see how the annual contract value changes. We typically want to build products where the ACV increases over the life of the business, which makes the amount of customers that increase marginally decrease. This also gives you further room for expansion ARR in your existing customers in the future.
Beyond this, we start to consider the distribution method for the product. We look at buyer personas, distribution channels we would need to use (inside sales, field sales, channel, etc.), and potential partnerships that could help. This directly feeds into the next category:
The Team
One of the most important factors for us to consider when building a business is the make-up of the team. The first 10 hires of a business are critical and tell a lot about the approach of a business. As such, we craft our teams around what is needed. For example, a company that’s incredibly technical may need to load up on engineering talent and R&D headcount. For simpler ideas, we may push into marketing and sales more quickly in the lifecycle. At the same time, we try to foster balance and create strong organizational structures to have the most simple version of a hiring plan.
The Product
Finally, we have the product. Here we detail in product features, integrations, new product lines, product expansions, etc. that the company many need to have in order to find success within the certain revenue delimiter. As the company scales, its product offerings and the scale of the idea may change significantly. The most important part of this section is to balance the MVP (what you can get away with selling) and the big vision that the company can fulfill (a $100M+ ARR business).
Having all of these tools together provides a nice starting canvas for how a business can scale and evolve over its lifecycle. At High Alpha, almost every single one of our ideas and concepts receives a Nautilus as a test to determine a lot of important facets of the business in a quick and easy-to-digest format. The Nautilus is meant to be a quick snapshot planning tool and not a definitive hiring plan, financial model, product roadmap, or customer segmentation chart. Those other highly-valuable resources will be covered in the future, so stay tuned for the next Startup Flight Instruments coming soon.
