I was asked to review the financial projections of an Internet start-up recently, by its CEO. He said his projections were scaling so fast that no one would believe the numbers (or him). He needed to be “more rational” about the growth of the company, but was certain the assumptions of his business model were real.
To get your projections more realistic, but still hold true to your business model, it is best to reduce your assumptions, allowing the world to interfere with your planned scenarios. This allows you, as a CEO, to acknowledge that your “best laid plans” can easily run into market conditions you can not anticipate.
So, what to fix? Here’s a list.
- Reduce the rate of adoption of your product/service.
- Increase the rate of attrition of your customers.
- Decrease the rate of conversion of “free” to “premium” customers (if you have that model).
- Decrease the time of the conversion of “free” to “premium” customers (if you have that model).
- Add significant time (double?) to your ideas about the “time to market” of new features and benefits.
- Add significant time to the receipt of subsequent revenue from adoption, conversion and retention of customers, and from their “upsell” to new features, benefits and versions.
- Add 10% -15% (or more) to all costs.
This is a path to rational financial planning. You can sustain your inherent business and revenue models, and the vision of the greatness of your product and company. What needs to be rational is the efficiency of your execution.