Mon, Nov 14, 2016
Exponentials are truly everywhere. Not just in technology (hello Moore’s Law) but in pretty much every revenue projection in the business plans for tech startups these days.
Now there is nothing wrong with predicting that your revenue will roughly double each year — where you get into trouble is when you can’t show the appropriate cost side of your P&L.
Sadly I see this over and over again: Pitch decks claiming revenue growing from close to zero to $20+ million within a few years. At the same time costs stay suspiciously flat…
Every better investor will start asking question.
Of course you don’t want your costs grow at the same rate as your revenue — but believing that you can run a $20M operation with the same (or close to same) amount of staff and technology as a $250K shop is just naive.
When you put together your financial model think holistically what it will take to service the projected revenue. Think about your technology, your engineers, customer support and all the infrastructure you need to make this happen (20 people need a much bigger office than 3 for example).