This post originally appeared on Charlie’s blog.You know what they say: “The best laid plans…”
Over the last week, I’ve sat down with a handful of entreprenuers and given the same advice–to construct the fantasy model. Yet, we know very well that the most thoughtfully constructed cashflow models and hockey stick traffic predictions never come out the way we thought they would, so what’s the point of making them at all?
When we launched Path 101, the startup I worked on for two years, my board suggested building a traffic model, including a detailed funnel. That felt pretty pointless because I was taking a shot in the dark–trying to figure out how many questions a user might answer or per cent of users that would upload a resume. What Hunter Walk, our board member and investor, said was that it wasn’t about getting it right, but it was to anchor the conversation about the results–and to give ourselves a frame of reference to think about it.
It forced us to but together our best guess of what would happen, and when that wasn’t the case, it helped us structure the conversation of how reality turned out to be very different. We realised that many more people came to the site through the Q&A section than we realised–and so we redoubled our efforts to convert people from that section to the personality test, which also converted higher than we thought. With this framework, we could continuously measure our results and test our hypothesis.
A lot of people try to launch and just see what happens. Inevitably, they wind up in “screw tightening mode”, which is what I call it when there’s no overarching strategy for where the product needs to go, so you just wind up tinkering on a lot of small things.
The other major goal of having a plan is to reverse engineer a milestone. Putting pen to paper is an important exercise to figure out how exactly you’re going to build up to that half a million users, profitability, or 50 enterprise customers signed. Sometimes, it’s easier and more obvious to figure out what the end goals are for a period or a specified amount of money, but less clear how you’re going to get there. If you don’t take the time to figure out if those goes are even feasible through a model–even a very basic one–your chances of getting there are akin to buying a lottery ticket. The last thing you want to do is raise an funding round and then realise that your goals were unachievable–or even worse, acheivable with just 20% more cash. You never want to come up just short–sliding into second base three feet short of the bag Willy Mays Hayes style.
Supporting a business goal is the other key aspect of model building. You may be able to drive a ton of traffic and a ton of new customers, but can you keep them? What does this business need to look like at that level of operations. What will drive your costs? Successful companies often wind up in the “Oh shit, it’s working” phase because they never attempted to figure out what it would take to actually support a hypergrowth business and where the pain points would be. This includes hiring ahead of time before you wind up with everyone in the business doing eight jobs intead of the usual three for a startup.
The final aspect of building the completely wrong plan that everyone knows will go very differently than we think is to get the team on board, especially with it’s investor base. If you’re planning on using 50% of this round for PR, let’s flush that out right now and have a thoughtful conversation about whether that’s a good use of capital. We should be spending our time on the most important and impactful decisions–and having a plan to speak to helps us figure out what those are. There’s no point talking about our marketing strategy in today’s meeting if there’s no marketing head or dollars in the plan for the first six months while engineering is staffing up and there are no major marketing to-dos in the roadmap during that time.
So, just because we know your forward plan will be completely wrong doesn’t mean it isn’t worth writing up anyway–if nothing else than to confront yourself to look in the mirror to say, “If this works, I’m going to be running a 25, 50, or 100 person company a year from now… am I ready for that?” I hope you are, and good luck!
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