Guess, guestimate, estimate, cash.
Getting used to uncertainty when bootstrapping
When starting something new in business, whether it is launching a new product, entering a new market, or a beginning your journey as company founder/owner, it always involves a lot of unknowns. Unknown costs, imagined co-workers, dreamt of sales. These cost and revenue numbers are unknowns that together define the future success of the business, and they need pinning down before you waste too much of your own time or cash.
Many, many people like you face real fears of looking into the future and putting a number on it. You might be thinking “how do I know how many items are going to sell?”, when no-one has the same product as you, where the competition lacks that special touch, when you are creating a whole new product category?
Sometimes you might be required to do just that, put a number to it. People such as funders, banks and investors will ask and sometimes as a founder I am also curious about how successful my new idea and product is going to be as a business before I put the time in.
This level of uncertainty often stops people planning sufficiently, doing those things which will lead to a successful, sustainable and investible business.
Guess, guestimate, estimate, cash.
With my clients I work to build confidence in new financial models with 4 stages. I call them guess, guestimate, estimate, cash. Your aim with your financial model, is to strengthen your confidence in the numbers, from a guess to numbers that will turn into reality. From a guess to cash.
Guess: that’s it, the first number is often a real guess. You may not have a whole lot of experience with numbers or your market. It is a number plucked from the air. It is a start.
Guestimate: you’ve had conversations with suppliers, with buyers, with people who might pay money for your new product or service. You’ve researched how many of the inferior competitive product was sold in the first 6 months, pieced together from conversations, magazine articles or company accounts. It is now a qualified number. It is better than a guess, but it may be exactly the same number as the guess that you first wrote down. But now you have more confidence in it.
Estimate: you’ve sat down with someone or spoken to them in depth about your new product, and they’ve given you a competitive and inclusive quote. You’ve spoken to two more people by phone and they have also given you a proposal. You have spoken to two or three retail stores or buyers/agents and they have given you a considered opinion on purchasing based on a price and set of features/functions that you have described.
With suppliers you have discussed how you will be satisfied and what you are expecting (not the same thing), with trade/wholesale buyers you have discussed first & second order quantities and what marketing efforts are expected of you to achieve that, and for direct market sales you have found the kickstarter quantities of similar products in your space.
Now this is as close to reality as you are going to get. This is a great place to be. You should now be examining these numbers to see if your business is really going to be sustainable and successful. To be asking yourself questions about whether further cash injection into the business is going to be required. And having grown your confidence in your numbers, you can ask yourself “what if” questions. What if — I sell more items, What if — I don’t. And you will be wise enough to answer those questions and plan for them.
So Guess to Cash, get used to it, more information is good, but you don’t need everything to start modelling the finances for your business.
How have you got used to uncertainty? Let me know in the comments below.
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