The only thing we know about our financial models is that they’ll be wrong.
Not sure what this is, start here with our README, or catch up on last week, VRBTM Explain The Problem First | Week XI.
Everything I’ve read about making financial models all say the same thing… No matter what, they’ll be wrong. If you had the ability to model something and have it be right, then it wouldn’t be much of a start up. Without them though, you’re still left guessing.
I feel like we’re getting to the point where we’re going to start needing these. Even some of my friends who know about the project are starting to ask if we know how we’re going to make money (yes), how we’re going to get users (getting there), and how big VRBTM could get (we’re not sure).
The models to me aren’t something to get too hung up on, but we need to consider the inputs and our comfort level of how aggressive we want / think we should be. Doing this will give us a stake in the ground that we can measure ourselves against once real data can start to be put into the formulas. As we know, it’s likely we’ll be way off, but at least we’ll know how we should be thinking about these things as they happen.
To generate a baseline for VRBTM I need to develop:
- Growth Predictions
- Cost Per Acquisition
- Cost Per Goods Sold
- Operating Expenses
Going to look around online to see what’s out there that we can use to help set these up.
Spent the majority of the afternoon reading articles and getting a general refresher on what we should be paying attention to. There is of course opinions that range across the board from track everything to track only what you need to. I feel we should be somewhere in the middle. Enough that we have a handle on all aspects of the business, but not so much that we get caught up in it or too few that we’re missing opportunities.
Another is how long to plan for. I’m only concerned with what we want to look like 12 months out from when we launch our paid platform. That way I can work backwards from there to set a game plan for what we need to do to get there.
Here’s the holy grail of an article for understanding the metrics a startup should be measuring put out by Andreessen Horowitz: 16 Startup Metrics. They also have a very thorough Advice & How To section that covers nearly everything a start has to consider.
Dan Martell (Clarity.fm Founder) also puts out a ton of content for growing startups:
Along with the metrics noted in the video above, here’s another with the Five Elements of a Financial Business Model.
Ok, so there’s a bit of a primer on the considerations and what goes into a financial model. But it still doesn’t help us with how we’ll get started making one. Obviously something like this will live in Google Sheets or Excel. I waned to see an example I could go off of so I didn’t have to fully re-invent the wheel with this. Which led me to this article about financial modeling for startups, where they interview Taylor Davidson of Foresight.is. I have no idea who this guy is. Turns out he’s an entrepreneur who helps startups with their financial models and business strategies. He’s also created a template model that he sells ($150) for other startups to use.
Standard Financial Model Foresight.is / Taylor Davidson ($150)
Starting this exercise I planned to create my own spreadsheets, however, seeing this template from Taylor I quickly decided we should pay for and use his. He makes it clear that to make it work for your business some customization will likely need to happen. Though it seems to cover most everything. Certainly everything that we’d want it to. Also, as an FYI, there are some free templates available as well, however they’re not as complete and I rather have the convenience than have to retrofit multiple templates.
Here’s one of those times when we have to weigh the options of: spend time doing it ourselves, or paying some money to have it done quicker and better than we could have. By paying for this, the time saved building it means I can put more thought into the assumptions to get us as close as I can to reality. (We’ll still be wrong). The tradeoff being that I will need to spend time really understanding the formulas in the spreadsheet so I can speak to any change or adjustment.
The benefit from having these models, right or wrong, is that they give you a look inside the business and allow you to assess what’s working, what isn’t, and how long things take to pay off. Which at the end of the day will help us focus on what we can control and make sure we’re putting resources behind what is generating a return for us while making easy decisions around what to cut.
Happy I found this template from Taylor, I’m going to spend nights this week going through it to truly understand how it works and then next weekend start building out our 12 month projections.
Also, Taylor put together a complete Startup Best Practices that has everything you need to know about financial modeling.
Read the other half of this week with Nick’s vrbtm.co development stream | Week XII where he continues styling and starts adding user permissions.
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Get in touch at Founders@vrbtm.co, talk with us on twitter @vrbtm.co, and read our story on medium.
Wes Jones is on Twitter @WesJonesCo
Nick Dandakis is on Twitter @Dandakis
