The Art of Projecting
So much is said about how critical it is to be scalable, but probably equally, if not more important, is not over investing in infrastructure. As a startup CEO, some of the most difficult issues that you must consistently grapple with are projections. Most startups live and die by their monthly burn rate, and so keeping costs under control is paramount. At the same time, most purchasing and hiring decisions have to be made a few months ahead.
What this means is that startup companies are always pressed between projecting growth and containing costs, and even the slightest mistake will derail the entire operation. In our early days I was much more optimistic about our projections and tended to plan accordingly. This meant that we had excess office space, staff and hardware capabilities, and it almost killed us.
At the same time, under planning is equally as dangerous and much harder to swallow. It could potentially lead to the business dying because it couldn’t grow fast enough. That is like loosing out on the lottery because you didn’t have enough gas in the car to pickup the winnings.
After it became evident that our projections were killing us, we tightened all of our metrics, assumptions and growth rates and we gained experience. We also put a lot of emphasis on our projections and assigned responsibility and accountability for the numbers we were getting across our small organization. Over the past few months we have been getting better and better at projecting not only revenues and costs, but also users, bandwidth, hiring needs, and everything else that we depend on.
If you are just starting a company, I strongly recommend that you do everything you can to manage projections, and to work as hard as possible to make sure that you have a good handle on them, because your business will live and die by them.
Entry filed under: Start-up.