In yesterdays post I wrote about the importance of good projections when making purchasing and hiring decisions. In some cases though, it is impossible to make even remotely accurate projection.
Take for instance a web-based business about to launch that is trying to determine the amount of users and bandwidth that they will receive six months from now. They will most likely have an excel spreadsheet where they use the size of the market and a few other numbers to determine how many users will be on the site in 1,3,6,9,12 months and even as far out as 5 years. Not even the founders themselves will believe these numbers (most likely because they will think to themselves that they are being conservative). There is a 1 in a 1000 chance that the site will become the next youtube.com and hit the founders projections, but most likely the actual figures will be significantly lower.
Having worked at a top management consulting firm, and having done countless market sizing projects for Fortune 500 companies, I can tell you with certainty that it is not only startups that have trouble with certain projections.
So the question for a startup CEO is how to make decisions where there is little concrete information, but where being on the low-end of the equation is equally as catastrophic as overspending on overly optimistic goals.
A simple, yet effective, framework for making such decisions that we have started to use is to find what we call the “upgrade sweet spot.” That is getting to the point not where you can handle your expected traffic, but where you can easily upgrade to handle it later.
This means that you don’t need to spend the bank to be fully scalable today, and don’t skimp out so that you will have a problem tomorrow, but rather spend to the point where you can easily scale-up if it becomes necessary.
Entry filed under: Start-up.