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This is great. If you like this sort of thing you can go one step down the modeling path and take a great coursera course called “Model Thinking” [1] which totally gave me a different appreciation for spreadsheet nerdery (you use lots of different tools). 1. https://www.class-central.com/course/coursera-model-thinking...
EDIT: here the original coursera link: https://www.coursera.org/learn/model-thinking
Another thing worth considering, if you hate The Sheet, or if it’s getting out of control, considering putting your data into a database and reporting with redash. It’s a also a very convenient way to share data internally.
Also, in my experience, the thing that mattered most was customer acquisition cost to lifetime value ratio.
Decent article, thanks for writing it. I think more founders should do a bit of financial modeling. That said, I think most founders should not be forecasting salary expenses on a per-position basis, even if they're under 100 employees. In my experience, you definitely won't know which positions you'll be hiring for further out than 1 year. If you're trying to impress investors it might work, but it will have limited…
Decent article, thanks for writing it. I think more founders should do a bit of financial modeling. That said, I think most founders should not be forecasting salary expenses on a per-position basis, even if they're under 100 employees. In my experience, you definitely won't know which positions you'll be hiring for further out than 1 year. If you're trying to impress investors it might work, but it will have limited…
> That said, I think most founders should not be forecasting salary expenses on a per-position basis It is still very useful for variance analysis. Like, I made 100k, expected 120k...because x person cost more than expected and x person was hired early. It's nothing to get upset about, but it aids your understanding.
A granular 12 month forecast is very useful for the reason you described, but we're discussing longer time horisons here.
Decent article, thanks for writing it. I think more founders should do a bit of financial modeling. That said, I think most founders should not be forecasting salary expenses on a per-position basis, even if they're under 100 employees. In my experience, you definitely won't know which positions you'll be hiring for further out than 1 year. If you're trying to impress investors it might work, but it will have limited…
I prefer the bottoms up expense buildup of people as opposed to a broad percent of total calculation as it introduces more discipline to the forecast and reduces risk of weird situations where sales go up by x% and all of a sudden you’re hiring 3 half people (in models I expect to see expenses go up in steps because that’s how they work in practice). Also gives insight into the mindset of the forecaster. For example…
It's quite easy to avoid the "3.5 people" issue by making it a step function (i.e. rounding). Once again your assumptions become explicit, which is good. E.g. you might decide that one person can do the work of 1.3 employees (people can do this for a while when it's needed!) and round everything above that up to 2.
However, when forecasting 3 years in advance as in the article, the fact that your model has you hiring fractional people becomes less important.
They look nice to investors. Reality is very, very different.
In my experience with early stage startups, these models are often pure fiction and completely divorced from reality. They look nice to investors. Reality is very, very different.
Zoom in and the issue is forecasting unit sales.
Zoom in and the issue is forecasting new unit sales.
In the example, this line does a lot of the work in the model: "Forecasting New Subscriptions (line 10). We've just entered hardcodes here for simplicity, but these could be the result of calculations related to a marketing / sales funnel"
I submit that this single assumption will carry more weight than the rest of the model, and is the most difficult to forecast.
Decent article, thanks for writing it. I think more founders should do a bit of financial modeling. That said, I think most founders should not be forecasting salary expenses on a per-position basis, even if they're under 100 employees. In my experience, you definitely won't know which positions you'll be hiring for further out than 1 year. If you're trying to impress investors it might work, but it will have limited…
Main reasons for this are:
- It enforces discipline. It's easy to make hand-wavy assumptions like forecasting costs as a % of sales and calling it a day
- Small changes to the hiring plan can have a drastic impact on a startup's finances, including the timing of those hires
- If you tether all your expenses to sales, you can't really explore the downside, because you'll always be showing consistent profit margins
To your point though, I agree that it's important to look at expenses both bottom up and top down.