Why Startup Projections Create Value

Thankfully, although startups are risky by nature and always rely on the sometimes precarious faith of investors, they do have proven merits (whew). Even better, these ventures provide fresh, disruptively innovative and industry leading products and services, and the market demands their existence. Casting away the paralysis of risk aversion, startup founders sense demand and fulfill it through their businesses, fearlessly creating change across all industries. Yet, the majority of startups fail before they take off, even if the idea behind the business is revolutionary. What does this tell us? A lot of things, but primarily that we cannot simply create – we also have to manage.

The Fine Line Between Innovative Chaos and Micromanagement

The scope of a startups’ influence is massive. While a new-kid-on-the-block Fintech business might inspire the blossoming numbers wiz, it can also provide tools to improve efficiencies for companies, disrupting and helping even the most established of businesses break free from inertia. How can startups cause these industry-transforming ripple effects? In large part, startup success draws from the fearlessness and drive of its founders and employees.

What is also critical to note, however, is that this seemingly low risk aversion of early, innovative businesses does not necessarily signal lack of planning. In any promising startup, the weighing of risks is integral to operations. In fact, more than any other staged business, startups must be hyper aware of their financials, key drivers and anything that makes their business tick. It’s simple: If you are aware of your skills then you can leverage them. If you are aware of your shortcomings, you can minimize the damage they might inflict on your company operations, both present and future. You need to devote your energy to creating an exceptional product, but without proper planning, it may not be feasible.

So, what are your options?

How to Manage with Startup Projections

Financial projections are the wrench in the Business Toolkit for Beginners. Used on the right bolts (in this case key business drivers) and with frequency, you are sure to have a tightly secured foundation for your business. Builders (or investors), with their critical analytical skills, will look at your floor-plan and think, I want to help this house (business) get built! So you get the metaphor, but what exactly is the wrench?

The wrench, or financial projections, are how you estimate the future financial planning of your business. For a startup – this is a particularly difficult task. One contributing factor to the risky nature of a startup is that it has no history, no track record or rap sheet with which to predict future revenues. So instead of pulling numbers out of thin air, projections take a look at costs as they can be more easily controlled and estimated.

Methods of financial projections involve the Top-Down Approach or the Bottom-Up Approach. To give a very rough idea, the Top-Down approach offers more of a full market picture, whereas the Bottom-Up approach begins by focusing on customers. Depending upon the business model and information available to your analysis, a blend of both can be implemented.

This discussion requires a more in-depth explanation, but let’s save that for another time. For now, keep in mind that no investor, no matter how forward thinking, will rationally choose to invest in a company without a clear blueprint from which to gather confidence about the future profitability of your business. Invest now in the future of your company by embracing the benefits of financial projections.

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