What are some common mistakes in financials for first time founders?

On revenue:

  • They undervalue their offerings and result in very silly small unit economics
  • They overestimate the ramp for customer acquisition in order to make the global financial picture work (due to the very small unit economics)
  • They don't think about LTV properly. In recurring revenue models many of them expect they will keep the customer forever (or 10+ years) which is silly.
On costs / operating plan:
  • When calculating costs, especially for hardware companies, they are usually 10x to 100x off on what they think it takes to bring something to market.
  • They tend to be grossly unrealistic in timelines for (a) product dev esp for hw companies (b) go to market ramp time esp for sw companies
  • They usually have no idea what organization structure is needed / biz partnerships to pursue to get the job done consequently cost structure is artificially favorable

The best way to manage around these common mistakes is to go over financial projections with a seasoned, trusted advisor who has built financial scoreboards for startups of the same type before.  A little feedback early on can go a long way to helping founders come up with a strategy that works.

 

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