Keep it simple - the fewer fancy formulas, the better
Draw out assumptions so that different scenarios can be viewed easily
Keep your eyes on the cash - that helps investors get comfortable
The model is ‘for’ an early stage software startup. You’ll see that there are a few possible business lines:
There’s also an assumed cost structure. As far as possible, I’ve put in real figures so that salaries, infrastructure and other costs are roughly market rate for a seed/late-seed company that is about to raise £1m (another assumption).
An important point to note here is that this model is for a business that is going to grow by virtue of an outbound sales approach vs. by developer-led, performance marketing or any other channel. Insofar as that’s the case, the numbers that I’ve put into the model roughly comply (it’s a little rose-tinted, in fairness) with the common wisdom about outbound sales, i.e.// salespeople should be hired when there’s 3-6x pipeline vs their sales quota, and their sales quota is 3-6x their all in remuneration*. In this scenario the ‘sales person’ is actually a sales-pod of 1 VP, 3 sales people and 1 sales support.
You’ll see that for the business outlined here, the name of the game is ‘enterprise sales’ one of which is generated when 3 quarter’s worth of a sales-pod’s time has elapsed (see row 6).
There are a number of other assumptions in there - like a £5m series-A in Q1 2019 and some beginning cash on hand but you’ll see that this really is a nuts-and-bolts view of a SaaS business at an early stage, before any meaningful sales have closed. The model is planned in quarters as monthly would just provide more ‘noise’. It only goes a couple of years out and I’ve not even put churn in there!
At an early stage, this kind of simplicity is a real strength. As we all know, no plan survives contact with the enemy, and models for early stage businesses (or the vast majority of businesses, for that matter) need not be very complex. Rather they should be simple-to-understand and demonstrate that (1) under reasonable assumptions, the business can generate sales and maintain existing revenues and (2) with a believable financing strategy get to a place that a decent venture-scale exit could be on the horizon.
*If you want to know more about these rules of thumb you can find lots more info here on The Path Forward, on my boss’ blog The Equity Kicker, Tom Tunguz’s eponymous SaaS blog and in Bessemer’s seminal whitepaper 10 Laws of Cloud Computing.