You won’t be presenting your operating plan to investors in your first few meetings, but you’d better understand how you are going to run the business once you raise capital. Incidentally, having onsite engineers is probably unnecessarily expensive for a company like Redfin.
He was really kind enough to take out time to answer the 5 Questions about Success…, Good article. Too many lawyers scraping the cream. Glenn, this was an _awesome_ post. The former is done bottom-up and the latter is top-down? p.s. Do you know how many customers you have to land to generate the revenues you are projecting?
Very interesting data indeed, even if you just read it for the data points. Here in South East Asia, VCs look for a 5-7 times return over 5 years and the funds and market is quite different. Redfin Model: $600.
At the time it was actually comforting. So as much fun as it is to paint an exciting vision, at the end of each month, you will be measured on your ability to deliver what you promised.
Avg cost is 15$ per employee. stay well, As a CEO, i travel almost four days a week between these cities we operate. It’s the attack of the bull-shiitake startup projections, so I’m losing my hearing; there’s a ringing in my head, and I get dizzy every once in a while.
How can I possibly know? The Art of Projections in a Dotcom 2.0 World, By: Guy Kawasaki The world is running amok with entrepreneurs pitching every sort of Web 2.0, social networking, user-generated-content startup. We are a technology business incubated company and our per month expense comes to 3000 INR or 75USD for a furnished 8 seater office with AC, Security, Electricity, Water etc.
Btw, i also feel that for a web 2.0 idea, $250 k a month is a lot in the initial days.
That methodology hasn’t changed in 30+ years.
Good luck! If your projections are wildly different than other highly successful companies, then your assumptions are probably off.
For example: I helped launched a character based juice based beverage. I would love to see the sanitized model. “We beat projections” is something everyone should do right down to the tiniest project. Live strong, Live Well and Live Longest – Lance. Thanks! Remember you never saw a statue to a committee. I can’t tell you how many companies shrug this off. When we set the plan, many employees were being paid below-market rates, which is not uncommon for startups; as a startup raises more capital and people go into their second year of sucking it up, you have to pay the piper at the employees’ annual review.
Quarterly Bonus Payout, as a % of the Total Possible A startup up exceeding an initial forecast and 5 year projections that look reasonable. C’mon Glenn, do you really stand up in front of venture guys and commit that Redfin is going to do $100million three years from now?
Thanks for posting.
We pay quarterly bonuses, mostly based on customer satisfaction objectives. I couldn’t do anything else right but, thinking about the toilet and the nickels, I said to myself, “This, I can do.”. Here are a few other tips for building a financial model: Focus on headcount.
For the last week they sent one of their top M&A finance guys over to finalize it with us. So here I sit, bemused and bootstrapped (and not at all bitter, seriously). He is also the author of, Copyright © 2006-2020 Guy Kawasaki, All Rights Reserved |, bogus-ly included cell phones that play music. Incidentally, we pay a service $14,000 per year to set a quarterly price for our stock options. Typically, personnel expense will tend towards 80 percent of your overall cost.
Often times, the startup that is getting all the attention is far from being the best or the first. Best wishes for continued success, Thanks, Glenn too. 500$ – We’ve got one of the best guys out here in the State. 1.
I work with start-ups at an incubator in Portland, OR and consistently find their financials to be horrible at best.
Your job is to show that you have tapped a team with the experience and insight to justify your bold optimism. Redfin benefits are competitive, but many employees are Seattle-based. Great blog, one of my favorites now! Setting up Operations in God’s Own Country, Kerala is one of the most cost effective ways in this country. Disclaimer – We know of similar companies who spend almost 10 times of what we do.
I have to click post button here for the stupid politicians and ‘govrenment’ will switch off electrical power any moment in this area of so called “maha” rashtra. You provide some great tips for better flight planning as well as the sound advice to simply look out the window and react before entering a tailspin. I run 70 servers all over the world and can access every one of them from anywhere in the world where I can get access to a high-speed internet connection.
the real world is much harder than this.
Guy Kawasaki has a few really good and sensible suggestions: Under-promise and over-deliver; Forecast from the bottom up; Don’t go too far out (12 to 18 months. The model presents artificially low financial projections, which may not be realistic but will ensure that the startup gets additional funding easily.
It’s rapidly become a different world and employers are not thinking outside the cubicle enough. :-) Thus costs also vary between these places.
The data I looked at bogus-ly included cell phones that play music.
Hi Glenn – thanks for taking the time to share this information. You should be constantly engaged in testing your assumptions and adjusting your actions as you learn.
Once you’ve raised money, your investors will want a year-end audit of financial statements.
I noticed you didn’t include a monthly PR agency cost. Glenn,
Monthly Benefits, Per-Employee It’s good data. Well, due to insane and over regulation. After seeing you on 60 Minutes a while back, I’m not going to use (get used?)
I like the idea of bottom up forecasting. Like the topic that dominates me now is the practice of hiring/firing. Its the attack of the bull-shiitake startup projections, so Im losing my hearing; there&rsquo…. How woul…. I’ve had one VC tell me our project isn’t fundable because I made the estimates TOO conservative, so it’s good to hear that $100-million-gross-at-year-five confirmed. Actual Redfin Cost (Last Month): $336. In case you don’t have access to Guy’s contact info for each visitor, my email is larson at wharton.upenn.edu. Thank you to both Guy and Glen for the candid info.
More than anything, you don’t want your business model to be: a. Very informative! And for some who have grumbled about the advice about showing $100 million in 5 years…well that’s better than 1999 when we had to show a path to $1b market cap. Make sure your projections are tempered by real world experience.
Class B space on well-traveled mass transit lines is roughly $20 per square foot per year in Seattle, $30 in the Bay Area.
Like David, we’re also currently working on a new project and it’s interesting to see that some of the projections I had are right on, but others simply way off base. On revenue, our conversion rate is unusually bad, probably because it’s such a big leap to buy a house through a website. I tried to compare to our budget although the numbers and the size are different (we are only an A round company) nonetheless, some of the basic logic still run the same. Ever attend an annual review? Real life numbers are so much better than the usual tools for financial models, a Magic 8-Ball and a Ouija Board. Thanks for the insight.
Nice job. Use the S-1 IPO filings of companies with business models similar to yours to get an idea of what is realistic. We can’t disclose actual costs here, but they were higher than planned.
There’s a lesson in this too: Get the best person for the job.
You are paying a lot !!! A well thought-out operating plan will reflect your ability to allocate resources—people and money—to the highest priority objectives.
You can’t get their attention with a lesser ambition.
Glen, thank you so much for being open with your numbers. > Hit $100 million in revenues within five years. Plan slow, run fast. Or not: on the road, some of us still stay with friends.
... You have to be realistic. #5 is dead on! Formerly, he was an advisor to the Motorola business unit of Google and chief evangelist of Apple. This post is very interesting, helpful, and just might make the world a better place by making expectations more realistic and comprehensive. Great data and lots of good insights … maybe time to update this .. it has been 8 years.
The point of a model is to prove you can make money if people buy your product, not to insist that they will. Just figure out whom you’ll hire and how much you’ll pay and you can’t go far wrong.
Thanks! :). Guy Kawasaki Interview 5 Questions about Success, Money and Life.
Annual Payroll Increase for Existing Employees. Our actual costs are high because we just moved last month into an office with room to grow, which seems to happen every eighteen months.
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