Through our daily scanning process of the pitch decks we receive from different founders, we have noticed a repetitive pattern of some areas that can be improved.
Although that we, at Hala Ventures, target early-growth, and post-revenue startups, we are aware of the challenges and performance of many companies in the region that just started up or in their way to reach this stage.
One of the notable challenges for pre-revenue startups is conducting relatively accurate and useful Financial Projections. And as much as financial projections are considered to be a vital element in the business model thus in securing investment, loans, or funding, it could appear that it was worthless.
So, what could be the devaluing element?
1. Insufficient knowledge of the market performance:
Keeping up with market performance can save founders from building their financial projections based on false inaccurate data. That’s why Market Research and Study is a key requirement in building the business model and pitch decks.
Proper Market knowledge should involve:
- Familiarity with its history, trends, and curves, and the events and factors that seize to influence it.
- Knowledge of its demographics and geographical features. Being familiar with this kind of data enables the founder from using machine learning modules to predict sales.
- Familiarity with the competition and size of the market. Searching the giants that have the biggest shares in the market, knowing their value proposition, the technology used in the operations and production, the size of the team and the competencies required in the human capital and the, and the ideal growth rate.
Getting those approximate data enables the entrepreneur from employing a useful comparison between their data, numbers, and projections with those competitors.
Mostly we see entrepreneurs targeting the markets within their range of experience, however; past experience doesn’t obviate research and study. In other cases, when there’s no experience in a certain market, the entrepreneur can hire an analyst or accountant with experience in the targeted market, either for full or part-time depending on the amount of work, so they can be the eyes for the organization.
2. Spending too much time in the planning stage and in perfecting the product:
The entrepreneur could spend too much time planning and forecasting the financials of a product -that hasn’t been tested in the market yet- for the sake of launching it perfectly in its perfect initial shape while the MVP doesn’t have to be perfect; that its sole purpose is to test the product likability and performance in the target market thus provides constructive feedback that can be implemented easily on the product and business model. Upon that, the founder can better predict the approximate duration of the MVP existence in the market before it enters the next development stage. A lot of companies have gone through this approach, such as Linked, SnapChat, HungerStation… etc.
In this stage, the founder doesn’t have to conduct complete financial projections, and the feedback from the MVP can assist in the acquisition of more realistic information and findings on the market state, which can help in conducting the financial projections in a later stage.
3. Confusing the registered users with the subscribers:
While conducting the financial projections, entrepreneurs could confuse the registered users (the free ones) with the subscribers (the paid users), and they may omit or neglect the importance of actively turning the free users into paid subscribers, or gaining major different new revenue streams that suit the business model which can greatly affect the financial projections.