Today I spotted this FriendFeed from a talented Asian serial entrepreneur whom I greatly respect:
"Tip to management: Your 'worst case scenario' is never the worst case scenario. The worst is usually a lot more worse than your scenario."
Revenue forecasting for startups is all about telling your story in numbers. It is about the adventure you are planning on undertaking, with all of its risks and uncertainties. The unknowns are vast. The risks are huge. The rewards are deeply personal and valuable. And it is a lot of fun. That makes it an adventure.
You need numbers to talk about those elements, especially about risk.
It is common (especially among MBAs) to prepare a "downside scenario" or a "worst case." Those numbers tell you a lot about what you could do differently than planned in case bad things happen. For instance, such analysis is helpful to get a reality check on how small the cash flow burn rate could be and still make something good happen.
But there is a problem with worst case analysis: all entrepreneurs are grossly overly optimistic. It is in their genes. Their DNA has it built in. It is unavoidable.
And, believe it or not, it is the same with their investors.
The result is often the blind leading the blind as hiring decisions are made, product launch plans are altered and so on. Crashes into the wall of reality are common.
So what to do, how can you alter your behavior as a startup CEO, so you can avoid crashing onto the rocks?
Here is what I suggest: do what serial entrepreneurs do. They prepare for the worst being worse than they could think of by preparing psychologically to do the impossible when those terrible, unexpected disasters arrive.
The psychological preparation focuses on being ready to act with decisions that are deeper, harder, higher, stronger and more radical than could be spoken of before the disaster arrived.
For instance, today I got a call from a serial entrepreneur in L.A. doing a bootstrap with money from his last business. He called in frustration to discuss how he has hit the wall with his second startup. All the great research showed a vast market eager for his Internet service. But it was not to be. The paying customers did not pay. So we brainstormed for an hour, probing the impossible, pushing the envelope of how to radically alter the business model, change customers, drop all the current efforts and use the data pool to enter a very different business (e.g. perhaps moving from premium giant B2B customers to discount offerings from distressed small enterprises). We looked at everything we could think of in one hour.
I am not sure what that that talented entrepreneur will do. But I do know he is very intelligent, street smart and has an excellent track record of producing results in all of his prior jobs running businesses.
He is also open to talking about the impossible: shutting down the business, walking away from it. That takes guts. But that's how psychologically prepared he was for our working session.
You need to be prepared for the worst because it will be worse than you can think about today. You cannot train for it. But you can prepare for it. And remember: Fear will be your major enemy. Audacious courage will be what you need inside of you. Here are a couple of tips to think about:
- It is where the spiritual side of you will empower you or crumble. Family and friends are part of it. So is religion. So are morale and morals. Many serial entrepreneurs spend time with peers and mentors and behavioral coaches and priests and pastors well in advance of the worst of times. this is the stuff that produces your character. You need a lot of the good kind when the worst of times hits you.
- It is also where physical comes in. The psychological stress will try to break your immune system. Then comes sickness and the dread cascade of declining effectiveness on the job. The discipline of regular exercise (daily) plus wise diet and sleep (8 hours) combine to boost your immune system, thus sustaining you during the worst of times.
I wish you The Best on your Adventure!