Financial  Forecas,ng  

Forecas(ng  Revenue  

hockey  s,ck  forecasts  

MaRS  Best  Prac,ces  December  8,  2010  

Charles  Plant  

Slide  3  

 hockey  s,ck  forecast  

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and  this  is  important  because?  

Financial  Forecas,ng  

Forecas(ng  Revenue  

the  reality  of  results  

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typical  forecasts  

•  35  start-­‐up  soJware  companies  •  average  first  year  growth  budgeted  401%  •  average  second  year  growth  budgeted  246%  

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canadian  results  

•  100  top  soJware  companies  in  Canada  •  smallest  company  had  sales  of  $2  million  

•  actual  growth  rate  average  was  24%  •  biggest  grew  23%  •  smallest  grew  40%  

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what’s  up  with  that?  

•  canadian  companies  took  10.2  years  to  reach  $10  million  in  annual  revenues.      

•  in  the  U.S.  6  years  to  reach  $10  million    

•  10  years  to  get  to  $50  million  

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the  best  companies  ever  

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conclusions  

•  a  rocket  ship  is  a  company  that  reaches  $50  million  in  annual  sales  in  6  years  or  less    

•  most  successful  technology  companies  aren’t  rocket  ships.  

•  only  28%  of  the  na,on’s  most  successful  public  soJware  empires  were  rocket  ships.    

•  a  hot  shot  reaches  $50m  in  7  to  12  years.    •  a  slow  burner  takes  13  years  or  more.    

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don’t  try  to  outdo  google  

Financial  Forecas,ng  

Forecas(ng  Revenue  

top  down  forecasts  

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before  you  start  you  must  know  

•  target  market  

•  business  model  •  go  to  market  strategy  

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so  how  big  is  the  market?  

•  gartner  says  the  market  is  $50  billion  •  we’re  going  to  get  1%.  

•  wrong  

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poten,al  users?  

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rate  of  adop,on?  

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total  market  size  

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market  share?  

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Revenue    forecasts  

Financial  Forecas,ng  

Forecas(ng  Revenue  

boVom  up  forecasts  

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the  revenue  plug  

•  let’s  see,  $100k  the  first  month….  •  wrong  

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sales  funnel  

•  lead  •  discussion  •  proposal  •  evalua,on  •  trial  •  order  •  install  

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how  will  you  get  leads?  

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how  long  does  each  stage  take?  

Stage   Time  

Lead   Start  

Discussion   1  Month  

Proposal   1  Month  

Evalua,on   2  Months  

Trial   2  Months  

Order   1  Month  

Delivery   2  Months  

       Total  Time   9  Months  

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what  is  the  conversion  rate    at  each  stage?  

Stage   Stage  Conversion   Conversion  Rate  

Lead   100%   100%  

Discussion   50%   50%  

Proposal   40%   20%  

Evalua,on   50%   10%  

Trial   50%   5%  

Order   80%   4%  

Delivery   75%   3%  

       Total  Conversion   3%  

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you’ve  got  sales  

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rules  of  thumb  

•  marke,ng  costs  •  salespeople  required  

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implica,ons  

•  Compare  your  top  down  approach  with  your  boVom  up  approach  

•  Watch  out  for  overhea,ng  the  market  

•  Good  companies  start  selling  long  before  the  product  is  ready  

Financial  Forecas,ng  

Forecas(ng  Revenue  

what’s  next?  

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checking  your  assump,ons  

•  check  your  assump,ons  and  revise  them  whenever  you  get  new  informa,on  

•  check  forecasts  monthly.  

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investors?  

•  knowing  your  forecast  shows  you  know  your  business  model  as  well  as  your  go  to  market  strategy  

•  be  prepared  to  discuss  in  detail  •  however  no  maVer  what  you  do,  prospec,ve  investors  will  not  believe  your  forecasts.  

•  but  you  will  because  you  will  have  done  a  good  job  preparing  them  

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the  art  of  forecas,ng  

•  it’s  all  about  marke,ng  

Financial  Forecas,ng  

Forecas(ng  Revenue  

ques,ons?