I got a few short clips from my presentation on entrepreneurship when I spoke at Princeton’s Elab recently.
Here I talk about creating and playing with financials as an early-stage entrepreneur. Many investors downplay early-stage financials, since every entrepreneur creates perfect ones that show tremendous growth.
Creating and playing with financials is valuable! Do them when you’re starting.
They force you to show your project is sustainable
Before doing them, many entrepreneurs think their businesses will profit easily. First passes at financials often show they won’t make money, meaning they aren’t sustainable, forcing them to rethink their business.
If you don’t see a profit, you’ll have to raise revenues, lower costs, or both. The video explains what happens and what you have to account for and what that has to do with high school chemistry class.
They lead you to see your business’s details
Nothing reveals a company’s details like the numbers. If you don’t know its details, you don’t know your business, which will create disasters when trying to get investment, hire people, or the like.
They show your main assumptions
Changing your numbers leads you to simplify changing them, which usually leads you to separate your assumptions from the body of the spreadsheet. What you separate tends to be the core areas to work on your business. Usually adoption rates, supplier costs, and a few others appear. Every business has its unique set of assumptions.
Do you numbers and you’ll learn yours.
They motivate and give you ownership
No matter how much others discount your projections, doing them gives you a sense of ownership of your business like nothing else.