YC has now funded enough companies that if it has the data (likely in a bunch of spreadsheets) to do a more accurate version of this. Expenses aren't really flat, growth isn't purely exponential and today's estimates aren't reality. A simple model that fixes those three things, should improve accuracy though it would still be subject to enormous volatility which could also estimated based on the same history. This also ignores optionality and probability of a failed raise which would further shift the answer.
This is more of a tool for thinking about growth rate, startup capital and expenses in general than a model for calculating an estimate of any kind. For that, you need to make your own for your business.
"A good growth rate during YC is 5-7% a week. If you can hit 10% a week you're doing exceptionally well. If you can only manage 1%, it's a sign you haven't yet figured out what you're doing." - http://www.paulgraham.com/growth.html
This little app can help put those into perspective.
You're assuming that YC has this information from all the startups they fund. I doubt this for two reasons: YC is probably too busy to spend time collecting spreadsheets from everybody; and from what I've seen, most startups aren't careful enough about their accounting to have the data in the first place.
I doubt there's a formal collection but I'd be equally surprised if they don't have early stage projections from many of the companies. As silly as they can be, they're often part of pitches.
From my limited personal experience, every startup I've chatted about this with has some sort of forecast though the degree of seriousness with which is was constructed and is used varies.
I'm now working at my 3rd YC startup. Sometimes we show our Leftronic graphs to investors, but other than I have never seen someone send hard data to YC. YC is very hands off. You do a weekly dinner the first few weeks, then you do a demo day, and then after that maybe sometimes you get an email once every few months asking how you're doing. Maybe you go visit when you have a question or are bored. That's about it. Other than that you just write code and talk to users.
One more suggestion: consider moving the text indicating the capital needed outside the blue area. Or at least provide another copy of that text outside the blue area.
It becomes hard to see that text with low weekly expenses($2500), close weekly revenue ($1000), and good growth rate (5%)
The biggest problem with this chart is that for most startups keeping a 2.5% weekly growth for years is impossible. Only a tiny percentage with viral products can accomplish it. For the rest of us, the growth percentage gets smaller as the number of users increase and churn starts kicking in.
That's not a problem with the chart. That's a problem with starting a business.
You don't have to grow along a fixed axis, whether that be # of users, # of widgets, etc. You just have to average the growth in income.
I had a similar initial reaction to the chart because I stick to R&D-driven startups that will run at $0/week for as long as it takes. However, pushing the stop-energy out of my head and running with it is a good gut check for viability on breaking even given assumptions about expenses vs income over time.
The output isn't "we will grow at an annualized 360% forever, yielding foo," it's "we only need to kick in $x to have a good shot at getting to B/E."
Yeah, I think many startups have a fairly long customer/product development period where their revenue will be $0, and then quickly pour on the gas once they have users and want to monetize.
I wish the tool had an additional degree of freedom, which is "time until first revenue". That would let you model how much time-to-market is costing you until breakeven, and trade off a business idea that generates revenue immediately vs. another business idea that takes a long time to incubate but may have a higher growth rate. I guess you can figure it out with some quick mental math (just multiply monthly expenses by time-to-market and add that on to capital required, and add the time-to-market on to the breakeven time), but if it were in the tool it'd be easier to visually see the effects of different choices there.
2.5% isn't a terribly high growth rate. There's plenty of B2B companies whose revenue grow at this rate until they are bringing in tens of millions of revenue.
You guys are right. I was stuck on thinking how to keep a consistent 2.5%/week. But at the end, when you average numbers out, you might find the 2.5%/week number. So, it is not impossible, but it is certainly hard. :)
It might be worth doing run rate and retention model vs. just net annual revenue. Showing how retention really matters would be worth the added complexity for SAAS companies, IMO.
Before you dismiss it for being too simple, think about the wider audience of startup founders, not just YC readers. They often can't predict churn rates or viral growth timelines or per-user infrastructure costs. This is a great starter model to say, "At the very minimum, you should plan on having $X."
After the first year of doing business (or faster?), you should revisit your model with these kinds of metrics and hone the model, but you usually won't have it going into year 1.
Fully agree. There are so many people who can't do the basic Excel work even to generate the information on the chart who are capable of starting a business. (I include in this every restaurant ever opened, modulo statistical outliers.)
This is a really nice visualization and a fun way to play with the model. Though for any start-up that sells physical goods...gross revenue is not very useful when it comes to projecting profitability. But it's fun anyway and maybe more accurate for pure software businesses. Kudos to the author, and great that it's on github as well!
That's some really great bookending you've done. First you started with calling it "really nice" before sliding in a subtle dig by dismissing it as "fun". After that you go into why it isn't very useful. Then you devalue it again with "fun" before wrapping it with a "cheers type" salutation(one that is careful not to send a message of quality only recognition of work done) before wrapping it all up with an exclamation point. Great work!
Awesome tool! This assumes a somewhat constant expense so it doesn't apply as much to SaaS companies with inside sales model etc.
Hope someone makes a version that applies to SaaS companies where expenses usually increase almost linearly with growth at least initially(until the recurring revenue begins to come in).
At my start-up, a typical new sales rep makes back his monthly salary from month two on-wards costing us marginal amount initially. In year two is when we make the real money(off renewals; with no commission to pay). If you are wondering why we can't scale infinitely, scaling ad reps is a different beast the adwords - though at time, it certainly feels like a machine similar to adwords :)
It's extremely unlikely that your costs would remain constant if you are growing at an exponential rate. So I'm not sure what the point of this calculator is.
But I love the graphical interactivity, very nice.
This calculations are more about a financial projection than a model for growth, simply because you are picking growth as one of the variables.
Its practical for a very rough +- order of magnitude calculation if you are pretty sure about your growth and market size.
Then again, as a startup in your first years, you have little idea about the last two.
A growth model has to balance how you go up and how you go down (both in business/user loss) and no business i can think of handles revenue exponentially and costs fix.
