Forecast for a Reason

Posted by on July 11, 2006 at 6:17 am.

Josh, Fred and Matt have a nice series of posts on forecasting, including some models for tracking and updating. Josh even provided a sample waterfall XLS. As they mentioned, these exercises are good for all companies, but critically important when early/mid-stage companies have some revenue and trying to reach escape velocity.

One comment I’d add is to remember why you’re doing forecasts. It’s not (entrepreneur) because the board asked and it’s not (board) because you’re looking for a quantiative way to evaluate the CEO. Forecasting (and review) helps schedule and prioritize resource allocation.

For example, doing some post mortem on prior quarters actual vs. forecast can help identify whether expenses should be adjusted to match revenue ramp actuals — setting aside long-term R&D expense, a revenue slope that doesn’t catch expense slope in a quarter or so is reason to check assumptions. At a more granular level, actual vs. forecast pipeline/sales analysis can help to identify whether sales installation is the problem, pipeline conversion rates are the problem or size of pipeline is the problem — allowing knowledgeable allocation of sales resources at the bottom, middle or top of the pipe.

Forecasting can be a pain and feel like a no-win exercise for early-stage CEOs, but that’s only if viewed as a scorecard. Using it as a tool to hone your personal “take over the world machine” is much more rewarding.

Leave a Reply


Disclosure Policy