Why your startup’s clean financial model might be doing more harm than good.
A few weeks ago, I sat down with a startup team. Smart, thoughtful, and deeply passionate about what they were building.
Then we opened their five-year financial model.
At first glance, it looked solid. Then I started noticing something odd.
Every number moved in a straight line.
Revenue increased like clockwork.
Costs grew in a polite, controlled way.
Margins held firm.
Hiring ramped up like a staircase.
It was too smooth. Too clean. Too… optimistic.
Real startups don’t work like that
Startups are not spreadsheets. They’re unpredictable, human, and messy. Progress happens in bursts. Growth comes with friction. Some quarters feel like a breakthrough. Others feel like a scramble just to survive.
Here’s what real startup life looks like:
- You launch a product. It flops.
- A key hire doesn’t work out.
- Your biggest customer churns.
- A competitor appears out of nowhere.
- You realize you’re burning cash faster than planned.
None of this means you’re failing. It means you’re building.
What founders often overlook
The spreadsheet isn’t the issue. The mindset behind it is. A too-perfect model doesn’t build trust—it erodes it. As Bill Petty wrote in TechCrunch:
“Founders are sometimes tempted to be overly optimistic about future growth. If your projected growth diverges materially from recent historical growth, be armed with a rock-solid explanation for why it is so.”
— TechCrunch, 2022
If you’re a founder putting numbers to paper, here’s what I’d recommend:
- 1. Plan for dips: Not every quarter will be a win. Budget for plateaus. Leave space for when things slow down.
- 2. Model mistakes: Stuff will break. Launches will stall. Customers will churn. Build in slack for the bumps.
- 3. Run multiple scenarios: A best-case is fine—but what about “most likely” or “unexpected setback”? Pressure-test your plan.
- 4. Know what’s flexible: Some costs you can cut. Others, like legal or compliance, you can’t. Be honest about which levers you actually control.
- 5. Do your homework: Salaries, software tools, legal fees—these are knowable. Guesswork here is lazy. Reality is Googleable.
- 6. Don’t pitch perfection: It’s not convincing. Seasoned investors see through it. What they want is thoughtful planning, not fantasy.
The real point of a forecast
No one expects you to nail your five-year plan. They do expect you to think through the risks.
Your financial model isn’t just about where you hope to go. It’s a mirror of how you think—about people, pressure, uncertainty, and change.
A forecast that assumes everything goes right doesn’t build confidence. It does the opposite.
It’s not good for things to be too rosy
Clean numbers might look good in a pitch deck, but they don’t hold up in real conversations. Especially with investors who’ve seen how messy it really gets.
Because here’s the truth:
It’s not good for things to be too rosy.
Even a beautiful bouquet of roses eventually dies.
Building something and need a second pair of eyes on your numbers?
I help founders pressure-test their plans—reach out if you want a gut check that’s grounded in reality.