I first learned this lesson while running the investor relations program for a rapidly growing public company back in the 90's--the first law of investor relations is never miss the numbers. Since you can't manage the numbers, you have to manage expectations to leave yourself some cushion.
I have often said that entrepreneurs are the sorts of people not only don't see the glass as half empty, they see it as about 2/3 to 3/4, well, let's say pretty much full. As a result, they (well we) tend also to see projections that show our startup will achieve $100 million in revenue in year five as being, say it with me class, "conservative."For crying out loud, projections that show you can take an idea and make a $100 million business in five years are anything but. I'm not suggesting that you should dial your projections back to some level that would be so easy and believable that your high-school-age brother who only uses the Internet to post videos on MySpace of himself and his buddies longboarding could do it, I am simply suggesting that when you present your projections to someone or comment on them in conversation, say it is our "goal" or our "target" rather than suggest the numbers are "in the bag." To be clear, VCs and angels want to invest in big ideas with great potential. Defend your market size carefully to give your projections credibility, but never, ever call them "conservative."
One of the most talented CEO's I've worked with lately, is the most cautious I've seen in a long time when it comes to disclosing projections. Why? I think it is because he really believes he has a billion dollar opportunity and he doesn't even want to speak the words. He doesn't want to jinx the deal.
(That said, he knows the numbers as well as any CEO I've known. He has projections. He helped build them. He knows where he's going, but he doesn't brag to everyone he meets at cocktail parties that he's going to lead a billion dollar IPO in four years.)
Remembering that the fundraising process can take many months, your audience will know whether or not you are actually hitting your numbers. If you don't, wouldn't you rather have told your candidate investors that "these numbers represent targets" instead of "these numbers are conservative?"
You're absolutely right. I've seen a lot of people overvalue their companies, and way overshoot their projections. If it doesn't hurt their credibilty instantly, it always does eventually. Optimism is definately important, but it should *never* take a back seat to realism.
Posted by: Jordy | August 18, 2006 9:15 AM | Permalink to Comment