Forecasting.  This word stirs in me a mix of love and hate feelings.  Early on in my career I had an abnormal fixation with excel spreadsheets.  Business to me was about pro forma statements and linked excel formulas.  I can still create a mean worksheet, but my perspective has changed.

Recently I have been forecasting for Elias.  Initially I considered business school thinking: What is the total market size for ecommerce?  Now how much of that market can we capture? etc…  The problem is that these numbers are crap.  Every novice business plan seems to include something like this market estimate along with, “If we just capture 1% of the market then we will make a fortune!”  When has this really worked for a start-up?

Instead, I have been working from the bottom up.  Elias provides a service, which means that we add value to our customers by using time to implement technology.  The upside to this is that we have little risk in terms of cost (depending on how you value time in the equation or account for opportunity cost).  The downside is that we sometimes have to turn away customers when we do not have enough time to sell.  It is essentially a scalability problem.  The challenge: how to package expertise so that it provides value to customers without an increase in time.  The formula must be reworked.  In the meantime, my forecasting is based on the number of projects Elias can take on and still fulfill commitments in a timely manor. That’s the most effort I’m willing to invest on forecasting revenue.  The variable which can be controlled is cost.  A start-up should be able to predict with relative accuracy the costs associated with doing business.  This is the kind of forecasting that warrants being intimately familiar with the numbers and watching them like the first time you met your wife, that is, study them passionately.

And that’s it.  Really the focus should be on the customer and cashflow.  Too much focus on forecasting and setting goals can actually have a negative effect on an organization over the long haul.  Make customers happy and collect money.  This is the primary objective for a start-up.