mars best practices: beyond the hockey stick - the art of realistic forecasting, charles plant
DESCRIPTION
Have you fallen into the trap of the hockey-stick forecast? Most business plans have revenue forecasts that look like hockey sticks: they show revenues that grow slowly at first and then suddenly jump skyward. Forecasting is an art that takes practice. Join us at this Best Practices event to learn how revenue projections can make or break your company—and how to stick handle your way to a realistic forecast. http://www.marsdd.com/events/details.html?uuid=c7add0eb-5bd2-4929-a53b-74d4281130fcTRANSCRIPT
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Financial Forecas,ng
Forecas(ng Revenue
hockey s,ck forecasts
MaRS Best Prac,ces December 8, 2010
Charles Plant
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Slide 3
hockey s,ck forecast
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Slide 4
and this is important because?
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Financial Forecas,ng
Forecas(ng Revenue
the reality of results
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Slide 6
typical forecasts
• 35 start-‐up soJware companies • average first year growth budgeted 401% • average second year growth budgeted 246%
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Slide 7
canadian results
• 100 top soJware companies in Canada • smallest company had sales of $2 million
• actual growth rate average was 24% • biggest grew 23% • smallest grew 40%
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Slide 8
what’s up with that?
• canadian companies took 10.2 years to reach $10 million in annual revenues.
• in the U.S. 6 years to reach $10 million
• 10 years to get to $50 million
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Slide 9
the best companies ever
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Slide 10
conclusions
• a rocket ship is a company that reaches $50 million in annual sales in 6 years or less
• most successful technology companies aren’t rocket ships.
• only 28% of the na,on’s most successful public soJware empires were rocket ships.
• a hot shot reaches $50m in 7 to 12 years. • a slow burner takes 13 years or more.
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Slide 11
don’t try to outdo google
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Financial Forecas,ng
Forecas(ng Revenue
top down forecasts
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Slide 13
before you start you must know
• target market
• business model • go to market strategy
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Slide 14
so how big is the market?
• gartner says the market is $50 billion • we’re going to get 1%.
• wrong
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Slide 15
poten,al users?
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Slide 16
rate of adop,on?
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Slide 17
total market size
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Slide 18
market share?
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Slide 19
Revenue forecasts
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Financial Forecas,ng
Forecas(ng Revenue
boVom up forecasts
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Slide 21
the revenue plug
• let’s see, $100k the first month…. • wrong
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Slide 22
sales funnel
• lead • discussion • proposal • evalua,on • trial • order • install
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Slide 23
how will you get leads?
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Slide 24
how long does each stage take?
Stage Time
Lead Start
Discussion 1 Month
Proposal 1 Month
Evalua,on 2 Months
Trial 2 Months
Order 1 Month
Delivery 2 Months
Total Time 9 Months
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Slide 25
what is the conversion rate at each stage?
Stage Stage Conversion Conversion Rate
Lead 100% 100%
Discussion 50% 50%
Proposal 40% 20%
Evalua,on 50% 10%
Trial 50% 5%
Order 80% 4%
Delivery 75% 3%
Total Conversion 3%
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Slide 26
you’ve got sales
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Slide 27
rules of thumb
• marke,ng costs • salespeople required
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Slide 28
implica,ons
• Compare your top down approach with your boVom up approach
• Watch out for overhea,ng the market
• Good companies start selling long before the product is ready
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Financial Forecas,ng
Forecas(ng Revenue
what’s next?
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Slide 30
checking your assump,ons
• check your assump,ons and revise them whenever you get new informa,on
• check forecasts monthly.
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Slide 31
investors?
• knowing your forecast shows you know your business model as well as your go to market strategy
• be prepared to discuss in detail • however no maVer what you do, prospec,ve investors will not believe your forecasts.
• but you will because you will have done a good job preparing them
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Slide 32
the art of forecas,ng
• it’s all about marke,ng
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Financial Forecas,ng
Forecas(ng Revenue
ques,ons?