Trust Me, My Numbers Are Conservative

I wrote yesterday about the early startup exercise to size a market. Another exercise many entrepreneurs, especially those seeking investment, undertake is to project revenue into the future.

We competed in so many business plan competitions and gave so many investor pitches in our early days that I wrote software to help me automatically generate our revenue projections. I had hundreds of lines of codes with dozens of variables you could adjust to pop out the perfect 5-year revenue forecast. It was pure awesomeness! And all fake. A waste of time.

While projecting revenue for potential investors may not always be unavoidable (though it is becoming less and less important), you can resist a red flag behavior that causes potential investors to reel:

Avoid the urge to say, “My numbers are conservative.”

Here are reasons why you shouldn’t say that to investors:

They won’t believe you; they’ll feel you are naïve
They hear it all the time and have become numb to the statement
They don’t want to hear you are conservative; they want to hear you are accurate
They don’t want to hear you proclaim a confidence in your fake numbers; they want you to acknowledge that the machine you are building is what matters and that your numbers are merely a reflection of the opportunity your machine has to capture revenue in your sizable market
They want to come to their own conclusions

That last point is more broadly useful. It is often best to bring people to the brink of a conclusion without explicitly stating it. If you can get someone to form their own conclusion, they will walk away much more persuaded than if you have to spell it all out.

What are your thoughts on projecting revenue numbers for investors?

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