It Will Take Longer Than You Think (And That’s OK)
In this episode, we look at the delays that Precursa is experiencing and talk about how to reframe delays and setbacks to be opportunities in the growth of your startup. We also dig a little more into the pro forma, the sensitivity analysis, and total addressable market… And Precursa gets a TAM upgrade!
In today’s episode, Cynthia Del’Aria dives into the reality of the time commitment building a startup requires.
There is so much attention that surrounds the very last stretch of the journey building a startup, but the process along the way is ignored. Things rarely ever go according to plan, so Cynthia urges founders to make a plan and do the work to stick to it, but remain flexible and be able to pivot as the plan shifts and changes. Additionally, things always take longer than you think they will. Creating a business is by no means a quick process. From Cynthia’s experience, it takes about 18 months to have something in the market that you can be selling.
Going too fast can break you in serious ways. If you aren’t ready for growth, and haven’t determined the key pieces in your path, growth will only amplify your weak spots. If you’re aware of the long road ahead and plan accordingly, you will set yourself on the right path. The more you can reframe when things go wrong as an opportunity for attention and consideration, the easier it will be to go with the flow and take hits as they come.
Initially, the idea at Precursa was to begin by offering just one tier to gauge customer feedback and response. However, they were advised to stray away from offering just one tier because the customer decision then comes down to “buy or don’t buy.” With two or more tiers, the decision is buying the lower or higher tier. When researching to develop a multiple tier market, Cynthia encountered new information about her total addressable market. There are roughly 1,200 people beginning an entrepreneurial tech journey every day. This new information completely changed the model they had been working with in an exciting way.
This is where the journey really gets interesting. You will inevitably find new data that may either improve your numbers or make them worse. Remember that, as a startup, your proforma is about what you think you can execute on and what your investors are allowed to hold you to. Don’t forget to include your assumptions when assembling your proforma and pitch deck to back up your numbers and prove you have done your research.
It takes something to be an entrepreneur and you must be able to prove that you are the person to get the job done.
Be sure to like, share, and subscribe to Precursa: The Startup Journey on your favorite podcasting platform and tune in for the next episode!
Straight to you from Denver, Colorado, this is Precursa: The Startup Journey. We share the ins and outs of building a tech startup from inception to launch to revenue and beyond. If you’ve ever wondered what building a startup from scratch really looks like, you’re in the right place. With full transparency and honesty, we reveal it all about Precursa on our ride from idea to exit: the wins, the lessons learned, and the unexpected twists and turns.
Hello everybody. Welcome back. This is Precursa: The Startup Journey. So as you know, if you’ve been listening for a little while, this podcast is all about us talking about what’s going on in our startup, right? Because it’s, it’s one thing to see the end, right? We’ve talked a lot about this. You know, you see the last 3%, that’s what gets reported in the news, the overnight success, which is a total myth. What does it really look like along the way? And that’s exactly what we’re doing here. And so what’s happening right now in our startup is that, although we’ve been working with an advertising company for two months and paying them a lot of money, they have yet to start running ads. And it’s frustrating me, one, because, you know, we have been putting money in and you know, but at this point we should be able to see what kind of list we’re going to have by the time we launch in September. And right now we have a very small list because it’s all organic growth at this point. Now, why did that happen? So there was definitely some issues with the advertising company internally, right? Like, so they had some people who are supposed to be building some landing pages for the ads that they were putting together. And even though we talked about that with them in the beginning about how we use LeadPages for our landing pages, right. We’re already paying for that. So if we don’t have to pay for something new, I’d obviously rather not do that. But they use a different system, right? And so when we told them at the beginning, we said, hey, this is what we use. Is that going to be a problem? You know, we just need to know so that we can budget for, if we have to do something else, you know, no, no, no, that’s totally fine. Not a big deal. Well, communication issues and all, you know, here we are two and a half months later, and we still don’t have landing pages, and we still don’t have ads running. So what I want you to understand is that, the first thing is, and we’ve talked about this before, but things never go according to plan, right. They just don’t, you have to have a plan and you have to be working towards execution on that plan, but stuff is going to come up. And I think I talked about a few weeks ago. It’s like, or a few episodes ago, sometimes time and space are what’s required in order for things to happen in the right timing. Okay. And that doesn’t mean that we as humans like that answer. In fact, me as a human, I hate that answer cause I want it now. But that’s the reality. And sometimes the time and space is about giving you the time as a human to do the work you have to do in order to become the person who can run this new company that you’re trying to build. Right. And I know we’ve talked about that a little bit too. So things rarely go according to plan. So making a plan, doing the work to stick to the plan, but being flexible and being able to pivot and adjust as the plan shifts and changes and as real life happens, you have to balance both of those things as an entrepreneur and especially as a founder. Right. The other thing is that things always take longer than you think they’re going to. Right. I mean, I’ve actually been really surprised, you know, I was talking to our developers the other day and I was sort of like, how do you guys think we’re doing? Like, where are we at? And how do you feel about the whole process and everything? And, and they’re like, actually, we’re, we’re doing really well. I mean, we don’t have a lot of UI on top of things. And, you know, the second you give the user the ability to interact with something, it can create interesting challenges and whatever, you know, so we’re going to start addressing that just as soon as we can get our UX engineer back on board. We’re, like I said, we’re in the process of fundraising right now. So, you know, our developers are getting some equity and we’re sort of cash-flowing them, but our UX engineer, we’re like trying to raise the money to pay her. Right. So that we can get her back on board and get that going. And at some point here, we’ll talk about user experience. And, and what does that mean? And how important is that? Probably not, probably not in the next few episodes, but some point we will. But it always just takes longer than you think. I mean, if you’ve been, if you’ve been following along our fundraising journey, you know, we started back in January talking to that original VC firm with the debt financing option. And here we are middle of June and we’re still working through options, you know, we’re, we’re pitching now and we finished our pitch deck and it’s in front of some VC guys and I’ve got some, or it’s in front of some PE guys. And then I’ve got a couple of guys who participate in a local VC firm. One of them is actually raising money as well. So we’re going to trade pitch days with each other. And, you know, so just doing the reps and getting, doing the pitch and getting comfortable with it and all of that stuff. Right.
But it always takes longer than you think. And, and the reason that that’s really important to understand is because you will make a plan. You will say to yourself, this is super-hot. This has to go out right now. Like I need this done. We gotta get this out in six months. And if it can’t be six months, then it’s not worth doing. That is crazy. Nothing takes six months. I mean, even ths… So I work with a lot of entrepreneurs, a lot of startup entrepreneurs, particularly new startup entrepreneurs, but more people who are experienced in business, but are new to tech. And part of the process, and you’ll see this in the, in the Precursa platform too, we go through this whole thing with our members as well. But when you get to a point where you understand what your MVP is going to be, the very next step is to say, okay, what are my options for getting there? Because everybody, everybody thinks. So I got to hire developer and build it myself. That’s not always true. And for a true MVP, MVP is minimum viable product – minimum. Like what’s the least sliver of functionality where the user is served and the server works and the database data is there. And like all the pieces are there, but it’s the smallest piece of functionality that delivers value to user one on day one, and starts to deliver on solving the problem that you said you were solving, right? That that may not, and in a lot of cases, I would say in the majority of cases, doesn’t involve custom code. Like it doesn’t necessarily involve custom development. You can white label platforms, like license a platform that’s out there that might do some of the things that you need to get done. You could potentially have like a hybrid model. We work with a company that that does sort of a hybrid model of, you know, it’s a community-based platform. And a lot of the pieces are the same, but they do, you know, you have your own environment and you have your own, you can do your own UI. And, you know, so it’s sort of a hybrid, custom licensed platform thing. Maybe there’s something that you can just buy right off the shelf that will work really well for what you’re trying to do. And the goal of the MVP is to get something out into the market and get your first customer, get some revenue, get some feedback, get, get that early adoption. Right. And so what that looks like could be wildly different from project to project. And almost never actually involves custom development. So I’m saying this because in that sort of model, it may very well be possible to get something out in three or four or six months. Right. But it might take longer than you think. So for example, the custom platform that we work with, we’ve had clients where once they’ve gotten through all their user validation, and once they’ve really honed in on what their problem is, this company’s helped us get them launched within three or four months of that. But that’s already six to eight months, right? Because remember you need to be talking to people, and the process that we run you through to get you to the go-no-go decision point in Precursa takes the average person between three and four months to kind of get through that, that process. Some people take as long as six, very few people do it in less than three. You can do it in eight weeks, but you have to be so intentional, it would be your full-time job, you know, because you’re talking to 75, a hundred, 150, sometimes more people in order to get that data that you need. Right. So to set an expectation and say, in six months, I want to be launched, when you’re starting from you think you know, but you haven’t done any of the validation work and you haven’t done any of the solution validation work, and you don’t really have a proforma and you don’t know how to talk about it really elegantly and really specifically enough, it’s probably a pipe dream. Why is that important? Because is everything takes longer than you think, and that’s exactly the way that it’s supposed to be. Okay. So if you start feeling yourself, putting pressure on yourself, because, oh, this is taking too long and there’s other people getting out in the market, blah, blah, blah. Yeah. If you could talk to those people who are now getting out in the market, you’d see they’ve been at it for probably at least 18 months, maybe closer to two or three years.
That’s because that’s what it takes. This isn’t a snap your fingers and create a business. Now, if you have a successful business already, and you’re wanting to add a new tech element that gives you access to a new audience or new ways to interact with your existing customers or starts to solve a problem in your industry, you might have a head start on that because you may have more concrete data that you have unwittingly gathered over time. But even then some of the best ideas that I’ve seen, ones that have like they absolutely have the best product market fit ever, still took two years to get to market. And you will hear stories of people that say, yeah, I came up with this idea and then within the three months we had an MVP and then within six months we were cashflow positive. I question those, I really do. And it, you know, if you’re someone listening to this and that was your story, I’d love to have you on. And I’d love to have you talk about it, but that’s really an unrealistic expectation, and an unrealistic journey, and not the norm. 90% of companies, 90% of startups make it up. The number 90%. But in my experience is actually a hundred percent, but there’s probably a 10% fudge factor in there, but it takes eight to 12 months, minimum, usually about 18 months to have something in the market that you can be selling. And that’s okay. So there’s, there’s this, you know, I go back to the advertising company we work with and, you know, I feel this pressure, like I want to push them more. And thank God for Sarah jolly because she definitely is great at like vendor management and sort of like saying the things that need to be said, but in a way that has people feel connected and like we’re in this together kind of a thing. And God bless her for that because I’m way past that point with these guys, you know, but I bring it back to the advertising company because whatever reason there is for this delay, now we can point to, you know, they haven’t really been doing a great job and there’s been lots of communication issues. And we didn’t even know that this was a problem. And, you know, it was like a month and a half before they showed us the first really bad landing page that wasn’t even on brand. And I mean, it was just really bad, right. We could point to all that stuff, but what I’m interested in is what’s the universe telling me right now? What message is God trying to send me about what’s going on? Is there more work for me to be doing in this moment? Is there something else that our time should be used for? Because to be honest, if we had a ton of influx of, you know, advertising that was driving a bunch of traffic, there’s a very good chance that a lot of the key things that we had to get done over the last month and a half may have been distracted from getting those things done. So it’s been, I guess I’m saying that because everything can be like frustrating and a challenge and, oh my gosh, why is this happening? And rah, like, everything can be that, or it can be, this is happening exactly the right timing, right. This is happening exactly when it’s supposed to and exactly when I need it to and exactly how it’s meant to. And again, we’re kind of drifting back into mindset a little bit here, but I think it’s really important to consider whenever something happens, yes, we have to deal with it. Right. We’re talking to our company, we’re like, look, we’re not giving you guys any more money until you actually take the money we’ve already given you and deliver on your promise to us. Right. So we’re going to do that. But the other thing I’m doing is I’m taking a step back and I’m saying, okay, realistically, we have been sorting out a lot of the production issues with our podcast. And that’s something that having the pressure of not missing a week, because there’s, you know, thousands of people every month that are signing up and that are starting to listen to the podcast and all that, you know, we’ve got a few hundred that are pretty consistent every week right now, but it’s nothing crazy cause we haven’t been marketing it crazy. Now, I don’t know when you’ll be listening to this… But the distraction away from making sure that the ducks are in a row and making sure that this is exactly the problem with companies that scale too fast, right. We want to put on the gas at Precursa. Between Paige and I, Sarah is the brake and Paige and I are the gas pedal and Paige and I are like LFG let’s f-ing go, right? Like we got to go, this thing’s got to happen. We got to make it go, go, go, go, go. Right. And Sarah, God bless her, which is why she so has so much patience is the brake. And so she has a little bit ability to counteract, you know, Paige and I, our crazy selves, but I’m pointing that out because we want to go fast, but going fast can break you. Sometimes it will break you in really dramatic ways. And so what I’m looking at, okay. So we haven’t been the advertisements haven’t been running. We haven’t been delivering on, you know, getting what we need for, you know, or building the business for the last six, six weeks, six to eight weeks. What have we gotten done that would have been made more difficult if we had been doing that other stuff? Like, you know, if I had thousands of people listening to the podcast, you know, would I have felt more pressure about finding the right company to do all the editing for us? Would I have found, would I have felt more pressure. I mean, because remember I got sick with COVID just a few weeks after we started recording these. And so I literally had two weeks where I was not in front of a microphone. I was literally in bed and like writhing in pain. So those episodes that those couple of weeks that we missed could have been really like scary for me to put more pressure on myself, to deliver something that I wasn’t capable of delivering had we had that audience.
And it’s interesting when you’re, because it would be one thing if we were already well known and you know, we could republish an episode or I could have Paige or Sarah do an episode or have somebody else on my team, do an episode or two, or just skip two weeks and put out a message. Hey, you know, this is what’s going on. When you have a following, that’s a little bit different when people are just getting to know you and you miss one or two, that’s a whole different thing. And so when you’re thinking about scaling too fast, growing too fast, the challenge can be, if you aren’t ready, if you aren’t, if you don’t, if you aren’t on like a pathway where, you know, you know what you’re doing, you know, what the pieces are, all growth does in that setting is amplify where you’re weak. So even for Precursa, if I was to show you our proforma, you’d look at it and say, wow. In the first two years, you’re really not growing very fast. I mean, our goal is to get to 800 subscribers as fast as possible, because that puts us at cashflow positive. But beyond that, we really don’t want to grow super-fast in the first two years, because we don’t know what’s going to be required from us on a customer service and customer support basis. Right? Like we have pieces of that in place and we’re making educated guesses about it, but we could be totally wrong. Maybe nobody ever calls in and needs customer support, or maybe everybody does because they view customer support as an extension of coaching. Like we don’t know what’s going to happen, so if we open the flood gates and are like, we want to try and ram 15,000 people into the system day one, there’s going to be massive problems with that because we don’t have the infrastructure, we don’t know enough about what it takes to scale the business, because we haven’t done it on a small scale, right? So I want you to understand, taking the time that it takes to learn how to operate successfully is really important. And any time there’s something that causes you to grow slower than what you really wanted, it’s always an opportunity to take a step back and say, okay, what is this telling us? Are there other areas that maybe we don’t have fully dialed in? And this is like a little space the universe is making for us to do that work. What could we be doing? How can we look at this as a positive? Because ultimately that’s, what’s going to keep you in the game longer than constantly being frustrated, constantly being frustrated, and focused on all the things that are wrong. Look, if I tell you, okay, this journey is going to take two years longer than you think, but as long as you just know that it’s going to take longer than you think, and you learn how to roll with the flow and keep a positive outlook, you’re going to be fine. And you will be. Not only because you know it’s going to take longer. So you, although you’ll still want to do it faster, you’ll remove that pressure from yourself that it has to be this way. And it has to be this way, but the minute you give yourself room to be like, oh, that really didn’t go as planned. Like, Hmm. Okay. Well, we need to fill the gap financially. Okay. We’ll figure out a way to do that. But then what else is there for us to do? You know, what else could we be paying attention to? Or what have we not put a lot of attention on yet? And how could that make it better and serve us going forward? That’s a whole different way of being in a business and looking at a business. Now, I am not telling you to sugarcoat everything, okay. That that’s not what this is. That’s not sugarcoating. That’s giving yourself the opportunity to reframe a context and reframe a conversation and reframe the monologue in your head. Okay. And you heard a few episodes ago, you know, entrepreneurship is not for the faint of heart. That was a very raw episode for me. I believe, and even like last episode or two episodes ago, or whenever that was, we were talking about celebrating. Like, you learn to feel the losses and you also have to train yourself and teach yourself and discipline yourself to feel the wins, right? So I’m telling you all of it is part of the journey, but the more, or you can reframe when things go wrong, and I’m putting the word wrong in quotes, because that’s even just a perception. So the more you can reframe when things go wrong for, what can we do? How can we, what opportunity does this give us that we haven’t, you know, what thing can we pay attention to that we haven’t been paying attention to whatever that is, the easier it will be for you to accept, you know, sort of like go with the flow and take the hits as they come. So anyway, I think the other interesting thing is, you know, we recognize the value of marketing and advertising, getting the word out, strategic messaging, content. We recognize the value of all of those things, because we are not new at building companies, right? Brand awareness, building brand loyalty, having people understand who you are and what you do in a very succinct, very simple way, where they get it immediately. All of that stuff is really important to driving organic traffic, but also to converting referral traffic and strategic partnership traffic, and all that kind of stuff into actual business for your company.
All of that stuff is really important. So we never put that on the back burner. That’s always front of mind for us. And a lot of tech companies, you know, a lot of tech startups that I work with, they’re like, well, let me just get my product out there. And then I’ll worry about how I market it. And I think that’s backwards. I am a huge fan of, if you can get your first paying client before there is a product for them to buy, like whether that’s even just a letter of intent or something that shows, you know, and what kind of pre-sale you might get really depends on what you’re building. So like for us, our pre-sale is our list building, right? So the bigger list we build leading up to leading up to launch, the more traction we have pre-launch right. If you’re in a B2B professional services company, if you can get a couple of letters of intent in order to get you the capital you need to, you know, so you have letters of intent, or you even have signed contracts and some deposits on that work that gives you what you need to go put together the team to execute on the work, right? So for us marketing, advertising, customer acquisition strategy, that doesn’t wait until we have a product. We’re doing it constantly. And from the beginning. I mean, I’ve had probably six or seven conversations with strategic partners this week alone, right? People who are attorneys who work with startups, people who are manage funds that work with early-stage companies, incubators, accelerators, people that we know in, in VC firms and PE firms who are like, we need a place to send people who are too early for us who don’t have enough information or whatever, right. So we’re always doing that work. And it’s, it’s frustrating feeling like we took the right steps and it’s still taking too long. But like I said, it’s kind of the nature of the game. And so with our advertising company, what we’re essentially doing now is we have worked out a deal with them where they’re going to take the money that was supposed to be spent on design for us, because we ended up using our own designer to design the landing page and design all the ad graphics and stuff like that. So they’re going to take that money that was supposed to be spent for that and apply it to ads. So it gives us an extra, like $8,000 in advertising or something like that. And they’re going to take the money that they already have an escrow from us over the last couple months. And just as soon as our designer is done with the landing page, and everything’s set up and ready to go, they’re going to launch things and start doing the A/B testing and figure out what works. And, you know, they feel like they have a good handle on who our audience is now and the ad copy they’re writing seems to be pretty good now, but, you know, we had to work that out. Right. And there were a lot of communication issues. I mean, one of the things that you will learn early on as a startup founder, especially as you’re the one doing the majority of the work, you know, doing the majority or all of the heavy lifting, how you work with, with vendors and how you manage vendors will start to give you a clue about your management style for when you have a team.
I always like to say that management is about removing obstacles so that people can do the thing they’re really great at, right. If you’re hiring someone because you have, you need a warm body, that’s not a good reason to hire someone. You want to hire someone who’s, who’s really great at or has a lot of potential or passion to be great at the thing that you need done. And then your job is to remove the obstacles that block their way from being that, that thing. Right. And so managing vendors will give you some insight into what are your challenges? What are your frustration points? Where do you kind of go from frustrated but workable situation to, oh my gosh, I’m going to just completely lose my mind. And you should note all of those things, because employee relationships, while they are very different from a vendor relationship, they’re also in some ways, a lot more difficult to replace, a lot more expensive to replace. And so learning about how do you manage people, where are your gaps? Where do you find yourself going, I don’t even know what to do. I don’t even know what to say. Understand what those situations are and kind of back it into, okay, what if this was my employee, what would I say? Okay. So again, these are all opportunities for us to be continuing, to refine, hone our strategy and our build our muscles for all of the things that we know we need to be doing. And honestly, in the last two weeks, the amount of stuff that’s gotten off of my to-do list, like I’ve gotten it done, that has been far less pressure because there wasn’t a bunch of incoming. And, you know, I fully anticipate when people, when more people start listening to this, I’m going to be getting even more emails than I’m already getting, right. With a few hundred people being pretty consistent about listening, I’m probably getting five or 10 emails a week asking questions and, Hey, what do I do about this? And when did you say it was going to be ready? And like all that kind of stuff, right? Well, if you multiply that by 10,000, right, take that couple hundred and escalate that to 10,000 or 15,000, that’s a lot of emails. So if I was trying to get through all the things that I was trying to get through in order to have everything be set up and humming along and responding to a few hundred emails, that would become a problem. Right? So look for the opportunity in everything that comes at you, what can I learn? What does this give me the ability to do? Where do I need to backfill my infrastructure or my process to be able to grow this piece that’s challenged right now. Right. And that will always lead you in a great direction. And as a startup founder, you have to get used to thinking that way anyway. Okay. Okay. So as I said, we’ve been working on the pitch deck. We’ve been pitching to people. We’ve had a bunch of people reviewing our business model. Something interesting happened. I think it was, it was a few episodes ago. We were talking about how we had a single tier. We’re just going to launch with everything in that single tier and learn what we needed to learn about, you know, the differences in what people wanted. Well, as we were, first of all, the feedback that we got from the PE guys was never have just one tier because then the decision is about buy or don’t buy. If you have two tiers, the decision is, do I buy the lower tier or do I buy the higher tier? Do I want less support, but to be able to work at my own pace, or do I want the coaching and the live and the, you know, the extra deep dives so that I can be more methodical and more meticulous about what I’m doing, right? Like that becomes the buying decision, not buy or don’t buy. So we went ahead and created two tiers. And when we did that, I had to go back and do some research because there are some well-known metrics and statistics and data around when you build a SaaS product, how do you price it? What do the churn rates look like? What are the buy rates monthly versus annual? So if you offer, you know, most companies want you to buy annual and we’re the same, because it does take three to six months, 3, 4, 5, 6 months to get enough data, to be able to make a go no-go decision. And by that point, you’ve probably gotten, you know, you’ve gotten into the community piece and you’re getting the support you need. And you’re probably gonna want that to continue as we build out later pieces of the platform where we’re, we’re giving you, you know, a roadmap for, okay, now I’ve launched, how do I, how do I backfill my infrastructure and how do I, how do I scale and grow without completely crushing myself? And, and then how do I exit, right? So we want you in the platform for the full life cycle of your startup. And even once you exit, we want you to come back in either as an investor or a mentor or a co-founder for someone else. And so we want you to buy the annual membership because we know you’ll get the most value out of being in the platform for at least that first year, while you’re on this journey.
Most companies that, you know, the value is delivered over time, want you to do that. But you have to offer a monthly because sometimes people need to understand what they’re getting into and they want to feel like they have a chance to try before they buy. Now, we do have a free trial and you know, so you do get a chance to see a little bit what the platform looks like. You get to go through one step and one activity before you have to make that buying decision. But when you do that, sometimes people still need a little bit more time. And sometimes people are like, I just want to do this to get through these pieces and get my score, you know, or whatever. So there are metrics out there and there’s, there’s research out there that will tell you what are the average skews of in a SaaS model, how many users typically buy annual versus monthly? What is the churn rate on monthly customers? What’s the average churn rate on annual customers? And all of that stuff matters when you’re building your business model, because it needs to go into your proforma model to inform how many new people do you have to be reaching and signing up every month in order to hit all of the metrics that you’re trying to hit, right? In order to deliver on the promise that you’re giving to your investors. So, an interesting thing happened when I started doing that research, when we said, okay, we’re going to do a multiple tier model from the beginning. And what happened was I found new information about our total addressable market. And we talked about this a few episodes ago, where I was saying, you know, there’s, there’s like 170 to 180,000 active startups in any given point in the United States. And if you figure two thirds of those probably don’t really want your help. You know, they, they, they’re going to do what they’re going to do. And, you know, they don’t need you and whatever. So a third of that’s the available market, plus a margin for ideas that aren’t a formal company. Well, here’s the thing, there’s actually 1.35 million new tech startups every year across the globe. That is a huge number. That’s 1200 new people who are ideating or people who are starting on an entrepreneurial journey in tech every day, 1200 a day. So we applied the same mathematics because one of the things we said was, well, we need to really focus in the US because we don’t have the capability to do all the localization and different languages and everything. And one of our potential investors, he was like, you can get Europe because a lot of those countries are either primary English speaking, or allow them know how to speak English, Australia, New Zealand, they speak English. I mean like Thailand, the Philippines, they speak, they typically speak English. There’s a lot of South American countries that speak English. And they’re like, so don’t limit your market because of something arbitrary. And so we said to them, while we found this, this data that shows 1.35 million new tech startups a year, and both the guys we talked to were like, great, that’s your base number, now apply your formula to that. So if we still assume that two thirds of those people are like, I don’t need you. I don’t, I don’t care what you think, whatever. That’s 450,000 people a year, 450,000 ideas a year that are exactly right for our platform. And all of those people, you know, the more of them that stay in the platform and that get the support through the whole life cycle of their startup. You know, we’d love it if all of the tech startups across all the planet are in our platform. And there’s communities created between people and people are getting support and mentorship, like ultimately that would be our goal, I think, you know, that’s a wildly crazy goal, but if we just look at the total addressable market of 450,000 every year, well, now our 5% is 22,000 people in the platform. That’s a whole different number than the one we were looking at before, which was closer to like 3,500 would be like 5%. Right? And this changed the model in ways that got the PE guys actually really interested, right? Because it was no longer about solving a small problem. It was solving a big problem for, they got it for themselves, right? Like PE guys and VC guys are looking to solve their problem, which is how do we know which companies are really ready?
We do due diligence. We think we understand, but if there was really an objective metric that would tell us, and if there was all that data in the system that we could look back at that wasn’t put in a pitch deck, or, you know, interpreted by the founder, but we could actually look at it in the system and say, wow, they actually input 135 user interviews. There’s actual data in there we can go look at and read the quotes and see what people said, right. That’s a whole different ball game. And that’s a whole different kind of due diligence, and they got really excited about that. And they were like, wow, this is, if really could do that, that would be really awesome. Right? And so once they get the concept and then once they see, once they get that this is designed for every tech startup could be able to be used, you know, working in this platform and getting the value and learning whether or not their company is viable. Right. And then figuring out how to build something viable and then how to scale it and grow it and exit it. Once the numbers look good and the scale of the thing matches what PE guys and VC guys are really looking for, now all of a sudden it gets interesting, right? So I’m telling you all this, one because you are going to find new data. Sometimes it will improve your numbers. Sometimes it will make them worse. Remember that as a startup, your proforma is about what you think you can execute on and what your investors are allowed to hold you to. Now, most investors know with no historical data whatsoever, it’s a shot in the dark sometimes, but that’s why you do a sensitivity analysis. And I know we talked about this briefly, but a sensitivity analysis essentially says, take your numbers, and let’s say that we got everything wrong in the wrong way and everything wrong in the right way. So everything wrong in the wrong way means our expenses were too low and our revenue was too high. And so we got to bring income down and we got to take expenses up. And by a multiplier. I’ve seen a lot of companies say, let’s just go 15%. I think doing it two standard deviations off the mean, plus a fudge factor, because you don’t have any historical data, which puts you at like, bring your revenue down 32%, drive your expenses up 32% in the downside sensitivity model, you’ll never go wrong with that. Like PE guys, VC guys, investors, they look at that and go, wow, you’d have to get it really wrong to hit those numbers. And it’s like, yeah, and it still works. Here’s the point at which, you know, we hit breakeven. And obviously if we weren’t getting the, the revenue numbers that we really wanted, we’d drop our expenses, right? Like we’d reduce our expenses in order to be more consistent. So that gives them a measure of everything’s going to, we know the worst case scenario, but a lot of investors also want to see what happens if you underestimated yourself. What happens if you know, you exceeded revenue expectations and you were able to keep expenses lower than you thought, what would that really look like? That would be the upside sensitivity analysis. For that one 15% is probably about right. Now, here’s the thing. In your proforma and in your pitch deck, when you’re putting in all these financial numbers, you need to include your assumptions. So for example, I’m going to pull up our pitch deck here, and I’m going to tell you what our financial slides say about assumptions. So we have our table. We’ve outlined when are we building and honing and refining and customer acquisition and, you know, like building and getting to the point where we can press the gas pedal, which is the first two years, and then years three through five in our analysis, are scale and grow years. So, you know, it justifies, why do our numbers get so big? So fast? We’re like more than doubling our numbers every year after that point. Well, because we’re going to dump a crap ton of money into marketing and advertising, right? We’re going to, we’re building out our advertising dashboard, right? So there’s going to be a lot more traffic driven.
Here’s the assumptions that I made sure we put so that anybody looking at these financial projections would understand context for the financial projections. The first is we’re projecting a 35/65 split between tier one and tier two users. Okay. So they want to know that because this is a blended analysis. It’s not a full breakdown. We’re anticipating a 50% churn rate on monthly subscriptions, and a 30% churn rate on annual subscriptions. Okay. So the annual subscription, usually if you can get people to stay for the full first year, at the end of that year, they’ve gotten the value and they want to keep going and they’re building their company, or they’re coming up with a new idea or whatever, right? Monthly people are more likely to churn. Now, a 50% churn rate, even a 30% churn rate is really high, but we’re being really conservative with our numbers. And so I’m calling that out so that they can see that. We also assumed a 50/50 split between monthly and annual subscribers across the tiers. Okay. Now, again, most of the time you’re probably going to have more annual subscribers than you are going to have monthly, but if we go 50/50, our numbers work and probably they’ll end up a little bit better. And really what it will change is when we realize that revenue, which we’ll talk about that at some point, we’ll bring on Sarah and she can talk about that more. And then the last assumption that we made sure we put in here was the 22,000 active users at the end of year five in our model represents about 5% of the total addressable market. So getting 5% of a total addressable market within five years is not unreasonable. Some people will say, let’s shoot for one to three. In some markets, they’ll tell you to shoot for five to 10. We’ve had a bunch of people say, you should shoot for 10%. And we’re like, we’re going to shoot for it. Don’t get me wrong. We’re going to shoot for 45,000 users in the platform, but it doesn’t bother me if we only hit 22,000, because it’s still 5% of the total addressable market. And so just making clear to anybody, who’s looking at the slide deck, anybody who would be looking at our financials, these are the assumptions we made, and here’s where we got our numbers. It puts something behind your numbers that isn’t just, this isn’t just back of the napkin. We made some stuff up. This is, we did our research. We understand our market. We understand where we’re going. We understand how we’re going to get there. And this is what gives you a level of confidence in what we’re saying. And then what it is about is do you like the idea? And do you think we’re the people to execute on it? And in fact, what I would say is, do you think we’re the people to execute on it is actually even more important than any of the other stuff, right? This is why you’ll see investors give money to people who have failed multiple times with previous money. And it’s because they know that person’s got a win in them somewhere, and it’ll probably be pretty big and pretty good. And so they’re going to keep betting on the same horse to, you know, use an animal sports betting analogy, I guess, but they like the person. And so they’re going to keep betting on that person. Because whatever it is that they see in that person, that’s tenacity, the willingness to drive the way that they come at problems, whatever that is, that thing is what they’re actually investing in. And whatever the idea is like, they want to know that it’s good and it’s vetted and whatever. Now here’s what’s funny about that. Remember, uh, in our last founder session, Sarah was talking about the pink glove with the heart on it for, for, you know, helping women remove tampons. And this was like a thing built by guys invested in by guys and you know, out there in the market, probably those investors like those guys. And clearly those guys have the ability to execute something. Now, obviously they didn’t have product market fit because hello, that’s a terrible idea. So there’s a piece that they’re missing and maybe they should get on Precursa and go through, you know, test their glove next time. But the point being their investors were probably investing in them. It’s probably not the first time they’ve invested in them. And it probably won’t be the last time, even though they had a fail. It takes something to be an entrepreneur. And you, this is why pitching is about building a relationship. You have to prove to people, what you’re actually proving is not the value in the idea. Although you’re doing that, and it’s not, you know, the basis for your numbers and your market, although you need to be able to do that, but all of the work to prove all of those things is actually about proving you’re the person who can get this job done. Not only do you have a passion for whatever this market is or whatever this idea is or whatever this problem is that you’re solving, but you have the drive and you have the ability and you have the sticktuitiveness to actually execute and get it done. And this is where I know I talk about this quite a lot, but you as a startup founder are straddling the line between strategy and vision and holding that vision, and actual execution and getting stuff done. And it can be learned. Most people are not born with the ability to do both of those things at once, but it can be learned. But it is very difficult, but that’s what it takes to be a successful early-stage startup founder. Now you get to a point where you can start to backfill and hire people who are really good at a lot of the execution pieces, so you’ll spend more time the more mature and the bigger your company gets. You’ll spend more time in the strategy and the vision side, but you can never fully let go of the execution side. And that doesn’t mean you’re the one doing the work, but you, as the CEO, as the founder, you better know what’s going on in every, in every piece of your department.
You know, this is why there’s such a thing as an executive team, the CEO manages the executive team, the executive team members. So the CMO they manage the marketing organization, the CTO manages technology. The CIO is usually over, now we have like CISO, which is information security, but CIO, CISO. So, you know, those, all the, that, and CTO all worked together to make sure that the, how is your, how is your data being protected? And so all of these, you know, you might have a chief sales officer, your CMO might be over sales as well, but you know that person… And those people should know exactly what’s going on in their department. Where are they doing well? Where are they failing? What issues do they have with their staff? And that’s what they’re bringing to the CEO so that the CEO knows what’s going on with our company. What do we need to be doing? Do I need to make changes? Do I need to make game time decisions? And the CEO is the one saying, this is the direction we’re steering the ship, go run your teams that way. Right? So now I’m saying all of that and realize that I believe the organizational charts at the majority of companies are upside down. The CEO isn’t the top of the pyramid lording over all of the minions. The CEO is the bottom of the pyramid, taking all of the shit, making sure that it rolls right onto them, so that everyone else in the chain has their roadblocks and obstacles removed and can do an amazing job and build the company and grow the company and create a great culture. I feel that my role as a CEO, as a founder, has always been in service of making sure that the people who work directly for me and the people who work in my companies are well taken care of and that they get what they need. That’s actually my job. And so now the straddling as you grow your company is about strategy and vision. And the execution piece is about making sure people have what they need, and again, removing roadblocks. Removing roadblocks. And the reality with the CEO is the buck stops with you. Okay? The buck stops here. There’s nowhere else for it to go. If you have to take something to your board of advisors, it better be related to something that your board of advisors feels like is in their scope of responsibility to handle. Otherwise, they’re going to look at you as the CEO who’s not doing their job, right? Your board of directors is not there to handle management problems. Your board of directors is not there to fix your sales team. They’re there to make sure that you’re pointing the ship in the right direction and that you get mentorship and support when you need it, but you should not be bringing them, you know, we got a gossip problem in our marketing organization, right? Like, that’s not what they want to hear. They want to hear that you are a CEO who fixes problems. Okay? So I’m telling you all this, because all of this stuff that we do leading up to getting to a launch, leading up to, you know, why are we getting all this data? Why are we talking to all these customers? Well, first and foremost, because if you’re not listening to your customers, if you aren’t, if you don’t understand the problem you’re solving, and you don’t understand who you’re solving it for, and you don’t understand whether or not your solution resonates for them, you’re never going to have a successful company. But once you put that piece in place, the very next thing right behind that is proving by being willing to do the work by being willing to go the distance, you’re a startup founder, that’s going to deliver for your investors. Because ultimately that’s what they’re looking for. If they’re going to invest in you, they want to know you’re going to deliver on getting them a good return on their money. Because if they don’t feel confident that you can get them a return, it doesn’t matter how good your ideas. It doesn’t matter how well thought out it is. It doesn’t matter how huge your total addressable market is. They’re looking at you and saying, are you the one? Okay. Which is why the team matters. People matter. Pitching is about building relationships. Investors are a relationship, and they’re looking to you to steer and drive. Okay. All right. So just, I was super excited because our total addressable market was way different than what we thought and in a good way. Right? Like our numbers got really big and that was validated, you know, I had some people do some backup research and, and that was all validated.
And so we were really, really excited about that because now our performer looks amazing. Okay. So next week I want to talk about… I’ve heard this question. Okay. And it’s, it’s actually never put like a question, but I’ve heard people say, well, I always feel bad when I found out that other friends of mine who are entrepreneurs are also fundraising. Cause I feel like, you know, we can’t all raise money and we can’t all help each other, or introduce each other. You know? Like I don’t want to introduce them to the people that I’m pitching to because what if they invest in them and not me. Right. And what this comes back to is, is entrepreneurship a zero sum game. Does someone have to lose in order for me to win? And so I want to talk about that next time. If you have questions, if something comes up, if you’d like me to address something on the show, if you just want to say hi, email us, email@example.com. Or you go on the website, make sure that you sign up to snag an early slot in the platform. So we do have an invite, you know, request an invite button on our website, get your spot because what’s going to happen is we’re going to do a phased rollout, and we’re going to do it based on the order that people signed up on the list for the platform. And so we’d love to have you get in early. So go sign up, get your spot, snag your spot on the list and… Happy entrepreneuring. And I will see you guys next time.
Thank you for listening to this episode of Precursa: The Startup Journey. If you have an idea for a startup and you want to explore the proven process of turning your idea into a viable business, check us out at precursa.com. Make sure to subscribe to this podcast wherever you listen to podcasts, so you never miss an episode. Until next time…