Are you a founder estimating your revenue projections? Are you creating a marketing budget for the first time?
If so, read this article carefully because there are things you shouldn’t do (and can compromise your fundraising).
First-Time Founders Tend to Obsess over Product, Not Distribution
I’ve personally made this mistake in the past. I kept telling myself “once the product is ready, we’ll be found”.
This isn’t the case at all.
When starting and launching a business (an app), founders need to obsess over their audience, their pains, challenges, etc.
If you launch a product without having any insight over what your audience ‘likes’, clicks, or signs up for, you’re starting in a bad position (and making money will be hard).
This leads to the big issue with revenue projections: revenue and marketing budgets.
Lies vs Stretching the Truth – Painting a Pretty Picture for Investors
Founders sometimes ask me to review their revenue projections (maybe twice a year).
They want me to look for gaps and to tell them if their numbers are realistic. I have yet to see projections that are accurate.
I know being a ‘yes’ man won’t help them, so I dig in on them. It’s rarely welcomed, but at least I’m being thorough and honest.
Here’s what I see the most:
Product-focused founders typically draft their expenses first. They want to calculate how much money they need to build their product. Then with whatever is left, they toss it to Marketing.
The optics need to look good, so they inflate their revenue projections. This is where they paint an unrealistic picture to investors.
Before their product is even built, they set revenue targets ranging between $1,000,000 to $50,000,000 in a 3-year window.
While this revenue target is aggressive, it IS achievable. However, the ability to hit that goal depends on marketing. This is why the next number to look at is the marketing budget.
Analyzing Marketing Budgets
Here’s what I often see: $10,000,000 revenue by year 2 with a marketing budget of $20,000.
That doesn’t add up.
By these numbers, founders are stating that every $1 spent in marketing will yield $500 in revenue.
These are fairytale projections.
It would be rude to tell them they’re crazy, so I dig into some qualitative questions.
“So tell me about your audience. What life events lead them to wanting your product? Do you have any confirmation of your assumption?”
Depending on their answer, I have 2 responses.
- Either they know their audience (and we work out a realistic budget), or
- They dodge the question and talk about market trends (where I suggest they learn more about their audience and forget the projections)
Here’s an example of Marketing Qualified and what I would consider a good answer to the question:
Tell me about your audience.
Originally we targeted people seeking marketing help, but as it turns out, the journey is more complex than that.
A large chunk of our community members work full-time jobs that they don’t like. They want to turn their hobbies into businesses.
Later down the path, we see a percentage of our community make the leap to starting up. These people are heads-down working on their dreams.
Eventually, these people emerge with actual businesses. They’ve figured out a lot of the guesswork, and seek help to grow their brand aggressively. This specific group of people are our target audience, but we create content and light the path for others who are on the same path.
If you haven’t walked a mile in your audience’s shoes, don’t write a single number and make false claims that you’ve listened to anyone.
Audit your assumptions and work to confirm your suspicions.
Empathy vs The Numbers – Empathy Wins
I am a numbers guy. I believe in logical decision-making, data analysis, trends, and patterns.
That being said, I’ve repeatedly gotten my ass kicked by empathy.
Data patterns showed signs that people preferred ebooks over checklists, yet a competitor beat me with a free training series.
Keyword Research showed demand for ‘how-to’ terms, yet a heart-filled story shared on social media helped a competitor be discovered by Google.
Empathy means listening. Empathy means communicating in a common voice. Empathy means showing vulnerability.
Human connection wins.
And I’ve thoroughly experimented with data and empathy, the results speak for themselves.
When I write articles for people (not algorithms), I get more likes, comments, shares, and messages.
The messages are where things really take off.
So for those of you reading, I encourage you to experiment with empathy; to step away from “data-driven marketing” and to speak from the heart.
You’ll be surprised by the results.