At BurnRate, when we say building a startup is rocket science, we aren’t joking. Your business is an engine. It needs momentum to take off and fuel to maintain its trajectory. You have to be sure that you have enough for your entire journey, accounting for the bumps along the way.
The only way to do this successfully is to approach your business’s expansion models systematically using the right set of tools. In this article, we’re going to take a closer look at the pitfalls of traditional expansion modeling and how you can align your sales funnel with the customer journey to better position your business for success.
Traditional expansion models start with where you are now and end with where you want to be. Using this frame, benchmarks are set in between to break down how you can achieve your quotas. However, the math required to achieve these goals can actually be quite complicated and most people don’t realize they’re doing it wrong.
Here’s why: Most revenue models are built in a spreadsheet, and they track conversion rates at every stage of the funnel. Unfortunately, an Excel spreadsheet doesn’t account for time shifts.
It takes time to get prospective customers through the process and to close. Think about the employment process we talked about in our article, A Tale of Two Funnels. You have to recognize this and account for it in your expansion models for every deal and every customer, every time.
Let’s say you need to close 10 additional deals by the end of the month, so you’ll need 100 additional leads to start at the top of your funnel. How do you know when you need those 100 leads at the top? If you get them too late, you’re not going to hit your target.
If quotas aren’t met, an investor or founder is going to want to know what happened in that particular quarter. When they ask their sales leader, the response is typically, “We aren’t sure. We’ll get back to you.” By the time they’ve filtered through spreadsheet after spreadsheet, they might have an answer. But by that time, the problem has only gotten worse and it's shifted.
There are costs associated with every stage of the employee acquisitions process that affect your cash flow — every time you shake a hand, pay a signing bonus, recruit additional candidates, or onboard a new team member. Are you accounting for subscriptions and new technology that comes with a new hire?
The point is that these costs matter, and so often, founders let them fall through the cracks. You have to know every single detail of your lead costs and your employee costs.
While there are plenty of projection tools and softwares on the market today designed to help with projections, most of them miss the mark when it comes to structuring a startup’s expansion models. They only average out your costs, not how long it takes for these things to get done. And there’s nothing more dangerous for a startup than a software platform that tells a founder they have 19 months of runway when they only have 10.
There is no cookie cutter solution to building and scaling a startup. Though accelerators, like Y Combinator, do a great job of trying, their cookies are getting baked, fried, and tossed along the way. They push their startups hard, set unrealistic quotas, and put a tremendous amount of pressure on founders to scale their businesses fast, at all costs. This is why so many startups today don’t make it.
Venture capital firms and accelerators pump startups full of sugar (money), and hope they turn into successful businesses. Instead of a sugar rush, startups need a systematic approach on how to build out different parts of their businesses at scale.
You need to know what it takes to build your business at a certain rate, versus another. For example, you should know what it takes to build a billion dollar company if you sell a product at $10 dollars, versus if you sell it at $15 dollars.
To see what your runway looks like, you have to align all your employee and revenue funnel costs. With the right tool, you can map out the customer journey alongside your revenue targets.
This creates a system that can manage when employees and customers need to enter and exit the funnel across every department. With this, you can know from the marketing, sales, and customer success sides of your business what is required from each of them in order to reach conversion objectives.
By mapping out the entire customer journey, including the conversion rates throughout and how long it takes end to end, you can actually prototype your business early on. With this alignment you can:
You can answer crucial questions for scaling like:
You might have the next best idea to change the world, and you might have successfully built the software to do it. But taking that idea or that product, and turning it into a well-oiled machine is an entirely different thing.
At BurnRate, we give founders the tools they need to build revenue generation machines. So founders who aren’t systems people by nature, can successfully build out a team, manage growth, and scale responsibility. Book a demo and let us know how we can help.
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