Financial modeling
Here's what makes a financial model actually valuable.
What most founders build:
Complex models that forecast 3 years out to the penny. Revenue projections broken down by customer segment, geography, and product line. Expense categories with 47 different line items. Sensitivity tables that adjust for 12 different variables.
The problem: Nobody believes the numbers, and it doesn't help with real decisions.
What investors and smart founders actually want:
A model that clearly shows: → Unit economics that make sense → Path to profitability under realistic assumptions → Cash runway and funding needs → Key drivers that actually move the business → Different scenarios (base, upside, downside)
The test: Can you explain your model's key assumptions in 5 minutes?
The three pillars of useful financial models:
Pillar 1: Driver-Based Logic Start with the activities that generate revenue.
For SaaS: New customers x Average deal size x Churn rate
For E-commerce: Traffic x Conversion rate x Average order value
For Marketplaces: Transactions x Take rate x Frequency
Bottom-up beats top-down every time.
Pillar 2: Scenario Planning
Build three versions:
→ Base case (most likely outcome)
→ Upside case (if things go better than expected)
→ Downside case (if Murphy's Law kicks in)
The downside case should assume you're 50% wrong about your key assumptions.
Pillar 3: Decision Support Every model should answer specific questions:
→ When do we run out of cash?
→ How much should we raise?
→ What happens if we hire faster/slower?
→ At what point do we become profitable?
If your model can't answer these questions quickly, it's decoration, not a tool.
The common modeling mistakes that destroy credibility:
Hockey stick revenue growth (10% growth suddenly becomes 50%)
Expense assumptions that ignore reality (marketing efficiency that never declines)
Precision without accuracy (mask fundamental uncertainty about actual valuev)
No sensitivity analysis (assuming everything goes exactly as planned)
The 80/20 rule for financial models:
80% of value comes from:
→ Clear unit economics
→ Realistic growth assumptions
→ Accurate runway calculations
→ Simple scenario planning
20% of value comes from:
→ Complex formatting
→ Detailed breakdowns
→ Beautiful charts
→ Sophisticated formulas
Focus on the 80%.
Your financial model reality check:
Can someone else understand your key assumptions in 10 minutes?
Does it help you make better decisions?
Would you bet your own money based on these projections?
Are your growth assumptions realistic given your current metrics?
If any answer is no, simplify until it's yes.
The truth about financial modeling:
Models aren't about predicting the future. They're about understanding the present and planning for uncertainty.
The best financial model is the one you actually use to make decisions.
Need a financial model that helps you make confident decisions about hiring, fundraising, and growth? I help founders design models that become their go-to decision-making tools.
