Not Running Out of Cash

Name: Not Running Out of Cash
Uploaded: 2023-06-25T09:28:13+00:00
Duration: 39 s
Channel: Jason M. Lemkin
Description: In this excerpt, Jason Lemkin warns founders that the most common financial mistake is building models without enough sensitivity analysis. He explains…

25 Jun 2023 · 1 min

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In this excerpt, Jason Lemkin warns founders that the most common financial mistake is building models without enough sensitivity analysis. He explains that even a small miss on growth targets can dramatically increase a startup’s burn rate because the costs of hired headcount are already incurred. Without modeling under‑performance scenarios, founders underestimate burn and risk running out of cash. Lemkin emphasizes the need for robust sensitivity scenarios that account for lower‑than‑expected growth and fixed expense commitments.

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Look, the, the biggest mistake I, I've seen, which is probably twofold, um, the number one one is not enough sensitivities to models. And this got people in trouble last year, but it's going to hurt again this year, which is that if you miss your growth plan even by a smidge, um, it can dramatically increase your burn rate. People do not build sensitive enough models, right? If I've hired all this headcount, extra headcount, and they don't hit the number, but I've incurred all the expenses for that headcount, um, my burn rate often is materially higher than I think. People don't build the right sensitivity analysis to when they underperform, right? So really that's the, that's the biggest problem I see.