A startup's financial model should capture your business story through specific assumptions, not just optimistic projections. At Distil, the founder's onboarding required manual setup for each customer, creating a one-ops-person-per-ten-to-fifteen-customers ratio that the financial model missed. As customers grew to hundreds, ops costs exploded and margins collapsed, forcing a year-long re-architecture that could have been prevented by modeling the scaling relationship upfront.
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But what I didn't realize is your financial model tells the story of your startup through numbers. It helps you put your ideas on paper, right? And if you don't think through those ideas, you don't think through those things properly in the numbers, then several years down the line, you're gonna face some issues that you're like, oops, I should have done this properly. I should have thought through this. I'll give you a personal example. When we built Distil, we had a very heavy-handed onboarding process. The way we built our technology, it required us to sit in line with website traffic. So we had to install software in, in customer environments. We had to route traffic through our software and then back to the customer's application. It was, it was very difficult to get our software installed and up and running. And then anytime we had to do any updates, We then had to go in, move the website traffic off of our software, go in, update our software, and then move website traffic back to our software. That meant that I had a really big ops team. Early on, we didn't have a lot of customers. We had only 1 or 2 ops people that did this for every new customer. It seemed innocuous. But what we didn't put down on paper is that for every 10 customers or every 15 customers, we needed one ops person to be able to maintain that software on the customer's instances. And so when we got to a couple hundred customers, I had more ops engineers than I had actual engineers building the product. It made our margins look like crap. We had to spend a year re-architecting our technology because I didn't think, we didn't think about it day one. So if you put your ideas on paper and you think about how your business is going to scale, it makes sure that you get it right in the long term.
