Jason M. Lemkin warns that many startups lack sufficiently sensitive financial models: even a small miss on growth can materially increase burn rate because fixed costs (e.g., recently hired headcount) have already been incurred. He emphasizes the need for sensitivity analyses that show how underperformance affects burn.
Look, the biggest mistake I've seen, which is probably twofold, 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, 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, my burn rate often is materially higher than I. So people don't build the right sensitivity analysis to when they underperform. Right. So really, that's the biggest problem I see.
