Jason M. Lemkin explains why most SaaS financial plans are too optimistic and recommends the "last four month plan": use your actual average growth rate and burn from the past four months as your baseline, then add an aggressive scenario if you want. Skip the delusion.
So to get everyone excited about SAS Dioroba, we're here from Fake Live Paris with the Eiffel Tower right over here. So get ready. We've got a thousand founders and VCs and others coming June 14th, 15th and 16th to Paris. So go to sasdashuropa.com and come. What I want to briefly talk about today is one of the things that SAS founders get the most wrong on many levels. That's the simplest to correct, which is your financial plans and projections. Everyone struggles to come up with these. Has delusional plans, missed their plans, miss their burn. And I want to come up with one simple suggestion that we wrote about years ago, but not enough people do, which is a last four month plan. A last four month plan is super simple. You take your growth rate, the last four months, your top line, how much your revenue grew, and you take your burn rate for the last four months, how much you spent, and you just average them. If for the last four months you grew 9.3% on average, and for the last four months you burned $118,000 75% of the time, that's what the rest of the year is going to look like now. A lot of time. Founders are resistant to this because they don't like the outcome. They want to grow faster than that. That's okay. Then have two plans. Present the last four months as your going forward growth rate, the average of the last four months, and you're going forward burn rate, and then have a different plan, say we want to do better or challenge it. But the biggest mistake you can end up with is being in delusional territory. Not optimistic, but delusional. Spend too much, grow too slowly and be all confused. But last four months doesn't lie. Last four months doesn't have biases. Your average growth rate and your average burn rate for the last four months are just facts. You can influence them, but they are what they are and they're the best predictor you have for a startup of where you're going to be at the end of this year. Talk to you soon.
