Jason M. Lemkin warns that startups often fail to build sufficiently sensitive financial models. He emphasizes that small misses on growth plans (e.g., hiring that doesn't produce expected growth) can materially raise burn rate, so teams must create sensitivity analyses that model underperformance scenarios and their impact on expenses.
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.
