[photopress:guy2_0_1.jpg,thumb,alignright]Over on Guy Kawasaki’s Blog “How to Change the World – A Practical Blog for Impractical People”, Glenn Kelman of Redfin posts their Actual Numbers against “The Redfin Model” figures in a post titled “Financial Models for Underachievers – Two Years of the Real Numbers of a Startup”
Seems the model is based on worst case scenario, to increase the odds of repeated rounds of funding. Glenn says: “…we heeded Guy’s advice that ‘the three most powerful words you can utter at a board meeting are, We beat projections’. This convinced us to develop the worst possible financial model that could still be used to raise money.”
Hmmmm. So you set your sights artificially low, so you can say you beat projections when asking for more money. Had the sights not been intentionally low, maybe there wouldn’t be a new round of funding. I guess that’s a strategy. But it sounds a bit deceptive, doesn’t it?
Surely people spending lots of money, aren’t totally awed when someone says “We beat projections!”. One would hope that they would first ascertain if those projections were intentionally placed at worst case scenario, just so they could say “we beat projections!” to get more money. One would think investors on a grand scale are a little smarter than that…or at least we hope they are. But looks like Guy and Glenn know for fact that they are not, and are capitalizing on that fact.
It really is a great article, and Glenn is offering sanitized versions of the model for others to follow. But if people looking for money can read this and use that model, wouldn’t the people handing out venture capital also be reading this? Wouldn’t they in turn learn to scoff when someone says the magic words: “We beat projections!” again and again?
Yup, it’s “A Practical Blog for Impractical People” alright. Sounds like the practical people are the ones asking for money, and the impractical ones are the people giving the money.
Other blog posts commenting on Guy Kawasaki’s post:
Sneak a Peak Inside Redfin by Joel Burslem on FoREM
Nick Bostic on Radiohead and Redfin (not quite related, but cute and noteworthy)
Tim Berry of Up and Running quotes the quote “Plan slow; Run fast”