5 Signs Poor Forecasting Could be Sabotaging Your Growth

A startup is like having a plane takeoff while you're still building the runway. There is a lack of processes and systems as you struggle to meet the needs of right now. This is why early-stage tech services founders frequently find themselves not doing proper planning for the future. They feel they don’t have the resources to invest in proper financial forecasting, but may not realize as the lack of forecasts becomes the biggest blocker for the business. This article tells emerging tech founders of the 5 five signs that indicate their business may be blocked by its current forecasting capabilities.

1. You Find Yourself Running Out of Cash

The first objective of forecasting is to understand the future state of the business to prepare for it better. At the top of the list of things that can go wrong is running out of cash. Running out of cash means you miss your targets or let your costs balloon. Either way, your forecasts are not mature enough. As your forecasting matures, you'd be able to, at the very least, anticipate a dip in cash and able to take early actions to prevent the issue.

2. Surprise Misses in Revenue Targets

Can you tell what revenue will be in the current and future quarters with certainty? Can your plans handle both your best and worst-case scenarios? Do you know in advance when things go bad? Misses in targets happen. Sometimes, you have to lower your sights. But the key is to not be surprised. Have the foresight to see the issue early and take corrective action to minimize the damage. If you have frequent misses, you won’t be able to make proper plans. You’ll have a forecast you’re writing down and a shadow forecast where you say “what if” and you’ll be emotionally preparing for a different worst-case scenario. This means you won’t be able to invest resources because your decisions will be clouded by a gut-based shadow forecast.

3. You Don't Know Where to Invest

It’s not just about when and how much to invest. Your forecasting should tell you where to invest. It should show you the flow of customers from marketing,to business development, to sales, and finally realizing that into revenue in delivery. Proper forecasting will help you understand which part of the business is ready to meet the needs of the business and which part is creating a bottleneck. This will guide your investment in fixing the bottlenecks facing the business.

4. You Can't Describe the Path to Hitting Your Targets

Can you tell how the targets for the quarter will be hit? Forecasting will force you to justify the various sources of revenue coming into your business. You’ll have to understand in depth what needs to be done by whom to hit the targets. The forecasts will have the entire team's goals baked into the assumptions for the forecast. You’ll be able to use these assumptions to chart the goals for the entire team. In doing so, you’ll transition from your targets being a daydream to a goal that you are steadily marching towards.

5. Inconsistent Customer Experience

An early-stage tech services company is able to accomplish a lot with heroics. You may not have anticipated demand and end up working extra hours to get that project in, or you may have to move one of your senior engineers. All of this creates an inconsistent customer experience. You were not able to hire the right people at the right seniority and train them to your processes in time. This is because your forecasts are poor. Because of the inconsistent experience, you will both lose customers and burn out the team. Good forecasting will allow you to better anticipate high demand and provide a great customer experience. Good forecasting will allow you to have steady and sustainable growth.

A Gift for You

You may have been able to relate to several of these signs. At Vixul, we spend a large part of our time in going over the forecasts created by the founders of our portfolio companies. It is amazing for us to see our founders mature as executives and be able to answer questions they couldn't in the past. Unfortunately, most founders we know struggle with these issues until we direct them in the right direction. We believe the lack of guidance on how to forecast is a primary issue for early-stage tech services founders. To help them, we will be sharing an ebook with detailed instructions on how to set up forecasts for your sales pipeline by the end of the month. This is so you can plan your new year with better foresight. The book will be free to the people on our mailing list at the time it is published, so please subscribe to our mailing list now to make sure you receive the book.