Lean Financial Modeling. How to deal with money without a CFO.
Everyone who is going to build a product to sell it as an indie maker or founding a startup is thinking about money. What will my costs be? How much can I earn? These basic questions come right after the idea is born in your head.
There is the second wave of money-related questions. When you start scaling or looking for co-founders or investors, these abbreviations come up - ARR, MRR, CAC, IRR, AVP, ARPPU, LTV, EBITA, and dozens else.
In the first situation, founders’ thoughts are often like this: “Ok, I just multiply visitors with conversion and will take $20 per month so I get 10k MRR within a year. Let’s go!”.
In the second:
I treat financial calculations as a core tool that helps to understand the whole project from a money perspective. The financial model is not just a phrase from the corporate world. It should be appropriate to the idea and the scale of the project, and it can be lean. With lean financial modeling, you can start with a simple spreadsheet of 10 numbers. But it's important to use these numbers for your goals, plans, and their execution. Not just for pitch decks and MRR shitposting in X.
So what exactly can you do via the financial model:
- Ask the right questions to find the answers that fill gaps in your business
- Understand the required effort to achieve $X to day Y
- Compare which features, hypotheses, and monetization approaches are more valuable
- Find a fit between your capabilities, opportunities, and desired results
- Keep all required things arranged and miss out less
- Share your vision through numbers and find breaches collaboratively
- Answer the question “Do I still need to proceed with this project?”
I've started a series of posts on lean financial modeling to show you how it works. I'll teach you how to create models from scratch, even if you don't have a degree in economics. In the next article, I'll explain how to turn dreams into useful numbers, make relevant assumptions, and make projections.
Stay tuned and follow me on X.