I was sitting at the table with investors interested in putting some capital into one of the companies with which I’m working. The questions were around assumptions – are the assumptions you’re making in the business sound? What happens if they’re wrong?
And the answer by the entrepreneur (okay, Lu Cordova), was fabulous. “Never cross a stream with an average depth of 4 ft, it’s the variance that will kill you.”
What she meant by this is understand your variances, understand the best and worse case scenarios of all critical factors to your company. I know you believe you’ll do $75 M in revenue in year 2, but what happens if you don’t? What happens if you don’t close this round of funding? What happens if the CEO you hired turns out to be a schmuck? Run your model with the most plausible scenario, then the best case, then the worst case – and see what happens. If you can stay afloat in a worse case scenario, you do well both in business and with fundraising.
Know your variances – it will keep you from drowning. Great lesson by Lu.