I started building financial models in 1998 when I worked in private equity, and eventually moved into building financial models for startups at the first startup I worked for in 2000. A couple years later, after finishing my MBA from Carnegie Mellon University in finance and accounting, I was working as a part-time CFO at a startup and also building financial projection models for friends' startups and companies. I found myself creating dozens of models from scratch and knew it wasn’t sustainable since at this point I had a full-time job at a global strategy consulting firm.
15 years of experience in building templates
I then decided to build a template, something that could be simple to use but had the ability to help solve complex problems, and released that version online in 2008, eventually releasing my first paid models in 2010, and continued to work on it part-time until 2014. Since then, I have worked on Foresight full-time and expanded the range of products and services. Over 44,000 people from 116 countries have downloaded the financial models I have online or taken a class on financial modeling from me, and I work with hundreds of companies a year on custom financial models.
Why I care about financial models
I have been a user, creator, teacher, or analyzer of financial models my entire career. I care about financial modeling because I believe that financial models can help us make critical business decisions even if the models themselves are not “always right”. Financial models can help even the earliest entrepreneurs if we build “minimum viable models” to focus on the decisions that matter most.
The common refrain about financial models, within the context of early-stage entrepreneurs and startups, is that financial models are useless because predicting the future is too hard and the resulting numbers are always wrong. I disagree. Creating a financial model forces an entrepreneur to outline very specifically how a business works: how a company creates their products, how users and customers find and use their products and how those processes create revenues and costs. The result, a set of operational metrics, financial statements and the “equation of the business”, creates a set of views of the business’s potential future. While any one view of a speculative future is inevitably wrong, digging deeper, analyzing the key drivers and testing a range of assumptions can help an entrepreneur build the necessary insights into making crucial product, marketing, organizational and strategy decisions.
I care about financial modeling because I believe that financial models are one key way for us to make “strategy” actionable. Financial models can help even the earliest entrepreneurs with business decisions. We can build “minimum viable models” the same way we build "minimum viable products". Financial model literacy can and should be a part of startup culture but first we have to rethink how financial models are built. Financial models can help entrepreneurs make critical business decisions. But they have to be done right.
Products are more important than spreadsheets, full stop. Being able to create and understand a financial model in the most efficient manner frees us up to focus on building better products. Developers use best practices, frameworks, and public code examples to help them use standards and best practices in their own projects and to help them do their jobs faster. Entrepreneurs should have the same resources for financial models so that they can focus on the insights generated from a financial model, not spend their time building all the details.
Detail matters, but not in the way you think
Don't let detail obfuscate insight.— Taylor Davidson (@tdavidson) March 31, 2016
I care a lot about building models to the right level of detail - enough detail to make the right decisions, but not too much that it overwhelms us. Enough that we can powerfully model complicated business operations, but not too much to make it impossible for us to understand the flow and integrity of a model. I've built a lot of incredibly detailed and complex models in my life, but I spend almost all of my time working to make them less complex: easier to understand, easier to edit, easier to use. You should understand how a model works, especially a template, and it's my job to help you.
Foresight is not about predicting the future, it’s all about minimising the surprise.
Over the past ten years, I've continued to modify and revise the models based on feedback from people who have downloaded the models and used them for their startups. I've directly worked with thousands of entrepreneurs as a venture capitalist, advisor, or mentor, and between my financial models and personal advice I have helped startups secure millions in funding. Every day I talk to someone using the models, and I'm am always looking for ways to improve the models to handle specific business issues.
That’s why I build these templates.