Why getting a basic "MVP" financial model launched in a week is better than waiting months to dial in the perfect model...
I used to think that the usefulness of a 3-statement financial model was determined by the granularity of the model's drivers.
When I was CFO at Guardian Bikes, I had a very granular model that included:
Unit economics by SKU and sales channel
Headcount costs by position and employee name
Inventory replenishment forecasts by 3PL warehouse location
Building this level of detail into the model literally took years of iteration and advanced-level Excel formulas.
What did I learn from building this model?
In hindsight, the 80/20 rule applies to EVERYTHING, including building financial models.
I really only used 20% of the model on a consistent basis. Everything else just ended up being fluff that drove complexity, which in turn drove unnecessary administrative time and effort when updating and maintaining the model.
My response to this learning?
At Free to Grow CFO, we follow a concept that we call iterative financial modeling.
What does this mean?
↳ We get a basic "MVP" model up and running for all our new clients within a week or two. When you have no financial model, going from nothing to something basic is a GAMER CHANGER. As a result, we prefer to get something basic up and running quickly. Our MVP models help brands understand their major drivers of contribution margin, fixed overhead and cash flow. Simply modeling these 3 drivers of financial health provides immediate strategic and tactical decision-making value, without all the bells and whistles of more granular model drivers.
↳ Once we have the basic MVP model up and running, we iterate on the models' assumption and driver structure as we learn more about the business's strategic and tactical levers. Over time, as we learn more about the brand's business model and core strategic and tactical levers, armed with this knowledge, we apply the 80/20 rule to build in the 20% of model drivers that the brand can really move the needle with.
What is the result?
1. Within a week or two, the brands we work with get profit and cash flow model insights that help them make important decisions with confidence.
2. Several months later, as the model evolves into something more granular and sophisticated, the model's drivers are comprised of the 20% of profit and cash flow levers that ACTUALLY matter to the business's strategy.
So remember, when it comes to building a financial model for your brand...
Quickly building something usable is better than having nothing.
Don't waste time guessing what the "perfect" set of model drivers is.
Instead, just get started and hold fast to this: continuous improvement and iteration is the name of the game.
Interested in having a 3-statement financial model built for your growing eComm brand?
Click here to book a call to learn how we can help you
Until next time, scale on!
