On pricing and unit economics:
- They undervalue their offerings and charge too little - leaving money on the table.
- They don't hack their unit economics - losing money in every sale (this is fine in the short term but very not fine in the long term.)
- They don't think about lifetime value (LTV) properly and don't think about how to extract the most money from each acquired customer.
- They underestimate the cost of customer acquisition (COCA), resulting in a poor lifetime value to cost of customer acquisition ratio over time (LTV/COCA) which usually starts high, but MUST come down to at least a 3:1 ratio over time.
- In forecasting revenue, they overestimate the speed at which they will acquire customers
- In forecasting revenue, they overestimate the number of years customers will stay with them In recurring revenue models ("Our customers will stay with us for the remainder of their lives")
- When calculating costs, especially for hardware companies, they are usually 10x to 100x off on what they think it takes to bring something to market.
- They tend to be grossly unrealistic in timelines for (a) product development especially for hardware companies (b) go to market ramp time especially for software companies
- They usually have no idea what organization structure is needed / biz partnerships to pursue to get the job done consequently cost structure is artificially favourable
The best way to manage these common mistakes is to go over financial projections with a seasoned, trusted advisor who has built financial scoreboards for startups of the same type before. A little feedback early on can go a long way to helping founders come up with a strategy that works.
Special thanks: Martin Trust Centre, MIT
Edit: Javier Rojas, 12/05/20