I’m going to come out and say it folks: pro forma’s are basically napkin math. To me they feel like a carryover tradition from the Reagan business boom and somehow we all got it in our heads that a spreadsheet on steroids was Step 1 in the grand scheme of success.
I never make business decisions based on pro formas. Believe me, I had to learn it the hard way early on. I’d be contracted by a wide-eyed client for some web development work and they’d show me their pro forma and WOW, did it look like a homerun.
All I’d have to do is keep my nose down and build the app -- he’ll be whipping up an audience. Pretty quick, according to his plan, we’ll be swimming in users and cash flow. Soon enough, you guessed it, we were hitting snags and worst-case, we weren’t drumming up interest.
Nowadays, I have to walk a fine line: do I break it hard to them and say they’re delusional or do I gaslight them and say their idea is too ahead of its time?
Because I can’t say I’m confident in their plan.
That’s a brutal take on one of the most common things you’ll find in the development industry. Despite all my naysaying, a pro forma CAN be an informative piece of planning. But it has to be framed correctly.
As a PSA for those startups thinking you’ve got a plan, here’s some PXP-grade advice: your pro forma must involve data.
I’m not talking about your vacuum formula -- the thing you whipped up after inspiration struck you like a Stilson wrench to the head. That’s always a bold statement: If I do X meetings, I’ll get Y sales, and get Z income from our users.
It’s all guesswork: “if XYZ happens then so will ABC” is a hypothesis. I need you to prove it.
That means you need to iterate. You’ll need to take some time, work free man hours, and whip up a prototype. You might even need to convince a developer that your idea is good enough to give it a try. But look at it this way: you only need to convince one person right now.
Once you’ve got a core prototype -- no bells and whistles -- you need to get it in front of your family and friends. Get it in front of your coworkers. Because now you’ve got a few people to convince. You’re working micro.
PXP likes to focus on that aspect when determining a pro forma. Micro ideas lead to micro prototypes lead to micro data.
And if you have micro data, you’ve got something special. Because nothing terrifies me more than having to guess when $50k is on the line for a project. If I’m going to have to make a guess, it may as well be an educated one.
Long before PXP has written a line of code, we’re working on a prototype. We need to know if the idea is something that interests people. And if it does? We iterate. And show it again. These are the steps you need to take to make a truly informative pro forma.
Otherwise, you’re launching your project from prophecy.
If you’re interested in getting help with your project -- maybe for your basic micro prototype to get you started, be sure to contact us at PXP for a consultation. We’re always happy to talk over your bright ideas.
We will send you the report from our audit findings for free