Do early-stage startups really need a yearly budget?
Startups, by their very nature, are ventures into the unknown. Especially for early-stage startups, uncertainty is the only certainty.
These companies are experiments both in business and technology, operating on the edge of what’s possible and potentially profitable. Constantly changing, pivoting, moving fast, and breaking things.
If things are constantly changing and uncertain, why do some people (especially VCs) advocate that early-stage startups should run through the same process of creating a yearly budget that a mature and predictable business goes through?
Planning is more important than the plan itself
This philosophy extends seamlessly into the realm of budgeting. A budget, in its essence, is a plan for how a startup allocates its resources and what it expects to generate in return. It reflects priorities, anticipates challenges, and outlines a path for growth. However, the strength of a budget doesn’t lie in suposedly irrevocable figures and forecasts, but in the process of planning that goes into it.
The Budget as a Map
A well-crafted budget is akin to a map in an explorer’s hand. Despite “the map not being the territory”, in moments of doubt and decision-making, having this map is invaluable. It prevents founders and the team from wasting time and resources in constant deliberation, allowing for a more focused approach to tackling challenges and seizing opportunities.
However, the importance of flexibility cannot be overstated. Just as a map must be updated to remain useful in a changing landscape, a budget must be revisited and revised. It’s not about changing course at every minor obstacle, but about being responsive to significant shifts – in the market, in customer behavior, or in the product itself.
Budget as a Unifying Force
Another critical aspect of budgeting in startups is its role in team alignment. A budget is not just a set of numbers; it’s the concretization of collective goals and shared priorities. It brings unity to the team, aligning everyone towards common objectives. When team leaders understand how their efforts and resources fit into the bigger picture, it fosters a sense of purpose and direction. This unity is crucial in startups, where teams often have to work in high-pressure, fast-paced environments.
A budget, therefore, becomes a tool for communication and collaboration. It sets clear expectations and provides a basis for accountability. When everyone in the team understands the financial roadmap, they are better equipped to make decisions that align with the startup’s overall goals.
Adaptability and Revision
Finally, the need for adaptability in budgeting cannot be overstressed. Startups are defined by rapid change and evolution. An immutable budget is as useless as a rigid plan; it risks becoming obsolete in the face of the first change.
A budget that was relevant six months ago might not be useful today. Therefore, a budget must be a living document, open to revisions and adjustments. This flexibility allows a startup to pivot when necessary, to capitalize on unexpected opportunities, or to steer away from unforeseen challenges.
It’s important to understand that revising a budget is not necessarily an admission of failure or poor planning; it’s an acknowledgment of the reality of the startup ecosystem. It signifies a startup’s ability to learn, adapt, and grow. And akin to a map, once it’s been revised, the new version must be distributed to the sailors.
“Ok, great! But where do I start?“
There’s no one-size-fits-all Startup Budget Template. Here are some SaaS materials we like and recommend all the time:
SaaSholic’s SaaSmetrics template
Cristoph Janz’s SaaS Financial plan
David Skok’s SaaS Metrics
