The founder entered the investor’s meeting actually, perhaps too much. The slides were tense, convincing story, and when it was time for the variety of conversations, they provided a classic line: “The market is worth $ 4 billion. If we capture only $ 2.5%, we will achieve $ 100 million in revenues within four years.”
There was a break. And not the one you wish.
Investors didn’t kick. Kiwdowo headed, they asked several symbolic questions and closed the meeting with a handshake and odd “we will be in touch.” On the way back home, the founder’s bag couldn’t shake the impression that something was going sideways. The logic was solid. So what went improper?
The problem was not ambition or technology. It was an approach. The founder used a top -down forecast: a narrative built from the size of the market to the destination of revenues. And although it might look strategic on the slide, experienced investors have seen it too many times to take it seriously.
Forecasting involves predicting what can occur in an ideal world. It is about showing what is going to probably occur, based on the actual strategy and resources assumptions. This is where the bottom -up approach wins every time.
Top -down begins with sleep. The lower part begins with the implementation.
Top -down forecasting begins with a market header and from there returns to revenues. But he goes to real work: customer acquisition, price strategy, team ability.
Dolne turns it away. It starts with what is possible to attain: how many customers might be realistically signed at what price, with current resources, and builds a forecast related to the implementation from the first day.
Top -down raises red flags. The lower base builds confidence.
Investors are allergic to the unclear logic of market exchange. “If we receive only 1%”, it signals a lack of awareness of what is needed to sell.
The bottom -up models show a strong understanding of the business engine, CAC, LTV, resignation, margins, and the team increase. It shows that you have done your homework and that your numbers are not only hopeful, but an operation.
Top -down is static. The lower one is adaptive and scalable.
Towmire models take a easy path to success, the larger the market, the greater the result. But they rarely adapt to changes in expenses, team size or conversion indicators.
Gathering forecasting is dynamic. This gives you and your investors the opportunity to check assumptions, model scenarios and scaling plans with brightness. Do you must see what is going to occur if the resignation improves? Or if you collect more cash and double your sales team?
A very good grasshop model makes it immediately visible and reliable.
If you ever tempt you to present a top -down view, let him serve a single goal: as a mental health control. Use it to verify that your bottom -up forecast does not in some way exceed the size of the address market, although, truthfully, it is almost never the case.