Newsletter No. 16 | Your Best Strategy Tool? A Solid Financial Model

I still remember the first financial model I ever built. It was for a coffeehouse in Zurich. I wanted to see if running a coffee business was worth the effort—and the answer did not surprise me.

But the model didn’t just show potential profits. It also highlighted hidden dangers—staffing costs, inventory challenges, and seasonal dips in traffic. One big insight? Instead of hiring a full-time baker, we could partner with a local bakery, saving over 30% in payroll costs. That small shift kept us profitable during slow months and avoided big losses. Fast forward to today, and I still think about that coffeehouse whenever I build models for ventures.

Many startups don’t fail because of bad ideas—they fail because they run out of cash before making the idea work. This brings me to today’s topic: Why financial modeling is your best tool for building ventures—and avoiding nasty surprises.

One Insight from Me

Why Financial Models Matter (and What Most People Get Wrong)

Financial models are like business sandboxes—a place where you can safely test assumptions, play out scenarios, and stress-test ideas before making real-world decisions. But here’s the problem. Many people misunderstand financial modeling—or skip it entirely. Here’s what I see happening most often:

1 | Overestimating Revenue

Everyone loves to dream big, but most forget that sales take time to ramp up. Financial models force you to face this reality before it’s too late. How many leads do you need to chase to make one sale? From my experience, especially in a B2B world, many!

2 | Underestimating Costs

From marketing expenses to unexpected customer service needs, costs have a sneaky way of piling up. Funny note here, most entrepreneurs don't count their hours and end up working a model that has never been sustainable for scaling in the long run. 

3 | No Scenario Planning

Too many founders build a single forecast and hope it’s right. The truth? You need at least three versions: best-case, base-case, and worst-case.

4 | Ignoring Cash Flow

Profits on paper mean nothing if you run out of cash. This is something I’ve seen even in my own business—outstanding receivables can feel like a punch to the gut when cash flow is tight.

5 | Static Models – Models aren’t set-and-forget tools. They should evolve as you test and learn, reflecting real-world data. You build and improve as you go.

Types of Financial Models You Can Build

Financial modeling isn’t one-size-fits-all. Depending on what you need to test, you might build:

1 | Market Models

Understand your total addressable market, market share, and growth potential.

2 | Pricing Models

Experiment with pricing strategies, discounts, and bundles to optimize revenue.

3 | Revenue Models

Project how income streams will grow over time, factoring in subscriptions, sales, and upsells.

4 | Financial Statements

Create income statements, cash flow forecasts, and balance sheets to monitor performance.

Each type of model serves a unique purpose and can help you tackle specific questions about your venture. But at then end of the day, they paint one picture - the trajectory of your business.

If you’re analyzing a running business, you might start with annual reports and historical performance data to understand trends and profitability. However, when you’re building or adapting a model, you’re projecting into the future, not looking into the past. That’s the key difference. Models aren’t just about tracking what’s already happened—they’re tools for testing where you could go next.

If you’re wondering how to approach modeling, here’s a quick framework:

1 | Start with Assumptions – What are your core drivers? Think: pricing, costs, and customer acquisition.

2 | Map Revenue Streams – How does money actually flow in? One-time purchases, subscriptions, upsells?

3 | Calculate Costs – Don’t just focus on the obvious. Include marketing, salaries, tools, and overhead.

4 | Break-Even Analysis – What’s the sales volume you need to cover costs? That’s your survival point.

5 | Stress-Test Scenarios – How does your business hold up under different conditions? Use best, base, and worst-case projections.

The result? A living blueprint of your business idea that can adapt as you grow.

One Question for You

Look at your own business through Hormozi's framework - is there anything you can change about any of the factors to deliver more value?

One Opportunity for Us

Tomorrow, I’m hosting the first dawn.friends Lunch of the year at La Fontana—and I’d love to see you there. We’re kicking off 2025 by reconnecting, exchanging ideas, and talking about building and growing companies. 

Details:

• When: 10.01.2025, 1200-1400

• Where: La Fontana, Haldenbachstrasse 2, 8006 Zürich

Let me know if you’re planning to join—I’m looking forward to catching up and kickstarting the new year with all of you!