Here are three creative ways to make financial forecasts pre-revenue.

A common question I get from entrepreneurs is, what is the best way to show their financial projections, especially if you don’t have any revenue yet. How detailed should your model be? How many years should it go out? What is big enough to draw attention but not too big that it is unbelievable?

Talk about current traction

As I wrote previously, there are ways to show traction and deep customer problem/solutions by describing your customer discovery process, initial landing page data, and development partners/LOIs. Every forecast I have ever built or seen is wrong, so better to talk about what you do know and have proven and how that can apply to the future.

Quantify market opportunity and projected economic model

Pre-revenue, I would rather have a discussion about the market size, dynamics, competitive differentiation, etc. that makes the size of the opportunity more believable. Remember, early stage investors are choosing to support you based on the team and opportunity vs. detailed economics and cash flow. It is also helpful to describe the type of business you are building and how that scales (i.e. pure software, hardware/software, services, marketplace, etc.) as each of those do have different economic profiles.

Keep any forecasts simple (if you show at all)

A common mistake I see is startups forecasting out for 5+ years growing into the billions in revenue. That very well may happen, but it is hard enough to predict the next month/year, let alone five years from now. I prefer to just talk about the early traction and opportunity listed above. Most investors are going to build their own financial model anyway. If you do show some forecasts, keep the time span shorter and the level of detail high enough to show there is an opportunity opposed to showing you can do math of 100K units times $10K price gets you to $1B in revenue, or 10% of a $100B market is $10B.

While financial modeling is important and there is a time and place for it, don’t go overboard building complex financial projections filled with many assumptions when your startup is just getting going. Instead, focus on describing the opportunity, what you do know, and why that makes your ability to win in the market believable.