Financial Models for Underachievers: Two Years of the Real Numbers of a Startup

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My buddy at Redfin, Glenn Kelman, decided he wanted to bare his financial soul so that other entrepreneurs could get greater insight into the witchcraft called financial modeling. In this two-part posting, he reveals his numbers and his lessons. They are eye-opening for most entrepreneurs.

Part I: Numbers

Startups face one primary challenge: To never run out of cash. So when projecting costs, we heeded Guy’s advice that “the three most powerful words you can utter at a board meeting are, ‘We beat projections.’” This convinced us to develop the worst possible financial model that could still be used to raise money.

We’re glad we did. True underachievers, we’ve performed at or just a bit better than this worst-possible plan almost every month, raising revenue projections only when forced to in December 2006. We’ve been able to stick to our plan mostly because absurd assumptions in opposite directions cancelled one another out. As the real estate market tanks, we may not be so lucky in the future.

When first putting together our financial model, we looked online to calibrate spending assumptions. So many people have blown venture capital, we thought, there must be a manual somewhere on how to do it, at what rate, avoiding which follies. We couldn’t find anything. So we took some wild guesses and figured we’d see how they turned out. And now two years later to the day that we built our first model, here are the projections and actual results. Hopefully, you can learn from our experiences.

Rent, Per Employee, Per Month

Redfin Model: $250. Actual Redfin Cost (Last Month): $336

Our actual costs are high because we just moved last month into an office with room to grow, which seems to happen every eighteen months. When people were sitting in hallways at the old space, we were paying about $200 per employee, per month. Class B space on well-traveled mass transit lines is roughly $20 per square foot per year in Seattle, $30 in the Bay Area. You need 165-200 square feet per person or more.

At the extremes, Adobe supposedly allocates 435 square feet per person while Yahoo! allocates 220 square feet per person. The startup cult of cramming people into small spaces is counter-productive: people are what’s really expensive, not space. The cost Redfin really didn’t anticipate was for tenant improvements which you mostly have to fund yourself when signing sub-three-year leases. In September, we spent more than $100,000 to add private offices for our engineers on the hope that our current office will last us longer. It was probably too much money.

Initial Per-Employee Equipment Cost

Redfin Model: $6,500. Actual Redfin Cost: $5,700

Computers, 20” monitors, Ikea desk, decent chair, VOIP telephone, and cell phones for field employees. Our first phone system came from Craigslist, and we had to upgrade after a year.

Monthly Benefits, Per-Employee

Redfin Model: $600. Actual Redfin Cost: $471

Redfin benefits are competitive, but many employees are Seattle-based. Costs are 10% higher in California.

Annual Payroll Tax

Redfin Model: 12.5%. Actual Cost: 8.5%

We added 4% here to our plan, just to pad per-employee costs. In ways you can’t anticipate, people cost money. Payroll taxes are the same nationwide. California’s state payroll tax is, for example, negligible.

Quarterly Bonus Payout, as a % of the Total Possible

Redfin Model: 85%. Actual Cost: ~85%

We pay quarterly bonuses, mostly based on customer satisfaction objectives. Maintaining discipline on bonus payouts has been difficult. When business booms, everyone wants to be paid for it, even if you haven’t yet turned a profit.

Annual Payroll Increase for Existing Employees

Redfin Model: 6%. Actual Cost: ——-

We can’t disclose actual costs here, but they were higher than planned. When we set the plan, many employees were being paid below-market rates, which is not uncommon for startups; as a startup raises more capital and people go into their second year of sucking it up, you have to pay the piper at the employees’ annual review.

Percentage of Candidates for Which Redfin Paid a Recruiting Fee

Redfin Model: 35%. Actual Percentage: 20%

If you can’t build an engineering team through your own network, recruiting fees can become a significant expense at an early stage. Most of the folks Redfin paid a recruiting fee to hire still came through our own employees who got a $2,000 bonus for every recruit they bring on board.

I assumed colleagues would encourage friends to apply to Redfin without a fee, but for $2,000, people start nagging their cousin’s friend’s wife to apply. We saw an immediate increase in candidates. The occasional party, done on the cheap with kegs and pizza, has also worked well for us.

For Employees Recruited for a Fee, the Recruiting Fee as Percentage of Annual Salary

Redfin Model: 20%. Actual Cost: 4.5%

Because we want top-of-the-stack candidates, we do pay 20% to professional headhunters, but most recruits only required a $2,000 employee referral bonus. We’ve also experimented with in-house recruiters working on an hourly wage, but they tend to focus on managing the hiring process rather than adding candidates to the pipeline.

What really wrecks the budget is a retained search for executives ($30,000 – $50,000), a cost we didn’t even include in our calculations above. A retained search as an agreement to work exclusively with one search firm is reasonable, but we recommend negotiating aggressively to defer most payment until placement.

Incremental Amount Paid to Contractors, as Percentage of Payroll

Redfin Model: 5%. Actual Redfin Costs: 3%

Our contractors have mostly been an in-house recruiter, a graphic designer, and a web programmer; no big-shot consultants.

Monthly Travel Costs, Per Field Employee

Redfin Model: $300. Actual Redfin Costs: $369

The $369 includes mileage for field agents who drive clients to listings as well as travel between our San Francisco and Seattle engineering offices. Your costs may be lower. Or not: on the road, some of us still stay with friends.

Monthly Telephone Costs per Field Employee

Redfin Model: $125. Actual Redfin Costs: $261

We’ve started equipping real estate agents with cellular modems, so costs are unusually high here, too.

Monthly Legal Costs

Redfin Model: $12,500. Actual Redfin Costs: $9,406

The $9,406 per month excludes legal costs for a round of financing, usually about $50,000 for company counsel and investors’ counsel (more late stage, less early stage). We have saved money by dividing the monthly work between a more-expensive tech-focused firm (Orrick, very good) for board resolutions, minutes and stock administration and a general corporate practice (Lasher, also quite good) for employment and real estate law.

We also handle on our own most of the repetitive paperwork like option grants and, perhaps unwisely, vendor contracts. We don’t spend much on patents. Incidentally, we pay a service $14,000 per year to set a quarterly price for our stock options. This is a cost that we didn’t anticipate and didn’t project as part of our legal costs.

Annual Accounting Costs

Redfin Model: $45,000. Actual Redfin Costs: $32,912

Once you’ve raised money, your investors will want a year-end audit of financial statements. This can be done for less money when the business is small and if you keep your books in good order, but we commissioned our first audit only after Redfin had generated over $1 million in revenues. Your accounting expenses will also be a bit higher (and your payroll significantly lower) if you can hire a book-keeper to come in twice a month to pay your bills, which makes sense for the first year or two until you need someone permanent.

All-Company Meeting Cost, Per-Meeting, Per-Employee

Redfin Model: $350. Actual Redfin Cost: $560

Almost half of Redfin works outside of Seattle, so our meeting costs are unusually high. But we can’t avoid meeting at least once a year, which is a significant expense that we forgot to plan for in our original model.

There are of course all sorts of other costs that are unique to our business as an online real estate broker: how much we spend to attract a home-buyer to our site, for example, or what it costs to sell a listing. What you see here are just the costs common to every startup.

And now, looking this over, I worry at every turn that we’ve spent too much money. When I first worked at a venture-backed company, someone told me that Sequoia liked to see entrepreneurs “dive in the toilet for nickels.” I’m not even sure that’s true, but it was an image that always stayed with me. At the time it was actually comforting. I couldn’t do anything else right but, thinking about the toilet and the nickels, I said to myself, “This, I can do.”

Part II: Lessons

Here are a few other tips for building a financial model:

  1. Focus on headcount. Outside of marketing programs, the basis for all cost in Internet software is headcount. Just figure out whom you’ll hire and how much you’ll pay and you can’t go far wrong.

  2. Plan slow, run fast. The most likely scenario is that you won’t be able to hire engineers fast enough, and that revenues will come more slowly too. Investors expect their money to drive artificially accelerated growth rates, but signing up for that sometimes just blows a company up before you’ve had a chance to figure everything out. At least in the financial model, give yourself as much time to grow as you can.

  3. Run top-down sanity-checks. To estimate what a company is likely to spend each year, try doubling the average salary and multiplying it by the number of employees. A 100-person company might spend as much as $15 million per year.

  4. Forget economies of scale. The biggest whopper is that a business will magically become more efficient as it grows. If you really believe this, just walk into the headquarters of Amazon or eBay. Bureaucracies grow. Salaries float away. Straining to make a model work, I always forget that per-employee costs rise every year.

  5. Admit that revenues are a mystery. If you don’t have any revenues yet, you can’t say what they’ll be. The point of a model is to prove you can make money if people buy your product, not to insist that they will. By developing different scenarios based on different levels of demand, you can later calibrate hiring and spending according to which scenario fits reality best.

  6. Build from building blocks. Nearly every model is the sum of smaller units. In Redfin’s case, our unit is a market like the San Diego real estate market, which we plan to grow to a certain size in a certain number of months, hopefully returning a certain amount of profit to the overall business. We can then gauge whether the model works by just looking at whether San Diego works, and then asking, “Now what if we had twenty San Diegos?” For another company, it may be a user-created website, with so many page-views and so many ads, or it may be the productivity of a single salesperson, with a million dollars in quota per year.

  7. Take out “hope.” Think about what is most likely to happen, so that a bookie would say you’re as likely to out-perform the plan as under-perform it. Generally speaking, “hope” is not a strategy.

  8. Flag your assumptions. Rather than burying your assumptions in Excel formulae, call them out in a separate tab of the workbook, so that you have a control panel for adjusting the model. This is especially important if you plan to share your model with potential investors.

  9. Hit $100 million in revenues within five years. The premise of most venture investments is the possibility of generating ten-fold returns in five to seven years, which is hard to do if you spend $5 million to build a $25 million company.

  10. Keep market-share under 20%. Most startups reach a jillion in projected revenues by assuming that the business grows by leaps and bounds for five years. Since there’s a natural limit on growth, be ready for the question: “What would your market-share be in year five?” If it’s over 20%, take the jillion-dollar projection down a notch. Even a hit like iPod doesn’t have 20% market-share. You’ll be lucky to come close to 20% of any market.

So these are our costs, and that’s our advice. What’s your take? We’d love to see how our costs compare to other startups’; please leave a comment and let us know where your numbers differ from ours, especially in markets outside the U.S. We could also post a sanitized version of our financial model, if enough people ask for it to make it worth the trouble.

(Thanks to Redfin’s Chris Roske, Chris Neitzert, Matt Goyer and Angela Cough for their help with the numbers in this post.)

By | 2016-10-24T14:18:31+00:00 October 1st, 2007|Categories: Entrepreneurship|92 Comments

About the Author:

Guy Kawasaki is the chief evangelist of Canva, an online graphic design tool. Formerly, he was an advisor to the Motorola business unit of Google and chief evangelist of Apple. He is also the author of The Art of Social Media, The Art of the Start, APE: Author, Publisher, Entrepreneur, Enchantment, and nine other books. Kawasaki has a BA from Stanford University and an MBA from UCLA as well as an honorary doctorate from Babson College.


  1. Rob Mathewson October 1, 2007 at 10:49 am - Reply

    Big thanks to Guy and Glen. Glen, you’ve done a real service to the entrepreneurial community.
    Real life numbers are so much better than the usual tools for financial models, a Magic 8-Ball and a Ouija Board. πŸ™‚

  2. Adam October 1, 2007 at 11:27 am - Reply

    Glenn, Thanks for a great post!
    One note: point taken about keeping market-share numbers realistic, but the iPod actually has a huge market share (72% in January 2007, down from 80+% in 2004). Details here.

  3. Joshua McKenty October 1, 2007 at 11:34 am - Reply

    Been endlessly impressed with your radical transparency at Redfin, and I would KILL to see that model. I’ve had one VC tell me our project isn’t fundable because I made the estimates TOO conservative, so it’s good to hear that $100-million-gross-at-year-five confirmed.
    Speaking of revenue, the key driver of that for any internet business seems to be a.) traffic, and b.) conversion ratio. Any hints in that regard?

  4. Cameron Watters October 1, 2007 at 11:49 am - Reply

    “Even a hit like iPod doesn’t have 20% market-share.”
    I’m not sure how “the market” is being defined in this statement, but I’m pretty sure the iPod has much greater than 20% market share. Even if you use numbers that haven’t been tweaked by Apple, iPod market share is in excess of 50% for similarly functioning devices.

  5. Glenn Kelman October 1, 2007 at 11:52 am - Reply

    Hey Adam, you’re right; the iPod was the wrong example. The data I looked at bogus-ly included cell phones that play music.
    Joshua, if others ask for the model we’ll clean it up, otherwise I may just end up mailing it to you. On revenue, our conversion rate is unusually bad, probably because it’s such a big leap to buy a house through a website.

  6. Al Sargent October 1, 2007 at 12:04 pm - Reply

    Thanks for a great post! Very helpful.

  7. Mario October 1, 2007 at 12:18 pm - Reply

    Hey Guy,
    Wonderful post!
    I would add another fact on business life:
    Once we are getting some attention the business moves on and the cost rise to double every X months.
    This would be the Moore’s Law to Software Business.
    Mario Ruiz

  8. David Jones October 1, 2007 at 12:49 pm - Reply

    Glenn, great info and timely as well; we’re in the process of creating projections for a new product. I’d love to see that model as well – we’ve been using a format from PWC from several years back that has the assumptions pulled out in a “dashboard” as you recommend and it’s been very helpful, but real world references like you’ve provided here are invaluable.

  9. Maki Papadopoulos October 1, 2007 at 12:59 pm - Reply

    Very informative! Thanks, Maki Papadopoulos

  10. marvin October 1, 2007 at 1:20 pm - Reply

    Hey Glenn,
    This is great ! I can’t tell you how frustrating it is to create financial models for a startup. Let me be one of the people to request a sanitized version of your model.

  11. Doug October 1, 2007 at 1:29 pm - Reply

    This is really great. Thanks for posting.

  12. Tim October 1, 2007 at 1:35 pm - Reply

    Excellent post. So many entreprenuers ‘fly the plane into the ground’ when they encounter unexpected ‘weather’ – often feeling investor pressure to follow the plan that was sold. You provide some great tips for better flight planning as well as the sound advice to simply look out the window and react before entering a tailspin.
    Our biggest execution challenge has always proven to be following through with our marketing budget. When sales don’t come as quickly as we anticipated in a new market, we have tended to jumped ship on planned marketing spending and instead re-work the product itself.
    Crazy as that sounds, I look back and think it was a wise decision the majority of time, at least for us. We had learned enough to be ‘mostly sure’ things were not going to be as rosy as we thought, and the saved money helped try the next strategy.
    Thanks again for sharing your thoughts.

  13. Bill Smith October 1, 2007 at 1:39 pm - Reply

    Thank you for sharing those numbers. It’s good data.

  14. Jason Cardillo October 1, 2007 at 1:42 pm - Reply

    Glenn – great post and very informative. Like David, we’re also currently working on a new project and it’s interesting to see that some of the projections I had are right on, but others simply way off base. Count me in with those requesting a sanitized model.

  15. James October 1, 2007 at 1:51 pm - Reply

    This is one of the most useful posts I’ve read in a long time – thanks Glenn!
    I’ll definitely add my vote for a sanitized version of your model. I think this would be useful for countless entrepreneurs.

  16. Greg Solovyev October 1, 2007 at 2:24 pm - Reply

    Truly, the most useful blog post I read this year! Bookmarking it.

  17. Lance October 1, 2007 at 3:46 pm - Reply

    Indeed, it always costs 2-3 times as much as budgeted and takes twice as long to accomplish your goals. Why you ask? Well, due to insane and over regulation. Too many lawyers scraping the cream. Too many other professional parasites and too many barriers to entry set up as trip wires in your path. Nevertheless, if you are not in it to win it and willing to say “damn the torpedoes” then perhaps you shouldn’t be in business anyway.
    Weakness, procrastination, hestitation, bureaucracy, and too many lazy friends in your company will accelerate your burn rate and run your rear out of money. Play to win or stay on the porch, start-ups are not for the weak. Live strong, Live Well and Live Longest – Lance

  18. Thomas October 1, 2007 at 3:51 pm - Reply

    Wow Guy, I can’t believe that you’re advocating financial modeling!?! That sounds like business planning and we all know how much value that has, right?

  19. troll October 1, 2007 at 4:10 pm - Reply

    Great stuff Glenn.
    Although I gotta say, I love the contradictory guidance that always comes with the venture process:
    1. Aim low, so you can beat your numbers
    2. Don’t aim for more than 20% of the market
    3. Admit that revenues are a mystery
    4. Project $100mil in revenue in 5 years
    C’mon Glenn, do you really stand up in front of venture guys and commit that Redfin is going to do $100million three years from now? Your most direct comp is Zip (by most measures very well executed). They hit $60mil in 5 years. Those were real estate boom years.
    It’s funny too because in my experience the advice is absolutely sound. You can’t get their attention with a lesser ambition. While I can cite a handful of firms that have actually hit that number, there are thousands that get funded.
    I find that I’m not creative enough to sound confident on that lie. So here I sit, bemused and bootstrapped (and not at all bitter, seriously).

  20. Blake October 1, 2007 at 4:50 pm - Reply

    I loved your blog in the beginning and then it started to get watered down, like you forgot what the title of it was. This post is very interesting, helpful, and just might make the world a better place by making expectations more realistic and comprehensive.

  21. Metagg October 1, 2007 at 5:02 pm - Reply

    Metagg is tracking this post

    Find out what Social News Sites are discussing this post over at

  22. Lorenz Sell October 1, 2007 at 5:11 pm - Reply

    Glenn, this was an _awesome_ post. We’re going out to raise our second round right now, and I wanted to update our projections. There are hardly any real world data or models available online. You’d figure all those failed startups out there would post their models as an act of helping others avoid their fate.
    I would really like to see your sanitized projections. That would really help. Would you mind sharing the executive summary that you used to initially pitch the company?
    Thank you so much.

  23. John October 1, 2007 at 5:16 pm - Reply

    Hi Glenn – thanks for taking the time to share this information. Chalk me up for another reader interested in a sanitized model.

  24. Glenn Kelman October 1, 2007 at 5:20 pm - Reply

    Dear Troll,
    You’re right that it’s hard to be realistic and still generate the kinds of returns venture capitalists’ expect for their best investments. For Redfin, the “worst possible financial model that we could use to raise money” was one that:
    1. Could reach break-even before we exhausted the current round of capital.
    2. Could scale to more than $100 million in revenues four – five years from now, so that the company could reach a size where a public offering would be worthwhile. An acquisition is also possible, but unlikely and probably unwelcome in Redfin’s case, and certainly not within our control.
    3. Could over time generate a healthy operating margin, so that the price of Redfin stock on a public market would be a healthy multiple of revenues.
    4. Could be met or exceeded by Redfin without our having to imagine a magical transformation in our business.
    #1 – #3 is the rock and #4 is the hard place. It drives us to keep taking risks rather than trying to consolidate the small gains we have already made.
    Incidentally, from a venture capitalist’s perspective, ZipRealty has not yet been an unqualified success; the company has an enterprise value of roughly $60 million on revenues of roughly $100 million. We had to spend plenty of time in money-raising meetings explaining why we hoped to be able to scale revenues more easily than Zip, at higher margins.
    This is obviously an ambitious goal, as Zip has been far more successful than we have, but it is our goal nonetheless. We are all painfully aware of the odds.

  25. Up and Running October 1, 2007 at 6:13 pm - Reply

    Real Numbers Before and After

    Forecasting is more art than science. Most people hate making business projections. Theyre going to be wrong and they dont like it. Will it come back to bite them. Will there be a crystal ball and chain? How can I possibly know?
    How woul…

  26. Chris G October 1, 2007 at 6:38 pm - Reply

    The hardest part of modeling is always (at least for me) calibrating the assumptions. It was very useful to see these benchmarks, as well as you discussion as how they compared to initial estimates.
    Please add me to the list of people interested in seeing the sanitized full model.

  27. Darren Herman October 1, 2007 at 7:08 pm - Reply

    This is a fantastic transparent post. Not many companies reveal their information, so it’s great to have a benchmark.

  28. October 1, 2007 at 8:26 pm - Reply

    Financial Models for Underachievers: Two Years of the Real Numbers of a Startup

    My buddy at Redfin, Glenn Kelman, decided he wanted to bare his financial soul so that other entrepreneurs could get greater insight into the witchcraft called financial modeling. In this two-part posting, he reveals his numbers and his lessons. They a…

  29. Brian Brady October 1, 2007 at 10:33 pm - Reply

    I’m pleasantly shocked, Glenn. Yesterday, a request for advice from Greg Swann, today a transparent plea for advice.
    Here’s my take. Stop thinking of revenue as an unknown. once you’ve established a pricing plan that can realistically be profitable, offer your services to HR departments of corporations as an employee benefit. Gather their databases and start mining them.
    Gary Keller taught us that a database of “mets”, meaning people with whom you have SOME relationship, can produce one transaction for every 12 people. You can get those “mets” from the employee rosters from the companies with whom you have a relationship.
    Hire a “sales person” (I know that sound ugly to you but try it) to establish those corporate accounts (call him/her an account executive if you must).
    You’ll get more transactions from serving a wide audience of “mets” rather than trolling for hits on a website. It’s time to go beyond 2.0 strategies and incorporate traditional marketing into your mix.

  30. Bas Brouwer October 2, 2007 at 12:35 am - Reply

    Dear Glen,
    What you did today is amazing.
    This is what business students and upcoming entrepreneurs all over the world are craving for: REAL numbers, examples, practical stuff.
    If you could go through the trouble and post the financial model, I’ll be a very (!) happy student.
    – Bas

  31. John Tan October 2, 2007 at 1:13 am - Reply

    This is a seriously informative and motivating post. We are extremely fortunate for you and your company’s transparency and generosity. I am going to ask one step further Glen, please share the model. I will be eternally grateful.
    Here in South East Asia, VCs look for a 5-7 times return over 5 years and the funds and market is quite different.

  32. Henk October 2, 2007 at 3:18 am - Reply

    Wow, I’m blown away! πŸ™‚ Best read in ages.
    Please post the model, It’d surely be very educating as well.
    And thanks for leading the way in company transparency. Redfin has been my inspiration in that field for several months now.

  33. K October 2, 2007 at 6:27 am - Reply

    Helping entrepreneurs with financial modelling is actually a love of mine (often I do is as a loose sort of “volunteer” work) and yes, yes, yes to separating the assumptions on one worksheet. That allows you not only to play “what if” but also to change with your daily updates.
    The other quick tip is to leverage the results of others (your building blocks). For example: I helped launched a character based juice based beverage. Not only did I look at sales of existing beverage but also layered overtop that the lift of character based cereal sales over non-character based. Got pretty darn close to our actual sales.
    LOVED this post!

  34. rudy October 2, 2007 at 6:29 am - Reply

    hi glenn!
    thanks for sharing.
    congrats on the move. i feel so lucky to have all that nostalgic video footage of our meet-up with and your team at the old redfin digs. it’s classic!
    stay well,
    – rudy
    p.s. many thanks to cynthia for giving me the very last redfin polo with the “original” redfin logo….i’m having it framed πŸ™‚

  35. Elia Freedman October 2, 2007 at 6:56 am - Reply

    While we are requesting the model, I will jump in also. I work with start-ups at an incubator in Portland, OR and consistently find their financials to be horrible at best.
    Thanks for considering.

  36. James Hill October 2, 2007 at 7:04 am - Reply

    Great post! I am creating a financial model for a startup right now. Thank you very much for the advice, and the good timing!
    Good luck!

  37. Bill King October 2, 2007 at 7:15 am - Reply

    Great post. After seeing you on 60 Minutes a while back, I’m not going to use (get used?) the traditional realtor model on our next home transaction.
    Separately, please post a cleaned-up version of your model. I think it will be incredibly useful for entrepreneurs and probably be a high-value marketing program for Redfin.

  38. Marc Duchesne October 2, 2007 at 8:41 am - Reply

    Glenn : THANK YOU SO MUCH for sharing your experience with us.
    Guy : thank you for letting Glenn etc. Together with your own experience with Truemors, you’ve got quite an impressive set of learnings & advices for the entrepreneurs of the Web 2.0 Age.
    Thank you again to both of you.

  39. Redfin Corporate Blog: Notes on Redfin, technology, real estate and life at a startup. October 2, 2007 at 9:08 am - Reply

    Redfin, By the Numbers, And an Experiment

    After popping up on TechCrunch and BusinessWeek Friday and in Slashdot over the weekend, Redfin appeared on Guy Kawasakis blog today, in a post comparing our planned costs to our actual costs. For those putting together a financial model, here …

  40. Peter Trast October 2, 2007 at 10:34 am - Reply

    Well, at least I don’t feel crazy for feeling a contradiction between “reachable” numbers and numbers that would attract an investor. Wouldn’t your decision on which numbers to use be dictated by the type of person that you would like to fund you? I would also appreciate a sanitized version of the model if you are willing to share. Excellent post!

  41. Steve.Harvey October 2, 2007 at 10:50 am - Reply

    Great post, very helpful information, especially to those like me who have passed the “concept validation” stage and are entering the real “go make it happen” startup phase. Thanks!

  42. Ryan Lee October 2, 2007 at 11:26 am - Reply

    Wow. Thanks Guy and Glenn. For someone trying to get in the game, this is enormously helpful. Guy, I find you give the most practical tips and examples to actually get the job done. I hope with these tools I really can change the world.
    Ryan Lee

  43. Fashion-Incubator October 2, 2007 at 1:36 pm - Reply

    Reading 10/2/07

    Mostly uninteresting today (guaranteed to engender no comments) but this piece called Financial Models for Underachievers: Two Years of the Real Numbers of a Startup might be entertaining. When first putting together our financial model, we looked onli…

  44. Roger Anderson October 2, 2007 at 2:51 pm - Reply

    During the Dot-com bubble we were close to being acquired by a VERY large German publishing firm. As a part of the process we had to build a financial model that took almost a month of 16 hour days to create. Every assumption had to be on a specific spreadsheet page. Almost all costs were built around headcount, customer acquisition activities, and marketing efforts. I had a headache every night for the entire month. For the last week they sent one of their top M&A finance guys over to finalize it with us.
    If you have the courage to really see the “numbers” it is a great exercise. If you would rather hope for the best then just make a pro-forma projection and gamble with your money or someone else’s money.

  45. Nell Plotts October 2, 2007 at 3:33 pm - Reply

    Years ago I occasionally needed to estimate a businesses’ annual dollar volume. By interviewing an employee I could get headcount. That same interview gave me a picture of the businesses compensation structure, double the payroll and add the cost of materials… my estimates were uncannily close.
    That methodology hasn’t changed in 30+ years.

  46. Glen Young October 2, 2007 at 4:02 pm - Reply

    Great read. Thanks for the insights. Echo the previous requests to see the model. Would like the dirty one but would be tickled pink to see the clean one!
    Change the world one forecast at a time!

  47. Mo October 2, 2007 at 4:41 pm - Reply

    This is an awesome post. Thank you to both Guy and Glen for the candid info.

  48. Communitech Blog October 2, 2007 at 4:48 pm - Reply

    Two years of the real numbers of a startup.

    Guy Kawasaki provides his buddy at

    Thanks for your transparency and generosity. Knowledge is power, and sharing it can float all boats in the rising tide. Your message is right on the money (ha!) for my target audience, so I cross-posted on your piece, along with a few comments of my own, at The Innovators Network is a non-profit dedicated to bringing technology to startups, small businesses, non-profits, venture capitalists and intellectual property experts. Please visit us and help grown our community!
    Best wishes for continued success,
    Anthony Kuhn
    Innovators Network

  49. Brian October 2, 2007 at 6:05 pm - Reply

    This indeed is a great advice as well as great illustration of costs! I would love to see couple more cost information for other startups! How about the one for Truemors? =)

  50. Adil October 2, 2007 at 6:27 pm - Reply

    For me, Financial modeling is the hardest part to cover when writing bplans.
    I would love to see the sanitized version.

  51. Rob Larson October 2, 2007 at 8:21 pm - Reply

    Glen, thank you so much for being open with your numbers. As the “finance guy” and cofounder of a venture in my spare time (student during my day job), I have spent weeks and weeks trying to build these such models over the past year, and have hit many roadblocks and “wild a– guess” moments. I have longed for such information as you just provided, and I am so happy to finally see it. I would absolutely kill to see a copy of your model. If you decide to share, I would be ever grateful to be included. In case you don’t have access to Guy’s contact info for each visitor, my email is larson at

  52. John Koetsier October 2, 2007 at 9:51 pm - Reply

    “Even a hit like iPod doesn’t have 20% market-share.”
    Most iPod market share numbers I see are above the 70% level.

  53. Sanjay Vijayakumar October 2, 2007 at 10:54 pm - Reply

    Hello Glenn,
    Amazing post on the startup costs in US and for the benefit of all readers, here is a take on how one of India’s 100 Innovative Startups fare.
    We are a 25 member operation, presence in five cities, physical offices in two, virtual office at one, angel funded to 1M$ and positioning ourselves in the sweet spot between the exploding mobile growth and social networking with
    Real Estate Costs:
    We are a technology business incubated company and our per month expense comes to 3000 INR or 75USD for a furnished 8 seater office with AC, Security, Electricity, Water etc.
    This is uber low as you can see!
    Initial Per-Employee Equipment Cost
    All employees are given a Celeron/Centrino Dual Core Laptop with 24 Hour unlimited Internet Connection – 900 USD
    Monthly Benefits, Per-Employee
    Annual Payroll Tax
    Quarterly Bonus Payout, as a % of the Total Possible
    Not yet giving the same. Startups here work more on passion and aggression of employees. There are very few startups though.
    Annual Payroll Increase for Existing Employees
    25% Hike
    Percentage of Candidates for Which Redfin Paid a Recruiting Fee
    We recruit only from the Industry. Amazingly tough to get good talent but there is abundant trainable talent. No fees as such thus.
    For Employees Recruited for a Fee, the Recruiting Fee as Percentage of Annual Salary
    Not applicable here.
    Incremental Amount Paid to Contractors, as Percentage of Payroll
    Not Applicable here.
    Monthly Telephone Costs per Field Employee
    We have a 30 Member operation across five cities in India – Trivandrum, Cochin, Bangalore, Delhi and Bombay. Avg cost is 15$ per employee.
    Monthly Legal Costs
    100$ per month.
    Monthly Travel Costs, Per Field Employee
    As a CEO, i travel almost four days a week between these cities we operate.
    Average cost is 2500$ per month including flight expenses.
    Annual Accounting Costs
    500$ – We’ve got one of the best guys out here in the State.
    As a student startup in India, we raised 250,000$ and then couple of other rounds to close to 1M$.
    Costs will spiral upwards to 20X if the same operations were based out of Bombay.
    We thus maintain a Virtual Office in Bombay ->250$ per month where we have a fax, telephone, physical address, lobby listing and person to answer all calls in our name.
    Revenues in India are also the least in the world for that matter πŸ™‚
    Thus, it makes sense to have operations in India with Sales outside the country to run a really profitable business.
    Hope that was helpful.
    Disclaimer – We know of similar companies who spend almost 10 times of what we do. is one of the best web products that has come from India according to techcrunch and they have a monthly operating expense of 15,000$ with 10 people.
    Setting up Operations in God’s Own Country, Kerala is one of the most cost effective ways in this country.
    Disclaimer – India in my opinion is a MNC of 25+ Countries. In each state, you have a different culture, food, way of living and language. πŸ™‚ Thus costs also vary between these places.

  54. Meg Howe October 3, 2007 at 12:16 am - Reply

    Transparency Rocks!
    Thank you!

  55. john October 3, 2007 at 4:43 am - Reply

    going to bookmark this post. I am writing my thesis about this stuff.
    Please add me too to the list of people interested in seeing the sanitized full model. thank you very much for this post.

  56. Jeff Chavez October 3, 2007 at 8:54 am - Reply

    “We Beat Projections!” No doubt the best three words in business. Excellent post. And for some who have grumbled about the advice about showing $100 million in 5 years…well that’s better than 1999 when we had to show a path to $1b market cap. within three years!

  57. Northstar Thinktank October 3, 2007 at 9:04 am - Reply

    “No Surprises, Jeff.”

    About 8 years ago I received some of the best business advice I’ve ever been given. I had just raised $10 million from Venture Capitalists. My attorney and I were preparing for my first board meeting as Chairman and CEO.

  58. Charles October 3, 2007 at 9:37 am - Reply

    “We beat projections” is something everyone should do right down to the tiniest project. I can’t tell you how many companies shrug this off.

  59. Hodson Blog October 3, 2007 at 9:50 am - Reply

    Redfin: The Cost of a Startup

    The CEO of Redfin, Glenn Kelman,has a fantastic guest post on Guy Kawasaki’s blog. Glenn provides an incredible amount of visibility into the costs of a startup, providing side-by-side projected expenses vs actual. In particular, I found his comm…

  60. Tom Haines October 3, 2007 at 10:32 am - Reply

    Glenn and Guy,
    Thanks for the insight. Very helpful to someone with entrepreneurial aspirations.. Please let me know if you are able to post or email a sanitized version of the model. I think it is something some of my fellow MBA students in the entrepreneurship program would appreciate as well-

  61. sebas / European Union October 3, 2007 at 10:34 am - Reply

    Great Post, thanks a lot! Would be great to see the sanitized version of your model! Thank you.

  62. America's Mortgage Broker October 3, 2007 at 10:39 am - Reply

    Strange Bedfellows= Beautiful Offspring

    I caught a comment the other day and reported here: Glenn Kelman of Redfin: We may change the way we price our service as commissions change; the premise of our business is that we can make real estate more customer-centered, efficient and straight-for…

  63. PIERRE/Brussels October 3, 2007 at 2:27 pm - Reply

    Well!, well; How should I comment on this wonderful “fantasy” of an “business model” drafted – as usual – on assumptions, hindsights, wishful-thinking, officially stated/sanctified statistics (= still not a scientific material, as neither Economics is or are … Not an actual “Nobel” matter !), number-crunching, “shoot-at-the-star” prospective(s), excessive trust in the envisionned product/service potential appeal or quality(ies), ignorance of(=non inclusion of the “secondary” -not to be made public nor official- the excess costs/income(s), under-funding rejects’ potential,… Otherwise, should the usual eager Yuppies still go for these “models” of bringing to the ignorant masses the benefits of “Snake oil”, let the “MARKET” in the dark and in it’s belief of being all-knowing! Still, personnaly, my hat off to the People at ENRON or -closer to home- L&H Languages Devellopements (= they even fooled Bill Gattes !). Still very good and instructive work…

  64. Brian October 3, 2007 at 2:34 pm - Reply

    Glenn, just an awesome article. I would love to see the sanitized model.

  65. samael October 3, 2007 at 7:10 pm - Reply

    what startup exactly is this? aahh i get it the startup company you have when you play capitalism on your computer. the real world is much harder than this.

  66. Ralph October 4, 2007 at 3:35 am - Reply

    Hey Glen,
    it would be awesome if you could post some kind of sanitized version of the model. It’s really hard to get all the variables good.

  67. Ralph October 4, 2007 at 3:42 am - Reply

    PS: Just realized I forgot an “n” in your name. I apologize for that.

  68. Ksenia Oustiougova October 4, 2007 at 5:05 am - Reply

    thank you very much for this post. Would love your sanitized projections. Regarding transparency – how far can you go? I am sometimes bursting at the seams to share my successes or mistakes and hopefully find that I am not alone, and so that other fellow entrepreneurs can learn from them. But what if it involves particular people? Revealing names is a perfect start for gossip, but maybe revealing personalities wouldn’t do much harm? Like the topic that dominates me now is the practice of hiring/firing. Would you guys bare your “hiring model”, or provide insights?

  69. Tara Kelly October 4, 2007 at 5:14 am - Reply

    We’re battling this beast right now. Personally I tend towards the underachiever numbers, but then there’s that little devil on my shoulder whispering “make it bigger, and they will come…”
    Ah the black magic of forecasts.
    I’d love to see the sanitized data if you have to time/energy to put it together.
    Thanks for the transparency (and underachiever validation)!

  70. Jered Goodyear October 4, 2007 at 10:52 am - Reply

    Great post Glen. These are the types of entries I love – great learning material. I would love to see that model! I will keep an eye out for it posted or a way to request if you decide to email out individually.

  71. Clicked October 5, 2007 at 7:51 am - Reply

    No, but my computer cares

    Top 5 Things Every Extrovert Should Know About Introverts – Something I’ve been thinking about lately (as an introvert) is how/whether the new wave of social software is of use to introverts. … Plus… Hey you with the MacBook, watching bowling is st…

  72. How to setup October 5, 2007 at 9:17 am - Reply

    This was a very interesting read.
    Thanks for the “real” data and great tips.

  73. francis duong October 5, 2007 at 7:00 pm - Reply

    The CEO of Redfin shares his financial model and the real numbers for the last 2 years.Β  Very interesting data indeed, even if you just read it for the data points.
    The estimates were deliberately made to look worst so that they can utter the words &#…

  74. Jon October 5, 2007 at 7:46 pm - Reply

    Interesting… I wonder how long it will be before other start-ups follow suit?

  75. Santosh October 6, 2007 at 3:19 am - Reply

    > We could also post a sanitized version of our financial model, if enough people ask for it to make it worth the trouble.
    I could definitely use your sanitized version, e-mail or if you were to post it here.

  76. Santosh October 6, 2007 at 4:23 am - Reply

    > Hit $100 million in revenues within five years.
    Your implying $100 million annually in revenues?
    How do you conclude a 10-fold return is implied?

  77. justsomereader October 6, 2007 at 5:50 am - Reply

    Great post. What amazes me the most is the admisison of all the forgotten expenses.
    “I forget that people cost more each year.” That’s pretty astounding. Ever been an employee? Ever attend an annual review? Ever ask for a raise?
    Incidentally, having onsite engineers is probably unnecessarily expensive for a company like Redfin. Most of the webdesign engineering, if properly planned, could be implemented by contractors working from their homes ($0 per square foot – 2000 sq. feet per employee!) with weekly half-day meetings on Friday where everyone can get together, interact, and get next week’s plan.
    I run 70 servers all over the world and can access every one of them from anywhere in the world where I can get access to a high-speed internet connection.
    It’s rapidly become a different world and employers are not thinking outside the cubicle enough.

  78. Susan Lim October 8, 2007 at 7:55 am - Reply

    Great post!
    Guy, I really like your site. I never seen anyone else gave such details on how they started up their companies. Please keep this up.
    Thanks, Glenn too.

  79. Charleston Real Estate Blog October 8, 2007 at 5:13 pm - Reply

    The Odysseus medals have been posted

    … at the BloodhoundBlog for the best writing in the real estate blogosphere. Glenn Kelman of Redfin

  80. Planblog October 9, 2007 at 1:55 am - Reply

    Startup costs

    Great article over at Guy Kawasakis blog: Financial Models for Underachievers: Two Years of the Real Numbers of a Startup
    Numbers like these dont get shared with the public very often. Another recent example is German startup Townster&#8…

  81. Garrett October 10, 2007 at 10:00 am - Reply

    Glenn – great post!
    Add me to the list of folks who’d love to see your sanitized model.

  82. Cami October 10, 2007 at 4:48 pm - Reply

    Awesome post!
    Great blog, one of my favorites now!
    Bookmart it for sure!
    Please, please, please, add me to the list who’d love to see your sanitized version.
    I am learning so much thanks to this site!

  83. Yaron Reich October 14, 2007 at 4:06 pm - Reply

    Great article !!
    It was interesting to see the way you are looking at our budget / plan and take it from there.
    I tried to compare to our budget although the numbers and the size are different (we are only an A round company) nonetheless, some of the basic logic still run the same.
    One thing that really shock me is the cost of stuff !!! You are paying a lot !!!
    If you where a company with a significant R&D needs I would strongly recommend taking the first plain to Israel since we do stuff here under significant lower expenses in almost any category.

  84. Norman October 16, 2007 at 3:19 pm - Reply

    Glen, thanks for compiling these comments. They are an excellent guideline, although the actual cost structure may vary.
    Having financial experience in a few software businesses, I can recommend the following “shortcut” calculation, which works pretty well in a European / Swiss setting. (Based on discussions I reckon it also holds for the US).
    Typically, personnel expense will tend towards 80 percent of your overall cost. This means once you have established you personnel expense (incl. social security / on-cost, training, corporate culture, etc), a multiplicator of 1.25 should give you a pretty good idea of your actual operating cost.

  85. Kyle Stewart October 18, 2007 at 4:02 pm - Reply

    Great article. Very helpful. I noticed you didn’t include a monthly PR agency cost. Is this because you have an internal person that fills this role, or is it that PR agencies are expendable in the new media era?

  86. Rajagopal Swaminathan October 25, 2007 at 12:58 pm - Reply

    Dear PIERRE/Brussels,
    It is always nice to hear sarcasm/satire. I know of one friend (if he decided so, and who is awaiting a heart transplant in one of Belgium’s hospital) who is an excellent scholar and a master of that art.
    It doesn’t behove you to be that. I have invested years of my life to build something and it has not materialised. (I hate american spelling and the stupid spelling battle across the silly atlantic ocea,) blame the language and the difficulkt keybd at thatand all yyunsters get bak with smss)
    you miss a crucial point here. this post is an enormous blow to MBA education and all mthose closed stupid proprietary nonsense.
    I have to click post button here for the stupid politicians and ‘govrenment’ will switch off electrical power any moment in this area of so called “maha” rashtra.
    Rajagopal Iyer
    PS. Please address me as Rajagopal

  87. Bplans Blog October 25, 2007 at 9:24 pm - Reply

    Black Magic and Paint by Numbers

    Guy Kawasaki and Glenn Kelman have combined for a pair of very important posts related to reality in planning and financial projections. In the first, Glenn shares the plan vs. actual results of his successful startup Redfin. In the second,

  88. Daniel Chow November 17, 2007 at 7:11 am - Reply

    Great article, thanks to Guy and Glen.
    I run a site that contains a financial modeling tutorial, as well as tips and tricks on how to build financial models accrued from my years in investment banking and consulting.
    Feel free to check it out:

  89. auto November 22, 2007 at 7:09 am - Reply

    thank you so much, your article has been really illuminating for me!

  90. Candyce November 25, 2007 at 5:20 pm - Reply

    Thanks so much for your post. I would definitely like to see your sanitized model. If you’re not planning to post it but have one to email, I’d really appreciate it.

  91. Francis Steiner July 17, 2015 at 4:00 pm - Reply

    Great data and lots of good insights … maybe time to update this .. it has been 8 years

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