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Forecasting for Innovation Part 1 - Preparing for the Worst, with The Startup Station’s Victoria Yampolsky
One of the first hurdles any organization must leap in the adoption of new technology is funding it. In this special two-part episode, Julie chats with The Startup Station founder Victoria Yampolsky about how to plan your budget, for the best and worst-case scenarios.
Julie: Hello, my name is Julie
Smithson and I am your XR for Learning podcast host. Join us today
with our next guest, Victoria Yampolsky. Victoria is the founder and
president of The Startup Station, an educational and consulting
company committed to help founders be successful and get funded
faster. She focuses on the creative, credible financials and
valuations for early-stage ventures. Specifically she's helped
entrepreneurs master the necessary finance skills, so that they
correctly translate their business plan into a financial plan,
evaluate the financial feasibility of different initiatives, and
credibly present their companies to investors, and use their
financial model to drive the business forward. Thanks so much for
joining me, Victoria.
Victoria: Thank you very much
for inviting me, Julie. It's a pleasure to be here.
Julie: Our topic today is going
to be a little bit different. We're gonna talk about budgeting, and
finances, and starting up a business, and being able to budget for
innovation, which is something that not many people understand, what
the implications of technologies and the advancements of impacts they
have on businesses. So maybe you can tell me a little bit more about
your company, and the approach that you started to take and the
demand and need for your services.
Victoria: So I started my
company in 2013, after I was an entrepreneur myself. And then I began
advising the company and I saw a huge need for business and financial
expertise in the startup world. My first venture was in media and
entertainment. And it was pretty clear that a lot of filmmakers were
extremely passionate about the projects that they were making, and
they put very little thought into thinking how they going to monetize
it, how they're going to bring their projects to market. And when I
began advising my first non media and entertainment company, I
realized that the same problem persisted in the startup community as
well. There were a lot of brilliant entrepreneurs who wanted to
propel innovation, who wanted to change the world, who wanted to
disrupt industries that were not working efficiently, who wanted to
solve problems that were not being sold or sold not in the best way.
And they were coming up with solutions, but they didn't yet think
through how to make those solutions into businesses, how to bring
those solutions to market, how to reach mass adoption. And so that
brought me to a starting the Startup Station, where I help
entrepreneurs think through those roadmaps, make sure that the plans
that they put together are financially feasible, how to put together
those baselines which help them to evaluate if their strategy is
working, if their plans for bringing the product to market are
efficient and react faster to market feedback, to conserve capital
and to also be successful.
Julie: Are you working with any
startup companies that are dealing with XR technologies like virtual
reality, or augmented reality, or artificial intelligence right now?
Victoria: So none of those
technologies are one of my clients right now, but I have talked over
a thousand founders, because in addition to consulting one-to-one, I
also teach entrepreneurs, and I teach them how to evaluate those
business plans and put together those financials in their own. And
out of those students I did teach a few XR companies.
Julie: So I think that the
introduction of all of these technologies into a business where one
day, we have brand new hardware release or a software update and
massive changes in the company need to take place. What is your first
piece of advice that you give to these companies, to prepare for
these massive changes and unexpected changes which equals innovation?
Victoria: Right. So I think on
the technology integration side, I think you need to have-- if you're
going to adopt a new technology such as XR/VR -- which comes with a
lot of uncertainty, which comes with a lot of changes -- you need to
have great technical people on the team, who not only understand the
implications of any changes that may happen in those technologies,
but also understand the implications of what those changes mean for
your organization. And so I would suggest, just like in financial
modeling -- where we do a low, medium and high case scenarios -- that
those technical people, when they begin adopting technologies, they
think through scenarios of what may happen if some changes are
effected, whether it's going to be change to their platform, whether
it's going to be change to hardware, whether it's going to be the
change to software, what kind of change it's going to be, and how
their organization should react, and what is going to be the
financial cost, and what's going to be the labor cost, and what's
going to be the time cost. And so if you go through this preparatory
work as you are adopting those technologies -- or even before -- then
you're a lot more prepared for whatever changes may come your way.
Julie: Yeah, I think it's
obviously very important to have the right team when you've got your
startup, and a team that understands the implications of the future.
And obviously having a futurist who can forecast the technologies
that are coming in and are being adopted. And I've read a few things
with regards to what technologies are coming in. There's a futurist
by the name of Matthew Griffin, and he created a technology reel that
shows over 440 different technologies before 2070, which is obviously
very far out. But the number of technologies in that great of mass,
it's overwhelming to to be prepared for all of these things and how
they're going to be implemented into the business, and be prepared
for how it will impact the business. Maybe you can talk a little bit
about the strategy itself, and how to prepare even right down to the
statement of work and in the financial forecasting. I know in some of
our projects we have a contingency plan buffer built into our
finances. Now, maybe that's something else that you can kind of speak
to, on what kind of advice do you provide with that strategy to
protect yourself, to adopt and take on these different technologies?
Victoria: Sure. So let's begin
with assessing new technologies. So as I was thinking about this
podcast, I thought that that's a really good idea. And I think a lot
of companies are doing it already, to create kind of a think tank
inside your company that is going to monitor all the emerging
technologies and performing that futuristic work. Now, they don't
need to necessarily come up with all the 440 technologies. And there
are people -- like you mentioned, Matthew Griffin -- who is doing
that. But it is extremely important to stay on top of what's going
on. And then do the following work, in terms of assessing what that
means for your organization. And that work is to A) figure out what
is the minimum commercial viability of any new technology, and that
technology needs to achieve in order to be appropriate for your
organization. And then try to put some sort of a timeline of when
that may happen. Now, that part is incredibly difficult because of
the speed with which technology innovation happens. And so whatever
timeline they may come up with needs to be revised aggressively as
new information becomes available, or even halved as soon as they
come up with a new timeline. And then they need to consider -- once
they determine the minimum commercial viability of new technology --
then they need to think, "Well, is this even a good technology
for us? What problem will it solve?" And this is very similar to
anything that a new startup when they coming up with a new idea. The
question that they need to answer. "What problem am I solving?
Why am I creating this new technology?" For any organization
that is going to adopt the new technology. What problem will this
technology solve? What is the gap in the market that is not currently
addressed? What can I do better? Because a lot of these technologies
actually have an impact on the bottom line, rather than the top line.
And so once they figure out that question and you sort of begin to
understand the impact, they then move on to understanding how much
it's going to cost them to implement those technologies. And there,
they have three options. They have the option to develop that
technology themselves, using whatever information is available at the
moment. They have the option to start an accelerator. Which is a lot
of organizations are doing and propel innovation by inviting
companies who are already working in those technologies into that
accelerator, and then investing into most promising candidates. They
have the option to license the technology from somebody who has
developed it up to the minimum viability level they determine, or
acquire a company. So these are the four options that any
organization has. And how will they choose which option is the most
viable for them, that's a question of the size of the opportunity.
How big a problem will they be able to solve if this technology is
adopted? How big a competitive advantage will they be able to get if
they're going to be the first mover into the market with that
technology, or the second mover or whatever? And then the cost. Some
technologies are extremely expensive to create. And that was the
issue with AR/VR for a few years. And now, of course, with the 5G,
it's becoming-- some of the problems are going to be resolved sooner.
And because the cost of the hardware is coming down as well. So when
you have those issues, the cost component is extremely important. And
so some companies cannot even consider the option of developing
something in-house, because of the price tag. And they're kind of
stuck with the option of either licensing technology, or waiting
until later, and acquiring a candidate outright. And so the cost can
come in three ways. First, the cost of the technology,y whether it's
the development costs or licensing costs. Then it's integration costs
into the current systems. So how will this technology going to work
with whatever systems already in place? And finally, the maintenance
cost. Now that we understand all of these components, I want to talk
a little bit about contingency. Contingency is extremely important in
all of their financial planning, because it accounts for the unknown.
As much as we like to think that we can project the future, even if
we have a lot of information with a high degree of accuracy, things
come up even for companies that are publicly traded. They only give
guidance in their financial performance for three months. Why?
Because even for them -- and they have so much more information than
any startup, so much more information than any company beginning to
adopt new technology -- even they face uncertainty. Like the
coronavirus. A lot of businesses couldn't possibly predict. Starting
in January 2020, when they were given guidance for this year, that
that's going to happen, it's going to be such a huge disruption to
their businesses. Now, for some businesses, this is actually a
positive for those businesses that exist remotely, for those
businesses that promote human interaction, et cetera. And for some
businesses such as small restaurants and travel industry etc., this
is really big a hit, as this pandemic continues. It's not always
possible even for large businesses to make predictions. For smaller
businesses, it's even harder. And so contingency gives you this
breathing room to plan for that. Now, how big a contingency should
be? I recommend that it's 10 to 20 percent of your budget. If you
think that this is too low, and you need to have a 50 percent
contingency, this means you haven't really thought through your
costs. You don't really understand your business. What do you do
then? What do you do if you are completely unsure? You first look at
comparable projects, or budgets, or companies. You go to technical
people and you ask them to give you their low, medium and high
estimates of what certain things can take. And then if you're feeling
very insecure, you only take the high estimates and then you add on
the 20 percent contingency on top of that. But I recommend against a
contingency higher than, let's say, 30 percent, because that would
mean that you don't really understand what your cost structure is.
And this is a better position to be in, as a startup or as a bigger
organization.
Julie: I think that's a great
topic right now, is the contingency plan. And to understand your
input on the percentage, too. Because people don't necessarily know
how much breathing room do we need and it's such an unpredictable
market, is innovation. And even before the pandemic kind of started
right now, it's-- we were playing a guessing game every day with our
industry, just to see what was going to come out new, and what was
going to change that would affect current developments or future
ones. I'd like to go back to the conversation of this pandemic that
we're going through the coronavirus. And obviously, there are a lot
of unpredictable measures being taken now, and forecasting with
businesses that have never-- well, none of us have ever faced
anything like this. And as you said, there are certainly some
businesses that will thrive over others during this time, and
enterprise is not exempt from being hit with the changes and the
unpredictable markets right now. Even the stock market plunging, and
that sort of thing. So coming back to our startups, and I know we're
going to have a part 2 series of this, but maybe you can tie this
this episode off with if you're a startup today, what would your
advice be on taking a look -- based on our current situation -- on
how to think about the next couple of months? Do you have any advice
for startups out there?
Victoria: Well, depending-- I
think technology startups -- this is an AR/VR podcast -- I think
they're in a much better situation, because everybody is able to work
remotely. And I think this is really the time for people to also set
aside a little bit of time to think about the company's long-term
strategy, to think about innovation, to think where they can go. Now
that they're at home, and they're at least saving time in the
commute. And then they're in a -- I guess -- safer environment,
rather than being around other people and may be distracted by things
that are going on in an office. And so I think that this is a time
for reflection. That's number one. This is also time for some
companies to reassess their planning for situations like that,
because some companies that have been more prudent in their financial
discipline and their financial planning will fare better than those
that have not. And specifically, technology companies, those
companies that have high fixed costs, they are-- if their ratings go
down, are susceptible to an economic downturn, rather than those that
have a high variable costs, variable costs are those that change with
the level of sales. So I think from a working perspective, I don't
think that technology companies are very much affected by the current
innovators. However, if the economy becomes affected, then everybody
is going to feel an impact. The net impact is going to last for much
more than those two months. And then it would be very wise to spend
these two months to plan for what's there, to calm and to really
prepare for a variety of scenarios, and be a lot more aggressive
potentially with how do you convert customers in the sales tactics
and the products. Potentially consider slowing down the product
development timeline, so that you conserve costs and be able to
prolong your runway, if you're not generating revenue yet.
Julie: That's great. And I'd like to thank my guest, Victoria Yampolsky. Please join us for part 2 on forecasting for innovation and the execution roadmap.
Check out Part 2 this Saturday.
View all episodes
By Julie Smithson
5
11 ratings
One of the first hurdles any organization must leap in the adoption of new technology is funding it. In this special two-part episode, Julie chats with The Startup Station founder Victoria Yampolsky about how to plan your budget, for the best and worst-case scenarios.
Julie: Hello, my name is Julie
Smithson and I am your XR for Learning podcast host. Join us today
with our next guest, Victoria Yampolsky. Victoria is the founder and
president of The Startup Station, an educational and consulting
company committed to help founders be successful and get funded
faster. She focuses on the creative, credible financials and
valuations for early-stage ventures. Specifically she's helped
entrepreneurs master the necessary finance skills, so that they
correctly translate their business plan into a financial plan,
evaluate the financial feasibility of different initiatives, and
credibly present their companies to investors, and use their
financial model to drive the business forward. Thanks so much for
joining me, Victoria.
Victoria: Thank you very much
for inviting me, Julie. It's a pleasure to be here.
Julie: Our topic today is going
to be a little bit different. We're gonna talk about budgeting, and
finances, and starting up a business, and being able to budget for
innovation, which is something that not many people understand, what
the implications of technologies and the advancements of impacts they
have on businesses. So maybe you can tell me a little bit more about
your company, and the approach that you started to take and the
demand and need for your services.
Victoria: So I started my
company in 2013, after I was an entrepreneur myself. And then I began
advising the company and I saw a huge need for business and financial
expertise in the startup world. My first venture was in media and
entertainment. And it was pretty clear that a lot of filmmakers were
extremely passionate about the projects that they were making, and
they put very little thought into thinking how they going to monetize
it, how they're going to bring their projects to market. And when I
began advising my first non media and entertainment company, I
realized that the same problem persisted in the startup community as
well. There were a lot of brilliant entrepreneurs who wanted to
propel innovation, who wanted to change the world, who wanted to
disrupt industries that were not working efficiently, who wanted to
solve problems that were not being sold or sold not in the best way.
And they were coming up with solutions, but they didn't yet think
through how to make those solutions into businesses, how to bring
those solutions to market, how to reach mass adoption. And so that
brought me to a starting the Startup Station, where I help
entrepreneurs think through those roadmaps, make sure that the plans
that they put together are financially feasible, how to put together
those baselines which help them to evaluate if their strategy is
working, if their plans for bringing the product to market are
efficient and react faster to market feedback, to conserve capital
and to also be successful.
Julie: Are you working with any
startup companies that are dealing with XR technologies like virtual
reality, or augmented reality, or artificial intelligence right now?
Victoria: So none of those
technologies are one of my clients right now, but I have talked over
a thousand founders, because in addition to consulting one-to-one, I
also teach entrepreneurs, and I teach them how to evaluate those
business plans and put together those financials in their own. And
out of those students I did teach a few XR companies.
Julie: So I think that the
introduction of all of these technologies into a business where one
day, we have brand new hardware release or a software update and
massive changes in the company need to take place. What is your first
piece of advice that you give to these companies, to prepare for
these massive changes and unexpected changes which equals innovation?
Victoria: Right. So I think on
the technology integration side, I think you need to have-- if you're
going to adopt a new technology such as XR/VR -- which comes with a
lot of uncertainty, which comes with a lot of changes -- you need to
have great technical people on the team, who not only understand the
implications of any changes that may happen in those technologies,
but also understand the implications of what those changes mean for
your organization. And so I would suggest, just like in financial
modeling -- where we do a low, medium and high case scenarios -- that
those technical people, when they begin adopting technologies, they
think through scenarios of what may happen if some changes are
effected, whether it's going to be change to their platform, whether
it's going to be change to hardware, whether it's going to be the
change to software, what kind of change it's going to be, and how
their organization should react, and what is going to be the
financial cost, and what's going to be the labor cost, and what's
going to be the time cost. And so if you go through this preparatory
work as you are adopting those technologies -- or even before -- then
you're a lot more prepared for whatever changes may come your way.
Julie: Yeah, I think it's
obviously very important to have the right team when you've got your
startup, and a team that understands the implications of the future.
And obviously having a futurist who can forecast the technologies
that are coming in and are being adopted. And I've read a few things
with regards to what technologies are coming in. There's a futurist
by the name of Matthew Griffin, and he created a technology reel that
shows over 440 different technologies before 2070, which is obviously
very far out. But the number of technologies in that great of mass,
it's overwhelming to to be prepared for all of these things and how
they're going to be implemented into the business, and be prepared
for how it will impact the business. Maybe you can talk a little bit
about the strategy itself, and how to prepare even right down to the
statement of work and in the financial forecasting. I know in some of
our projects we have a contingency plan buffer built into our
finances. Now, maybe that's something else that you can kind of speak
to, on what kind of advice do you provide with that strategy to
protect yourself, to adopt and take on these different technologies?
Victoria: Sure. So let's begin
with assessing new technologies. So as I was thinking about this
podcast, I thought that that's a really good idea. And I think a lot
of companies are doing it already, to create kind of a think tank
inside your company that is going to monitor all the emerging
technologies and performing that futuristic work. Now, they don't
need to necessarily come up with all the 440 technologies. And there
are people -- like you mentioned, Matthew Griffin -- who is doing
that. But it is extremely important to stay on top of what's going
on. And then do the following work, in terms of assessing what that
means for your organization. And that work is to A) figure out what
is the minimum commercial viability of any new technology, and that
technology needs to achieve in order to be appropriate for your
organization. And then try to put some sort of a timeline of when
that may happen. Now, that part is incredibly difficult because of
the speed with which technology innovation happens. And so whatever
timeline they may come up with needs to be revised aggressively as
new information becomes available, or even halved as soon as they
come up with a new timeline. And then they need to consider -- once
they determine the minimum commercial viability of new technology --
then they need to think, "Well, is this even a good technology
for us? What problem will it solve?" And this is very similar to
anything that a new startup when they coming up with a new idea. The
question that they need to answer. "What problem am I solving?
Why am I creating this new technology?" For any organization
that is going to adopt the new technology. What problem will this
technology solve? What is the gap in the market that is not currently
addressed? What can I do better? Because a lot of these technologies
actually have an impact on the bottom line, rather than the top line.
And so once they figure out that question and you sort of begin to
understand the impact, they then move on to understanding how much
it's going to cost them to implement those technologies. And there,
they have three options. They have the option to develop that
technology themselves, using whatever information is available at the
moment. They have the option to start an accelerator. Which is a lot
of organizations are doing and propel innovation by inviting
companies who are already working in those technologies into that
accelerator, and then investing into most promising candidates. They
have the option to license the technology from somebody who has
developed it up to the minimum viability level they determine, or
acquire a company. So these are the four options that any
organization has. And how will they choose which option is the most
viable for them, that's a question of the size of the opportunity.
How big a problem will they be able to solve if this technology is
adopted? How big a competitive advantage will they be able to get if
they're going to be the first mover into the market with that
technology, or the second mover or whatever? And then the cost. Some
technologies are extremely expensive to create. And that was the
issue with AR/VR for a few years. And now, of course, with the 5G,
it's becoming-- some of the problems are going to be resolved sooner.
And because the cost of the hardware is coming down as well. So when
you have those issues, the cost component is extremely important. And
so some companies cannot even consider the option of developing
something in-house, because of the price tag. And they're kind of
stuck with the option of either licensing technology, or waiting
until later, and acquiring a candidate outright. And so the cost can
come in three ways. First, the cost of the technology,y whether it's
the development costs or licensing costs. Then it's integration costs
into the current systems. So how will this technology going to work
with whatever systems already in place? And finally, the maintenance
cost. Now that we understand all of these components, I want to talk
a little bit about contingency. Contingency is extremely important in
all of their financial planning, because it accounts for the unknown.
As much as we like to think that we can project the future, even if
we have a lot of information with a high degree of accuracy, things
come up even for companies that are publicly traded. They only give
guidance in their financial performance for three months. Why?
Because even for them -- and they have so much more information than
any startup, so much more information than any company beginning to
adopt new technology -- even they face uncertainty. Like the
coronavirus. A lot of businesses couldn't possibly predict. Starting
in January 2020, when they were given guidance for this year, that
that's going to happen, it's going to be such a huge disruption to
their businesses. Now, for some businesses, this is actually a
positive for those businesses that exist remotely, for those
businesses that promote human interaction, et cetera. And for some
businesses such as small restaurants and travel industry etc., this
is really big a hit, as this pandemic continues. It's not always
possible even for large businesses to make predictions. For smaller
businesses, it's even harder. And so contingency gives you this
breathing room to plan for that. Now, how big a contingency should
be? I recommend that it's 10 to 20 percent of your budget. If you
think that this is too low, and you need to have a 50 percent
contingency, this means you haven't really thought through your
costs. You don't really understand your business. What do you do
then? What do you do if you are completely unsure? You first look at
comparable projects, or budgets, or companies. You go to technical
people and you ask them to give you their low, medium and high
estimates of what certain things can take. And then if you're feeling
very insecure, you only take the high estimates and then you add on
the 20 percent contingency on top of that. But I recommend against a
contingency higher than, let's say, 30 percent, because that would
mean that you don't really understand what your cost structure is.
And this is a better position to be in, as a startup or as a bigger
organization.
Julie: I think that's a great
topic right now, is the contingency plan. And to understand your
input on the percentage, too. Because people don't necessarily know
how much breathing room do we need and it's such an unpredictable
market, is innovation. And even before the pandemic kind of started
right now, it's-- we were playing a guessing game every day with our
industry, just to see what was going to come out new, and what was
going to change that would affect current developments or future
ones. I'd like to go back to the conversation of this pandemic that
we're going through the coronavirus. And obviously, there are a lot
of unpredictable measures being taken now, and forecasting with
businesses that have never-- well, none of us have ever faced
anything like this. And as you said, there are certainly some
businesses that will thrive over others during this time, and
enterprise is not exempt from being hit with the changes and the
unpredictable markets right now. Even the stock market plunging, and
that sort of thing. So coming back to our startups, and I know we're
going to have a part 2 series of this, but maybe you can tie this
this episode off with if you're a startup today, what would your
advice be on taking a look -- based on our current situation -- on
how to think about the next couple of months? Do you have any advice
for startups out there?
Victoria: Well, depending-- I
think technology startups -- this is an AR/VR podcast -- I think
they're in a much better situation, because everybody is able to work
remotely. And I think this is really the time for people to also set
aside a little bit of time to think about the company's long-term
strategy, to think about innovation, to think where they can go. Now
that they're at home, and they're at least saving time in the
commute. And then they're in a -- I guess -- safer environment,
rather than being around other people and may be distracted by things
that are going on in an office. And so I think that this is a time
for reflection. That's number one. This is also time for some
companies to reassess their planning for situations like that,
because some companies that have been more prudent in their financial
discipline and their financial planning will fare better than those
that have not. And specifically, technology companies, those
companies that have high fixed costs, they are-- if their ratings go
down, are susceptible to an economic downturn, rather than those that
have a high variable costs, variable costs are those that change with
the level of sales. So I think from a working perspective, I don't
think that technology companies are very much affected by the current
innovators. However, if the economy becomes affected, then everybody
is going to feel an impact. The net impact is going to last for much
more than those two months. And then it would be very wise to spend
these two months to plan for what's there, to calm and to really
prepare for a variety of scenarios, and be a lot more aggressive
potentially with how do you convert customers in the sales tactics
and the products. Potentially consider slowing down the product
development timeline, so that you conserve costs and be able to
prolong your runway, if you're not generating revenue yet.
Julie: That's great. And I'd like to thank my guest, Victoria Yampolsky. Please join us for part 2 on forecasting for innovation and the execution roadmap.
Check out Part 2 this Saturday.