I'm currently building a business plan for my startup. The startup is a kind of Q&A website with an important twist that differs it from existing Q&A websites.
The information in the biz plan spans over 4 years. I suppose to show a reasonable growth rate. I expect the site to be extremely viral and wondering how can I estimate the traffic I'll have in my site, or to be exact the growth rate of the site?
If I'll have to give examples to potential competitors, we have: Yahoo answers, Mahalo.com, Fiverr.com (which is more of a marketplace) and others.
What growth rate will not look ridiculous to investors but still show that the site is going to be a great success?
The growth rate can't be linear of course.
You could use Alexa statistics to estimate your growth rate. But you shouldn't do it for long-time established companies like Yahoo. Do it for relatively new sites of a similar nature.
For example, here is onstartups.com:
That looks pretty linear to me.
If you think you've got the end-all to be-all, then you can use stackoverflow.com:
Still pretty linear, but the Y axis is different.
Exponential growth rates simply don't happen on the internet anymore. There is too much competition for your attention. Even Facebook took years to get mainstream. And they had linear growth too. Just at a faster rate. Take a look:
If you try to propose exponential growth to your funders, you'll have a tough time convincing them. Just pick a high enough linear growth rate and that will be a better goal that you might be able to attain. Something like fiverr.com:
And make sure you read Geoffrey Moore's "Crossing the Chasm". You can only get to a certain point as a new startup. To make it mainstream and compete with the Yahoos and Facebooks takes a different sort of effort and thinking.
Look at Mahalo. I think they're in the Chasm:
Using other companies' growth as a comparison is tricky as there are no two companies out there that are exactly alike. As an investor I would discount figures taken from other companies' growth and slapped on to yours. Investors know that most financial projections are BS unless you can back them up somehow.
Another approach is to use metrics. Metrics are facts that you can substantiate with some degree of certainty and use to build your financial assumptions. To do this you need to break down how your business works financially.
The following picture demonstrates metrics from a startup that turns agricultural waste into organic fertiliser. The metrics come from real world figures and helped support the financial forecasts we created for the business plan. They give credibility to the numbers.
I think the table is fairly self explanatory but the way to do it is to identify a key assumption in your financial plan and then find a fact to back up that assumption. You then make an estimate and then identify what the source of the estimate is. Finally you can identify what growth is likely in the future and what the accuracy of the estimate is. Using this technique gives you confidence that your estimates are solid and shows investors you know what you are talking about. You can use metrics for expenses and revenue projections.
If you can find some metrics to substantiate your projected growth rate, that would be much more convincing to investors than comparing your company to another one and extrapolating the growth on that basis.
Hope that helps!