Glenn Kelman's Financial Model
After posting "Financial Models for Underachievers: Two Years of the Real Numbers of a Startup" about the two years of actual costs of Redfin, many people asked for a generic version of the financial model that Redfin used to project costs. Here it is! Redfin used this model over the past two years, but beyond the costs already disclosed, the numbers are all fictitious. Also, unlike last week, the values aren’t actual data-points but formulas and formats that calculate them.
Glenn’s point isn’t to make a statement one way or the other about Redfin’s business or to even give you a crystal ball for seeing whether you’ll succeed. A model, after all, doesn’t drive demand or serve customers; it only helps you count up the beans if you do. We’re posting this model because its basic structure might help other entrepreneurs who don’t know where to start.
Here’s what you’ll find in the model:
Earnings, capital expenses and cash balance summarized on a single page.
Ratios of revenue and profits to employees and program expenses.
Assumptions called out so investors can easily evaluate dependencies.
Assumption-driven formulas, so changes to the assumptions propagate through financial statements.
Unit economics isolated on a separate page: for Redfin, this is how much profit each real estate market can generate.
Charts of headcount growth, cash balance, earnings segmentation, revenue segmentation.
Hiring detail with headcount and salary sums for each department.
The model also contains a few Redfin-built, custom Excel functions:
Counting the number of employees in a department, by counting the number of times a department value like “Engineering” appears in a column.
Summing the salaries of employees in a department, by adding up salaries for each employee where the department value for that employee equals a value like “Engineering.”
Calculating how a Redfin market grows in revenue-capacity to reach maturity, and then grows more slowly thereafter.
Calculating the number of support personnel needed to accommodate demand, and when those support personnel start. This allows us to update the staffing projection automatically when we change demand assumptions.
To get the custom functions to accommodate changes in the assumptions, you will have to set Excel’s macro security to “Low” (Tools | Macro | Security | Low). The file does not contain any malicious macros.