I'm working on a similar business plan right now, and am having the same difficulty. Our software solves a problem and I believe we can get a lot of users, but despite adding in ad revenue and a vague "enterprise edition," the numbers just don't add up into something attractive.
Is it best to be honest about this, or beef up the numbers?
Start with the assumption that you can get lots of users. If you can then listen to those customers very, very carefully. You will discover some additional value that you can bring by adding specific features; charge extra for those features. It's OK to have lots of free users, it's also OK to say that you are not sure about the revenue, but I'd be on the lookout for an opportunity to charge a customer to extra value that your product is bringing.
Is it really okay to say you're not sure about revenue? I keep reading that that's one thing you really need to nail down. (Then again, I see these companies like Twitter with no realistic business model get funding...)
I used to sit through presentation after presentation every day and they all had revenue estimates.
No one in the room believed those estimates, not the entrepreneur and certainly not the VC. It's important to have them because they indicate that you've tried to think about how you are going to make money. Also, no one manages to actually make those estimates either because there's always something that goes wrong, or better, or sideways.
So, think about how you are going to make money, make a revenue plan (and an expense plan). Present the plan you have, but don't be ashamed if you don't make it.
It's worth asking yourself about Twitter. Why would you fund Twitter? Well, you might look at the enormous traction they have, and if you think the team is smart then you'd say to yourself "Here's a team with lots of 'customers' and the smarts to figure out how to monetize them".
JGC, personally I'd love it if you blogged/wrote somewhere about being/becoming an independent consultant, especially in a righteous/sexy domain like anti-spam/text learning. :)
1. I had no other choice. After years of working for people I just needed a break.
2. It's harder than it looks... my income is totally variable.
3. It's the best thing I ever did. I get to choose what I work on (to a certain extent).
I'm actually thinking of going back full time, but that's only because a start up is enticing me with an interesting combination of good team, interesting problem, and stock.
Is it best to be honest about this, or beef up the numbers?