PLN 57 million of revenue in the plan, PLN 8.5 million within the team’s reach. What went wrong at a young company

In February, the founder of a young service company came to see us and showed us a plan on his laptop that assumed a market worth PLN 3.8 billion. The estimate came from an industry report and was correct. It matched total annual spending on this service across Poland.

The company had been operating for 14 months and had sold PLN 870,000 worth of services in that time. Of the PLN 2.97 million that the founder and his friends had put into it, PLN 290,000 was left. On average, PLN 191,000 a month had been leaving the account. The founder was looking for an investor to fund the next two years of operations.

He was an excellent speaker and had a vision of a company that would become the industry leader in Poland within three years. He had previously run sales at a large corporation, and four of its salespeople had followed him when he left. He raised the money from friends in two months. When we sized the market again together, he said nothing for quite a while. I have changed the figures and details of this story so that neither the company nor the people can be identified.

Three years ago, in a short piece titled “The Five Cornerstones of Entrepreneurial Success,” I described the five cornerstones on which a new company rests: the market it can reach, strategy, an operating and financial plan, resources, and leadership. Vision and charisma belong to the fifth. This story shows what happens when a company relies mainly on the fifth cornerstone for 14 months.

Many founders believe that a leader’s vision and charisma are enough and that the company will work out the rest along the way. This founder believed it too, and he hired 14 people before signing his first annual contract. Vision and charisma are part of leadership, and without them it is hard to raise the first money and build the first team. Without the other four cornerstones, however, they rarely lead a company to success. What they can do is make it easier to expand a company too fast. If a founder hires people before demand is confirmed, costs grow faster than sales, and wrong assumptions about the market cost more and more. According to Statistics Poland (GUS), 68.4% of the non-financial enterprises that started operating in 2024 were still active in 2025.

The market the company can actually reach

Investment analysis distinguishes the total addressable market (TAM), the serviceable available market (SAM) and the serviceable obtainable market (SOM). The total addressable market is the total value of purchases of a given product or service in a chosen area, for example a whole country. The serviceable available market covers the spending of potential customers the company can reach with its current offering and sales channels. The serviceable obtainable market is the part of the serviceable available market that the company can win during the period covered by the plan, given the existing competition and its own capabilities.

An industry report usually gives the total addressable market. An investor asks about the other two, because only they say something about a specific company. At Capital One Advisers we calculate them bottom-up.

First, we draw up a list of the potential customers the company can reach right now. The company employed salespeople in three provinces and in practice reached mid-sized manufacturing companies. There were 4,117 such companies in those three provinces.

Next, we establish how much an average customer spends a year on this kind of service. The average annual value of the contracts the company had already signed was PLN 51,500. The serviceable available market is the product of the two numbers. Assuming that the other companies spend on average as much as the existing customers, it came to about PLN 212 million, or 5.6% of the figure in the report.

Finally, we check how many customers the current sales team can win. The company had six salespeople: four from the corporation and two hired later. In their best period, each of them signed an average of 11 new contracts on an annualized basis. I use that pace, so the calculation shows the optimistic scenario. This gives 66 new contracts with a combined annual value of PLN 3.4 million. If no customer left, by the end of the third year the company would have 198 customers and contracts worth PLN 10.2 million a year. That is the ceiling in the optimistic scenario, before competition is taken into account. Revenue in the third year alone would be about PLN 8.5 million, because the company would win new customers gradually over the whole year. In this simulation I assume that the six salespeople win customers at an even pace for the full three years and that the company starts delivering the service as soon as each contract is signed.

The plan assumed PLN 57 million of revenue in the third year. Against the market in the report, that looked modest: 1.5%. Against the serviceable available market, it meant that the company, starting from zero, would capture 27% of that market in its third year. At annual revenue of PLN 51,500 per customer, it would need an average of 1,107 active customers in the third year. At the pace of its best period, the company would have had to employ at least 41 salespeople from day one.

Then there is competition. Most of these companies had multi-year contracts with their existing suppliers, which made a quick switch difficult. Approval from the purchasing department is often needed as well, and purchasing worries about downtime if a new partner runs into problems. So the company signs its first contract later than the plan assumes, and in the first months a new salesperson is pure cost. Before hiring the first salesperson, a founder should be able to say in one sentence why a customer would take that risk.

Startups funded by venture capital funds also fail because their offering does not meet customers’ needs. The research firm CB Insights analyzed 431 such startups that shut down in 2023 or later. For 385 of them, the reasons for closing could be established. In 43% of cases, those reasons included a lack of fit between the product and the needs of the market.

Strategy is a set of choices that can be tested

The founder started with a mission and a vision. Based on them, an agency designed a visual identity and a website for PLN 148,000. It did good work, even though the company did not yet have a customer. The plan assumed selling across the whole country and in all industries at once, which in practice settled nothing. The vision was clear, but there was no strategy to turn it into a sequence of steps.

A strategy determines which customers the company targets first and how it will reach them. It also answers why customers would switch from their current supplier and how much it will cost to win one customer. Behind each of these choices is an assumption that can be tested in a few weeks: in conversations with the people who decide on buying this service, or in a paid pilot with a few customers from one province. It is worth doing this before the company raises its fixed costs.

Camuffo and co-authors split 116 Italian startups into two groups and followed them for roughly a year. Founders in both groups went through ten training sessions on gathering information from potential customers. The treatment group was also taught to formulate hypotheses about their own venture and to test them rigorously, the way scientists do. Companies in this group performed better and changed their original business idea more often. They also abandoned their ventures at least as often as companies in the control group, and in one of the analyses more often (Management Science, 2020). According to the authors, a scientific approach lowers the risk that a founder keeps developing an idea that only seems promising.

A plan calculates revenue the same way it calculates costs

The operating plan says whom the company will hire and when, and how long it takes to win one customer. The financial plan includes a cash flow forecast, that is, how much money will come into the company and how much will go out in each month. The cash balance at the end of a month is the balance at the start of the month plus all inflows, including those from investors, minus all outflows, including loan repayments. The first month in which the cash balance falls below zero sets the date by which the company must raise money or cut costs.

Some researchers argued that a business plan distracts founders from acting. Delmar and Shane tested this on 223 Swedish ventures started in 1998. Planning reduced the risk that founders would abandon the venture and sped up product development (Strategic Management Journal, 2003).

The plan I saw in February had a flaw I see often. Costs were calculated bottom-up, down to the individual position and month. Revenue was calculated top-down, as a percentage of the market in the report. On the cost side, then, there were employment contracts and invoices, and on the revenue side one and a half percent of a market estimate copied from someone else’s report. In the piece “A pitch deck is the fifth card” I wrote that a presentation to an investor has to be backed by a concept, a strategy, a plan and a financial model. Here, almost the entire revenue forecast came from a single figure in an industry report.

A founder who wants to talk to an investor in the coming months should size the serviceable available market bottom-up before the first meeting. A fund will ask about it early in the conversation, and after a weak answer there is often no second meeting. Delay also costs money. At the average rate at which cash fell in the first 14 months, each further month of searching without changing the plan would have meant about PLN 191,000 less in the account.

Money spent in stages

Here the team grew faster than sales, as a comparison of the plan with the actual decisions of the first 18 months of operations shows.

Investors call expanding a company before demand is confirmed premature scaling. The authors of the 2011 Startup Genome report, based on data from more than 3,200 fast-growing technology companies, concluded that about 74% of internet startups fail for this reason. The report was not peer-reviewed, so I treat that number as indicative. According to CB Insights, in 70% of the 385 cases analyzed, running out of cash was one of the reasons for shutting down. The authors of that analysis add, however, that running out of cash is almost always the last cause of failure. The problem starts with mistakes made earlier.

In a new company, money is spent in stages. Each stage ends with a test the company must pass before it spends the next amount. Before the test, you set the metric, the required result and the decision the company will take if the test fails. In this company, the metric could have been the number of paying customers in one province, and the required result 20 such customers within six months. Only after reaching that result was it worth hiring more salespeople. Entering the next province should have depended on the result of the next test. A failed test would have meant changing the customer segment or the offering before the company spent more money.

Leadership: vision and charisma need the other cornerstones

In this company, charisma did exactly what it is needed for. It let the founder raise money from friends in two months. It also helped him persuade four experienced salespeople to leave stable corporate jobs. Without it, the company would most likely never have existed. It did not, however, replace the numbers. The choice of the first customer group and the pace of hiring should have followed from a market sized bottom-up and from sales results. For this founder, they followed from his vision. He built the company mainly on his greatest strengths: vision and the ability to persuade people.

Research on chief executives points to a similar conclusion. Kaplan, Klebanov and Sorensen analyzed assessments of 316 candidates for CEO of companies acquired by private equity funds or financed by venture capital funds (Journal of Finance, 2012). The assessments, prepared in 2000–2006 by the consulting firm ghSMART, covered more than thirty characteristics. Better company performance was more strongly linked to the ability to execute plans than to the ability to build relationships and work in a team.

Agle and co-authors, in turn, studied 128 CEOs of large US companies on the basis of 770 surveys completed by members of their top management teams. After good company results, a CEO was rated as more charismatic. Charisma by itself did not predict later performance (Academy of Management Journal, 2006).

The first study concerns CEO candidates at fund-backed companies, the second CEOs of large US corporations. Neither answers directly how much a founder’s charisma matters at the very start of a business. In my view, the founder of a new company has to be able both to win people over to a vision and to manage by the numbers. Vision and charisma bring in the first colleagues and the first capital, and after that the founder personally reviews sales and the cash balance every week. Early-stage fund managers, and sales directors who have built sales teams from scratch, often have to judge when the time is right to expand a team. I am curious which signals from the market they consider sufficient.

Five questions before talking to an investor

Each cornerstone can be checked with one question. At Capital One Advisers we ask founders these questions before we start looking for capital, because the answers test the most important assumptions of the financial model. For each question I give the warning sign we saw in this company.

1. Market: how many potential customers can the company reach today, and how much does each of them spend a year on this service? Warning sign: a market estimate based only on an industry report, with no list of potential customers and no estimate of their spending.
2. Strategy: which customer segment does the company target first, why would these customers switch suppliers, and how will the company test that within a few weeks? Warning sign: the plan covers the whole country and all industries at once.
3. Plan: does revenue in the plan follow from the number of salespeople, the number of contracts and the time needed to win them, in as much detail as costs follow from the hiring plan? Warning sign: costs calculated down to the individual position, and revenue as a share of the market.
4. Resources: what result must the company achieve before it increases spending or headcount, how will it measure that result, and what will it do if it falls short? Warning sign: 14 people hired before the first annual contract was signed.
5. Leadership: can a leader who knows how to win over people and investors also review results regularly and make decisions based on them? Warning sign: the leader has a three-year vision, while cash is disappearing more than 70% faster than the plan assumed.

The same questions are worth asking when an established company launches a new product line, enters a foreign market or sets up a subsidiary. There, management’s vision and the owners’ trust help win people over to the new venture and secure money for it, but they do not replace a sound calculation.

What happened to the company

I advised the founder against looking for an investor. A fund would have asked about the serviceable available market at the first meeting, and the answer would have undermined the whole plan. At the pace so far, the remaining cash would have lasted a month and a half, and bringing in an investor usually takes longer. I suggested that he cut costs first. The founder let most of the employees go but kept the sales team, and his friends lent him money to keep operating for a few months.

In June, a competitor bought the company for PLN 1.64 million. With it, the buyer took over the customer contracts and the whole sales team, including the four salespeople who had followed the founder from the corporation. In my assessment, the buyer paid mainly for time, because winning those customers on its own would have taken it many months.

There is one question I cannot answer with certainty. In the first month, the founder could have sized the market the way we did in February, started with one province and hired only when customers were waiting to be served. The money would probably have been enough to test whether the business model worked. Whether it would have been enough for the company to start covering its spending from customer receipts, I do not know.

Sources

1. Statistics Poland (GUS), “Non-financial enterprises established in 2024”, November 26, 2025.
2. CB Insights, analysis of the reasons why 431 venture-backed startups shut down, blog, March 5, 2026.
3. A. Camuffo, A. Cordova, A. Gambardella, C. Spina, “A Scientific Approach to Entrepreneurial Decision Making: Evidence from a Randomized Control Trial”, Management Science, 2020, vol. 66, no. 2, pp. 564–586, DOI 10.1287/mnsc.2018.3249.
4. F. Delmar, S. Shane, “Does business planning facilitate the development of new ventures?”, Strategic Management Journal, 2003, vol. 24, no. 12, pp. 1165–1185, DOI 10.1002/smj.349.
5. Startup Genome, 2011 report on premature scaling, summary on GeekWire, 2011.
6. S.N. Kaplan, M.M. Klebanov, M. Sorensen, “Which CEO Characteristics and Abilities Matter?”, Journal of Finance, 2012, vol. 67, no. 3, pp. 973–1007, DOI 10.1111/j.1540-6261.2012.01739.x.
7. B.R. Agle, N.J. Nagarajan, J.A. Sonnenfeld, D. Srinivasan, “Does CEO charisma matter? An empirical analysis of the relationships among organizational performance, environmental uncertainty, and top management team perceptions of CEO charisma”, Academy of Management Journal, 2006, vol. 49, no. 1, pp. 161–174.