One thing in company presentations that makes me write down a bunch of questions is seeing extremely high profit margins in the forecasted financials.
Among all the great software and Internet companies I don’t think I’ve seen a company, with the exception of Evolution in 2021, that has grown more than 80 % year-over-year at scale and had profit margins over 50 %.
Obviously that doesn’t mean it is not at all possible, but in most cases it is likely that the company is underestimating the costs of growing or overestimating how quickly it will grow. It is a type of ‘error’ that is called base case fallacy, a.k.a. the plan is not fully taking into account how rare something is compared to the standard outcome.
