Business Plans: How Long Should They Be?

I’ve worked with a couple of thousand entrepreneurs to help them with their business plans and fundraising.  Here’s a couple of quick points I’ve learned:

1. Way too often the entrepreneur has not yet really developed any “go to market” or realistic implementation strategies and tactics.  Too often this part is 50% arm waving and 50% enthusiasm = 0% drilled down execution plan.  Trust me when I say:  prospective investors will notice the jive. Exactly how are going to drive sales?  How much will you spend on advertising to rise above the noise level?  Where, exactly, will those advertising dollars be spent? What is your W Cubed?  Who? Will do What? When?  Until you know this, you won’t know what resources you will need or the costs to reflect in your financial projections.
2. Financial projections are hugely important – massively so.  Yet, way too often entrepreneurs want them done because they have heard they have to be in a plan…without really caring if they are a real prediction of the future.  Here’s a clue: not only do they need to be your very best prediction of the future – you need to be prepared to answer drilled down questions on every one of your major driving assumptions. If you don’t have good answers on each of those assumptions, the prospective investor will probably NOT stroke a check for your venture. And, oh by the way, you get your good driving assumptions from having previously defined your realistic strategies and tactics.

Your business plan needs to discuss the above in detail – and not be filled with useless motherhood and apple pie filler.  

Your business plan needs to be long enough to grab a prospective investor’s attention, show them the pain you will solve and then show them the strategy and tactics to accomplish it with your unique business model – with genuinely believable financials that show a motivating ROI opportunity.  

If you have a need help with your strategies and tactics – or developing meaningful driving assumptions, check out my Deviled Details Action Planning Service.

Invest With Our Company – Read All About It! Not!

One of the biggest mistakes that startup and emerging companies make was a major topic for discussion while we were having dinner with some friends this past weekend.

Our friends’ mentioned that their website about their thoroughbred racing farm referenced that they were looking for investors for their upcoming syndication. This was their first time they had considered raising money from angel investors – and they didn’t understand the legal constraints of a private placement offering.

Once they understood the onerous consequences that come from violating state and federal securities laws, they immediately changed their website — and are now both listening to my five-hour audio course called Funding Foreplay. before they move forward with any fundraising activities. (Funding Foreplay teaches entrepreneurs the right way to romance prospective investors for your company while still complying with securities laws.)

Executive Summary

Here’s the executive summary about one of the biggest mistakes that startup and emerging companies make: Advertising to the general public, in any way, that you’re looking for investors.

This means, in general, that you cannot discuss your investment offering on your publicly accessible web pages, in an e-mail blast to 10,000 people, in newspapers and magazines or walking up and down the street carrying a big sign.

The federal government, and all 50 states, have very specific rules, regulations and requirements in order to qualify for their securities law private placement exemptions.

The operative word here is “private.” This means that public is not invited.

It doesn’t matter if you’re raising $10,000 or $10 million. You cannot solicit the general public.

Period.

Some of the Penalties

Some of the penalties you could face from violating these specific requirements include:

• Having to rescind your offering — which basically means that you will need to give back all the money.  This is the usual consequence – although it gets a LOT harder to do once you have already started spending the investors’ money!
• Being barred from continuing your offering or ever sponsoring any future offering.
• Going to jail. (This usually won’t happen on the first offense — but it can!)
• Etc.  There are a LOT of these – but too numerous to list.

It’s totally understandable why fundraising virgins wouldn’t know about these kinds of laws – or even know to ask about them.  However, I can tell you that state and federal investigators won’t care.  Ignorance of the law won’t work as an excuse.

Hopefully, from this, you can see that it might, just maybe, be worth your time to make sure you understand the legal constraints and implications of fundraising before you consider raising investor capital.

Solutions

I offer a variety of fundraising services at my website, www.Chiefi.com including my audio course, Funding Foreplay which is also available from Amazon.com.

But, whether you use my services are not, please do yourself a very big favor and do the necessary research to get the right professional help to make sure you comply with securities law – before you even start on your Quest to raise money from angel investors.

(PS: Note:  I am not an attorney – just an MBA – so this is business advice not legal advice.)

Please leave your comments and ideas below.

Startup Company – New Product Roll Out – Now Or After Raising Investor Capital?

“Should I start selling my products and services now – or should I wait until after I have raised my angel investor capital from my private placement?  I want to do the roll out in a big way before tipping off my competition.”

This question came up yesterday – and it’s one I often hear.  The answer is:  it depends.

Like most things with start up and emerging companies, there are always exceptions to every rule.  However, in this case, if your company is a true start up with no sales and no experience in the marketplace AND you have already finished one or more products and services, then, in my opinion, there is only one answer:

Get Traction – Now!

Even if you have a great business plan produced by yours truly or by yourself or anyone else…you are still predicting the future with unknown and unestablished products and services.  And, prospective investors know it.  Think about it:  you are asking them to believe your projections are realistic when none of them are actually based on reality.

If you and your team have already gotten even one of your products and services ready for prime time – so that it can be delivered to a real customer with an outstanding customer experience, then start selling now…and sell as many as you can afford prior to raising investor capital.

Your Competition

Generally speaking, if you are a start up, you are so far down in the noise that most of your competition won’t even notice you until you start spending real money on your advertising and PR. 

If you really have a new product or service to sell today, one that is really ready for prime time, then your competitors will need time and money to catch up to you.  During that interim, you drive sales, gain traction in the market place, impress prospective investors, get your capital raised and then do your big roll out – all before they can even get past the design stage. 

Besides, if you are never able to raise your money, you probably will never have that big roll out that you anticipated – so your bootstrap sales approach to gain traction may be the only option you have – and the only way you will generate cash flow.

Seven Reasons – And More

Besides the obvious benefit of generating cash flow, which is almost always a premium for every start up company, selling now has several immediate benefits:

1. It shows that you can actually get wallet-share by selling your products and services to real human beings or to real companies at the price point your business plan shows.
2. It gives you a chance on getting real customer testimonials – for your web pages and for the eyeballs of prospective customers and investors. Remember:  pioneers are the one face down in the dirt with arrows in their backs. Many prospective customers usually don’t want to be pioneers – they want to see what other customers have to say about your products and services. 
3. It shows what your direct cost of sales really are.  You guessed what the cost would be for each incremental sale – this way, you know for sure.
4. It shows you what needs changing.  This includes everything from your flow of work processes to your fulfillment procedures to your after sale customer support.
5. It shows you what needs to be improved.  Your customers will tell you what changes they want, what works well and what does not.  If you can make the changes on this side of the funding, then do so in order to already have an improved product or service for today’s customers and tomorrow’s prospective investors. If those changes take more money and time than you currently have, then you have a feature and benefit list for version 2.0 to show prospective investors.
6. You can start to calculate what your customer acquisition costs are.  In other words, how much on average does it cost you in advertising, marketing, AdWords, etc. for each customer who ends up giving you wallet-share?  Is it $10?  $100?  $1,000?  Once you have this number, you can at least approximate how much you REALLY need to spend on marketing and advertising to drive the sales forecast in your business plan.
7. Even with a meager roll out, you can start to see where your constraints to growth will be.  Is it back office support? Fulfillment? Sales force limitations? Advertising? Enough of You? Or, is it just enough money to go do what you want to do?  My guess is that it will be more than one thing if you project out even one year.  The more constraints to growth you can anticipate now, and plan for now, the more insights you will have for your business plan.

These are just the Lucky Seven benefits of selling now and not waiting until after the investor funding.

Update Your Plan With Your Newly Gained Reality

Another key benefit:  Take all you learn from these seven – and go back to ALL of your driving assumptions for your financial projections and tweak and tune them to better reflect reality. 

Drill down on every assumption and question if it best reflects the new reality after chasing real wallet-share.  If not, change the numbers for your assumptions and generate new projections based on your real life experiences.  Then, update your plan’s narrative to discuss what you’ve learned and why you think the newly generated financial projections are better.

Not only will your projections end up much more realistic, you will be smarter about your customers and your costs – and your prospective investors will get better answers from you when they start asking you the hard questions. 

And, the revenue traction you show them might, just maybe, be enough to get them to stroke that check for your funding.

All the best,

Robert

PS:  This is just one of many pivotal strategic and tactical decisions you face with your new company.  Check out my Deviled Details and my Kick Start Planning Services for more information on how I can help accelerate the implementation of your vision.

Entrepreneurs: Don’t Let Your NDA Be A Self Inflicted Wound That Kills Your Start Up Company

A recent question came up about non-disclosure agreements, the always popular NDA, and whether it was required when seeking outside investment in a start up company.

I have been on both sides of that argument with my own companies and with my clients.

I mentor and consult to a lot of start up companies and one thing is clear – ideas by themselves are not worth very much without a genuinely implementable plan, an experienced team for realistic execution, some kind of traction to demonstrate you can grab wallet share – and the funding to make it real.

Nevertheless, I am often presented with an NDA by my entrepreneur clients – and in most cases, I am usually willing to sign it although I immediately share with them that almost no angel investor or venture capital group will be willing to do so just to see their business plan. (There’s already a ton written about the reasons – just Google “NDA Venture Capital” and you will quickly see why you will instantly lose a lot of credibility just in the asking.)

I can remember one NDA presented to me by a prospective client that I would not sign:  He wanted $400 million in expressed liquidated damages if he, in his sole opinion, felt that I violated the NDA anytime in the next 20 years.

This was for a company that only existed on a single Excel spreadsheet.  I refused to sign, returned his retainer and wished him well.

My intuition is that this guy’s company still only exists on that same single Excel spreadsheet.

Don’t let your own NDA be a self inflicted wound that kills YOUR start up company!

Entrepreneurs: How Can I Raise Angel Investor Money For Start Up Costs?

The following is a question I recently received from a client:

Do you have any ideas how I can raise money legally just for start up expenses?  The only real start up expenses left would be getting through our capital raising phase.  People want to invest – but I know that I can’t take their money as investors due to SEC rules.  What should I do?

As you can imagine, I get this question a LOT from my clients. Generally, this is referred to as seed capital and it is usually the hardest money to raise since it is almost always perceived as a highly risky investment. The inside joke in the investment community is that you can only find this kind of seed capital from three sources – The Three “F’s”: Friends, Family and Fools.

The double whammy is that raising seed capital is usually considered to be like all the other kinds of fundraising pursued by start up companies – meaning that you typically have to go through the usual Reg D offering rules including preparation of a private placement memorandum, or PPM, just like you would to pursue any kind of angel investor.

The one exception I know of: bringing in a co-founder, or co-founders, who contribute time, energy, effort and money to both start AND manage the new venture. Of course, this usually means that the co-founder(s) are going to want a significant ownership position in the company…and the more money they contribute v. your cash contributions, the more of the company they may demand. Plus, when you get around to really raising the capital you need to execute your business plan, you and the other co-founders will almost always be subjected to more dilution of ownership.

One of the keys in this is that the co-founder cannot simply be a passive investor. If they are a passive investor, then we are back to all the Reg D rules. This is based on my three decades of experience as an entrepreneur – since I am not a lawyer you should check with your own securities attorney to see if they have some legal maneuver around this constraint.

All of that being said, you and your idea and your vision – could be the very rare exception to all of the above. But the probabilities are not with you.

My usual suggestion to my clients: Try not to stop for seed capital rounds…do whatever you can to get the company formed and the initial products or services at least fully formulated with a well thought out action plan and business plan with realistic financial projections based on the action plan. Then, do what you have to do in order to combine all of this with a legitimate Reg D PPM.

Armed with this kind of planning, you will know that the numbers work and the idea is sound…and you will be able to offer a much more compelling investment opportunity to angel investors.

Free Sample Business Plan, PPM, Mind Map, More

Want Some Free Sample Documents?

Get more of my stuff for free – just click what you want below, with my compliments:

• Free Sample Business Plan
• Free Reg D Private Placement Memorandum ( PPM )
• Free Sample Real Estate Investment Analysis
• Free Five Year Life Personal Planning Workbook
• Free Start Up Mind Map

Ready for Action or Still Have Questions?

Contact me today to discuss how my mentoring, business planning, fundraising and virtual executive services can help you and your company better succeed – and help accelerate your journey to your own Point B.