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.

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: 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.

We Shall See, Said The Zen Master

A lot of my clients hear me tell them, “We shall see, said the Zen Master.”

This is a reference to an excellent movie, Charlie Wilson’s War. Part of the dialog:

A boy is given a horse on his 14th birthday. Everyone in the village says, “Oh how wonderful.”

But a Zen master who lives in the village says, “We shall see.”

The boy falls off the horse and breaks his foot. Everyone in the village says, “Oh how awful.”

The Zen master says, “We shall see.”

The village is thrown into war and all the young men have to go to war. But, because of the broken foot, the boy stays behind. Everyone says, “Oh, how wonderful.”

The Zen master says, “We shall see.”

When it comes to start up companies…and life…and planning either…a Zen master can be helpful. http://DeviledDetails.com/

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Fundraising: Can I Use Investor Money To Pay Me Back?

As I get questions from readers from my Ask The Chief ImpleMentor series, I will take some of the questions that I think might have a broad audience and post them here on the blog.

This one is filed under “Dragons – Fundraising: Can I Use Investor Money To Pay Me Back?”

Question:

Love the blog! Finally someone answering real life startup company questions! I want to raise $1.8 million from investors for my computer business to take it to the next level. Can I use $250,000 of the $1.8 million to pay me back the money that I have already invested in getting my company started?

Thanks again!

Walt

Answer:

This is one of the most frequent questions I get from clients: Can I get back all of my money that I have invested so far in starting my company from the new investment dollars I get from angel investors or venture capital?

The short answer is almost never.

• Most will see it as a red flag and not invest.
• Most want to see you so committed, financially, to the company that you can’t afford to let it fail.
• If you don’t get paid back, then the company only needs $1,550,000 instead of $1,800,000 to accomplish the same goals that are in your business plan.

The longer answer is maybe a little. Read more >>

Welcome to Chief ImpleMentor

Dear Friend and Fellow Entrepreneur,

We are in the process of collecting our wide variety of pages and web sites and relocating many of them into this one location so that our clients can find our various services more easily.

The process may take us a while to complete construction – but stay tuned!

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Here’s some topics you might find interesting:

• Free Stuff – Here you can download a sample business plan, a sample private placement memorandum for investors, a sample real estate investment analysis, a workbook to predict your life in five years and a mind map that plots out the realistic steps to starting a company.  They are all free with zero obligation.
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• Blog - Check out my blog on start up and emerging companies.
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• Funding Foreplay – Learn how to romance and seduce investors with the right dozen documents.
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If you need immediate needs or opportunities, I invite you to use the Contact Us tab to let me know how I can best help you and your start up and emerging company.

All the best,

Robert Lee Goodman, MBA
Ceo & Chief ImpleMentor
Ceo Resource LLC