Look before you leap…

Part of being a venture capitalist is meeting with a lot of companies trying to raise money. Regardless of the stage of the company, the most common issue I see (and therefore the biggest hurdle to raising money) is a failure to think things through.

Thinking things through means having a picture in your mind about the different aspects of the company; what is needed to get the product/service to market, sell it, build revenue, become profitable and create value in the company.

Here are some of the most common failure modes I see:

• How does the product fit into the customer's environment?
• What is the sales strategy – how do you make more on the sale than it costs you to get?
• What is the likely response of your competitors (especially if they are large and profitable – read well armed!)?
• How is value built for the investors (M&A or IPO)?
• What is your contingency plan when things (inevitably) go wrong?
• What do you need to do to raise the NEXT round of investment at a better price than the current round?

No business plan is perfect but as a founder or CEO of a company, you need to have the bases covered. Basic issues such as these generate a quick "no thanks – not for me" – a.k.a "the pass".

Building a business plan is a lot like planning a long cross-country flight as a pilot. You have data that you know for certain such as where you are going, the route to be flown and the basic performance of the aircraft. You are also faced with a set of data that is less certain – the forecast weather, potential equipment failures, your own fatigue level etc. A good pilot examines the uncertain data and builds a contingency plan before committing to the flight. For example, if there is uncertainty in the weather the contingency plan may be take a different route, turn back, land or simply "don't go". The point is that this thought process takes place BEFORE you leave the ground.

Think your business plan through BEFORE setting out to raise money. If you can, find someone who has gone through the process of building a company – ask them to review the plan and highlight the issues they see. Upfront preparation will pay off so take the time for review and introspection.

An alternative title for this post could have been "Ready, Fire, Aim" but it just didn't work with the picture! Make sure you get the order right with YOUR business plan!

Comments

[Tim Berry]

Stu: thanks, very valuable post. I just referred to it extensively on my blog at allbusiness.com, at http://tiny.cc/f72TU. That platform doesn't allow trackbacks, hence this comment.

[Rich Rosen]

Stu - these are great points, and should be included in a full bplan. How important is it to fit these points into an Exec Summ or deck? We entrepreneurs have so little time to fit our pitch into a few minutes - how do we cram it all in w/o be cryptic?