Under the current economic conditions, saying that funding is tight for early stage companies is the epitome of understatement. Yes funding is tight, but it is available for sound ideas with well-thought out businesses and experienced business people developing them. In fact in the February 2009 issue of Condé Nast Portfolio magazine, Kevin Maney writes that “companies that begin during bad times tend to be more purposeful and solid and have more potential to make a lasting impact than the tsunami of businesses that form during boom times.”[i] Businesses starting today must be of the stalwart and well-thought out nature. The businesses that succeed today in raising funds will have the answers to the questions investors will ask and will have thought through their business models. Business plans will be instruments of competitiveness and not academic exercises.
Well Thought Out: It Isn’t Academic
When funding is tight, it is oh-so-tempting to cut corners and be frugal. But the last place you want to be pennywise and pound foolish is when it comes to writing that all-important document, whether it’s called the “business plan,” “executive summary,” or some other name. When it comes to the tool you will be using to raise funds, taking short cuts and not devoting the right resources to the process can mean loss of both opportunity and credibility, and no funding for your fledging business.
In addition, there’s the temptation of thinking that just anyone can write your business plan for you. That would be like letting any stranger off the street walk in and take care of your child or handing over all of your hard-earned cash to a stranger to take care of it for you. Writing a business plan is about understanding YOUR BUSINESS IDEA AND YOUR BUSINESS POTENTIAL. How YOU and YOUR TEAM are going to do business, make money, compete, operate, develop and protect your intellectual property. It isn’t academic or an intellectual exercise in which a couple of students can go off over a weekend and write your plan for you. Furthermore, if you aren’t involved in the writing of your business plan, developing the concept and understanding the market potential, competition, and all the elements of what goes into not only the plan but also the business, then whose business does the plan represent?
Too Often a Plan, But Not “The Plan” or “A Business”
The process of writing a business plan is more important than the actual document that results from the process. Why? Because it is the process of developing the plan that requires the business to examine all of the details: its concept, its assumptions, to find its markets, to know its competition, and to answer critical questions of how the business will make money, where the customer is found, how the customer will be reached, and what it will cost to do business. The deliverables, timelines, and milestones become tangible in the minds of the team. The skills and the abilities are identified and the missing pieces that need to be acquired are seen … perhaps for the first time.
When “A Plan” and not “The Plan” is written, and “A Business” not “Your Business Concept” is written about, the document IS just a document. Insights and the answers to questions potential investors will pose aren’t readily available; the document can contain gaps in information (which are often all too apparent), inconsistencies that would jump out with experienced analysis, and a lack of process that ensures what is in the minds of the founders and management is said and what is written is on the “same page.”
Treating the process of writing a business plan as a hoop to be jumped through is a missed opportunity to think through and work through the details of how you will do business and to uncover the pitfalls and opportunities before the actual dollars are spent. Things that could have been discovered with robust market research and financial modeling are merely passed over with cursory examination of market information and fill-in-the blank financial statements.
In-depth Analysis and Market-Focused Businesses
When you take the time to put market research and financial modeling into a business plan and experienced eyes and minds are given the opportunity to probe and question the assumptions, processes, and model, the resulting product (the plan and the business) benefit. Businesses are subject to the markets, both customers and competition. The ability to succeed will translate into the numbers you want: the revenues, expenses, and timing of cash flows. The pricing and volume assumptions for each product offering generate the revenues expected. The expected costs of production and resources, the operating structures, and other expenses will generate the cost of goods sold and operating expense models. Putting together these pieces requires answering the questions of what resources are needed, what will they cost, when will they be needed, where will they be obtained, how will they work together, and how money will be made with this structure given the cost structure and pricing.
Undercapitalization, Underutilization of Business Planning
Assumptions can be challenged. Plans can be changed BEFORE the investments are made and become written in infrastructure, cast in contracts, and the burn rate exceeds expectations. Undercapitalization is one of the biggest challenges of any company; unfortunately it finds its foundation in companies not realizing how much money they need and how long it takes to raise funds. The underassessment all too frequently tracks back to the lack of clarity, depth, and analysis in the earliest versions and efforts of developing the business plan.
Business plans done well and done early with attention to detail can enable businesses to assess more accurately the capital needs of the organization throughout its life cycle. This early “reality check” enables the organization to stave off the capitalization deficit and make wiser spending decisions. When organizations fully understand their capital needs, they don’t have to make “good enough” decisions that frequently lead to duplicate spending on the same item. You know the instances where things are done “Good enough for now and we’ll come back later and do it right when we have more money.” Good enough may be all that is ever done … or you may spend money two or more times on the same thing because at the time there isn’t enough money to do it right.
Business Plans Not Simply “Good Enough”
When it comes to your business plans, wise investment is just that—wise. But “good enough” just isn’t at any time, and especially in tough economic times. The saying that good ideas get funded may be true, but it doesn’t mean that good ideas all succeed. Good ideas don’t always become successful, profitable, sustainable businesses. The good ideas that become great businesses, focus on creating a strong business plan, and not being satisfied with “good enough.”
Copyright ©2009 Lea A. Strickland, F.O.C.U.S. Resource, Inc.
All Rights Reserved
[i] Maney, Kevin. “Best of Times,” Condé Nast Portfolio, February 2009. http://www.portfolio.com/news-markets/national-news/portfolio/2009/01/07/New-Economy-Needs-Innovation