Looking for funding? Here is my presentation template in 15 slides

February 2, 2011 1 Comment

Raising funds is something that most startup hates doing – being very difficult (and sometimes next to impossible) as the primary reason. While not easy, getting investors on board is not as hard as you might expect. That is of course if you have taken the time to build the right business plan and have taken the time to sell your story. There are three basic rules that will make a round of funding happen. To begin is there a market (and a problem) that is big enough to invest into? Second question is do you have the right solution to that specific problem? Finally, to you have what it takes to succeed? Investors want to put their money into things that have a shot of succeeding. For any business plan they read or presentation they see, this is basically what they are trying to answer. If you succeed, you will get the funding you need. Missing anything and the road to money will be long and painful… Here is my top 15 slides that I believe need to be in any investor presentations:

Company Overview: make it short; explain where you come from and how you got to this point. What kind of experience do you have? Who are the key people in your team?

Distinctive Competences: Take a few moments to explain what makes you unique. What do you have or do that other companies would not or cannot do? This is extremely important. If you are just a “me too”, what confidence can I have that you are the right horse to bet on.

Market Problems: What are the problems that the industries you are serving have? How painful is that pain for them? Make sure to show that you are addressing a real pain, not just a nice to have.

Market Sizing: How big is that market opportunity? How many customers are there? How much would they be willing to spend? Try to have 3rd party references such as industry research and market analysis to support your hypothesis.

Solution to the problem: What kind of solution is needed to fix this problem? How complex this is? Will it take a few years or a decade in order to get there? This is as much as product agnostic as it needs to be. Focus on the solution rather than what you product does as of today.

Target Customers: The market is large and that is very good but you still need to focus. What will be the types of customers you will be targeting first? Types of customers can define this but having samples of customer names is always good.

Your product line: Ok now it’s time to put things into perspective. What is the solution you have (or plan to have) that matches best the market problems and the needs of the customers?

Product roadmap: You need to show that you know what to do for years to come. How can you demonstrate that what you have in your plans will align with the evolution of your target market?

Go to market strategy: How will you get your customers to notice you? What is your plan to get the meetings you need and the volume of business required to be financially viable? And please be specific. Just saying that you will use SEO, Adwords, Social Media and mailing list does not cut it …

Competitive landscape: Whom are you competing with? This can be a direct competitor to your products and solutions but this can also be the customers themselves (in-house development, status quo). How will you position yourself in order to have a competitive advantage?

Revenue Model: What is the pricing for your solution? Do you have plans for recurring revenues? Will you have a reseller channel? How will you monetize your web service? Sometimes a simple illustration can help visualize the flow of money and how it gets to you…

Financial Projections: How much money will you make in the coming years? How much will it cost you to get to profitability? What is the breakdown of spending per category (R&D, S&M, G&A)? Keep it simple but show numbers that fit within metrics found in your industry. For example, if you nearest competitor is running at 15% profit margins, don’t show margins at 40% (unless you have a major compelling reason that shows why you will be so different).

Exit strategy: This is not as much about selling the business as what will be the triggers that will allow the investors to get a return on their investment in the next foreseeable future.

Funds needed: How much do you need and what will you do with it? There is no problem is asking for more, just make sure that you can demonstrate how the proceeds will be spent. Money invested needs to be used to create value, not to sit in a bank account for 3 years.

Summary: Time to wrap up; this is your last chance to make a lasting first impression. What are the key take away points you want to investor to remember; no matter if they will be investing or not. People talk and you want to make sure you leave them with the right message.

I hope this will give startups looking for funding some insights into the key points that investors are looking for. Of course, I might have made it sound easier than it really is. If you need some help or just want to get some feedback, drop me a line and I would be more than happy to assist you in making a killer presentation that will help you get the funding you need.

Filed under Business Principles, Finance, General Tagged with , , , , , , , , , , , , , , , , , ,

When the fear of dilution (or desire to keep control) makes you a failure

January 30, 2011 2 Comments

Over the past two years, I have seen a numerous number of business plans, new startups and startups that have been startups for too many years. It is always surprising the see so many entrepreneurs concerned about majority control and the fear of being diluted in an upcoming round of funding. I actually believe that too many of them end up dying or selling too early for lack of proper financial support; mostly driven by this fear.

You lose control the second you need money – no matter how much

If you want to make sure you never lose control, you better have a business that never needs any form of bank loan or third party investment. No matter how little you need, you will virtually lose control of the business. Maybe not on paper, but as soon as your business will be in trouble, you will have to deal with your banker or group of investors. You want absolute control? You should never ask for money. Then again, your business better be highly profitable and cash strong to handle your growth, otherwise you will inevitably run out of money.

Keeping control, no matter how much you own

Instead of focusing on your ownership of the business and who has majority control of the business, concentrate your efforts in building a realistic business plan and spend your time on making it happen. No investors want to change a winning combination (well unless you have a serious personality clash with them – and that’s a whole other discussion). If your business is hitting the key milestones and is providing the value/ROI your investors are looking for, then you will be in charge and your Board and shareholders will let you do your job.

When was a very successful business been ever over capitalized?

It is funny to see so many discussions about the valuation of Facebook, Twitter, Groupon and other companies lately. People are spending all their time wondering about what valuation multiples are being applied. The resulting effect is very much like the dot com bubble where people worry about valuation (and ultimately the dilution that would occur for a round of funding). Startups worry too much about what they are worth instead of looking at how much they really need for run the business. Focus on the money you can get and what it will give you. At the end, I don’t recall a company where the executive team does not get properly rewarded upon being highly successful.

Get as much money as you can and make your business grow

Entrepreneurs should not think about how little they need in order to un-dilute themselves. Think instead of what that extra million dollars would allow you to do. Could you accelerate your product development? Could you expand faster in international markets? Could you acquire other business that complements your solution? Again, I am more curious to see what Facebook will do with the latest 1.5B$ of funding. The game is about building a long term sustainable and growing business. No matter how much we talk about the price of gas, you would never drive for a long distance without doing a proper fill up of your gas tank. Who is in sane mind drives a car and fills up for a few gallons/liters every couple of miles/kilometers? Getting funding should not be different.

So if you are thinking about raising more funds, focus on creating value, don’t think about the valuation, how much you are getting diluted (well, just make sure you are not getting screwed…) and build the right plan to wisely spend that money. If you are truly successful as your business plan says, there will be plenty of money (and ROI) for everyone …

Filed under Business Principles, Finance, General Tagged with , , , , , , , , ,

Business Confidential: how sensitive is your data?

September 27, 2010 Leave a comment

Do you find sometimes that you are swimming in a world of non-disclosures (a.k.a. NDA), whereas most of them are not really needed? Honestly, I believe that we could live without the majority of NDA’s that we are signing. In this day and age, people qualify anything as sensitive or confidential data – including their business address and who does the cleaning – lol. But seriously, how confidential is the data you want to share? Most of the time, we spend way too much time around the definition of a NDA, only to find out that there is very little information that is being shared.

What are you really afraid of?

How much can someone else do once they learn about your secret sauce? Can they just go and do what you’re planning to do? Information that needs protection is either information that would have an impact on the market (mostly if you are a public company) and specifically hurt your business if it becomes public knowledge. General direction of a business or a vague idea about your business plan does not cut it.

What competition would do?

That’s one of the most important question you need to ask yourself. What would be the impact if your competitor were to learn about this so-called confidential information? If the impact is low or nil, then there is not much you should be concerned about. Of course, if you have specific trade secrets or revolutionary new product coming, you want to make sure to safely guard this information.

Do you have just ideas?

You are in trouble if you have just a bunch of ideas but without the ability to execute them – NDA or not. People should spend more time on execution that to worry about others stealing their ideas. Beyond accusing others of taking your ideas, focus on making your ideas and plan a reality. If you execute well, competitors should never have enough time to beat you to the market. Nothing in an NDA is stopping you from badly executing – so stop blaming the others if you failed.

How much do you really need to disclose?

Again, learn to be selective about what you disclose. We actually say less when there is no NDA in place. People have a tendency to talk a lot more because “we can do it in confidence”. Staying quiet is the best method to protect confidential information. Let me burst your bubble and let you know that people still talk even with an NDA in place. Maybe not officially but people like to talk. Companies that have a culture of staying quiet have a better chance of keeping confidential information to themselves.

Learn to sign NDA’s when they are really needed. Talk less and focus more on your execution – these are the best tricks to stay ahead of the game and keep your information confidential.

Filed under Acquisitions, Business Principles, Finance, General, Human Ressources Tagged with , , , , , , , , ,

The importance of a severance package

July 22, 2010 Leave a comment

We often hear on the news about the severance packages given to high profile executives. And while some of these are over the top, there is an important aspect of why these are necessary in order to attract key executives in a company: finding your next opportunity can take quite long time. As an example, I have been looking around for 12 months hoping to find the next big challenge. While I am happy to report that I will soon make an announcement regarding this new position, the past year has been a long process of search and discovery.

Great opportunities are rare
Upon reaching a certain level of experience and roles, you are no longer just looking for a job. You need to find a place where the market excites you, the challenge is big enough and the potential payback is important. I have looking at more than my share of business plans, company pitches and exploratory meetings over the past year. In many ways, finding the next thing is pretty much a full time job. You need to be patient and make sure you find the one project that is right for you.

Finding a perfect match even more
 To begin, you need to make sure that you clearly know what type of role you are looking for. In my case, I focused all my energy in finding a GM/President role in a hi-tech Montreal based software development company. Of course, I have looked at opportunities that were not as close to a perfect match but at the end of the day, I went forward with the one opportunity that was closest to my goals and objectives.

Are all the right conditions in place?
 Even when you find the right company, you might not have the right conditions to come on board. Maybe they are taking too much time to replace their current CEO, perhaps they do not have sufficient funds to make you a decent offer or sometimes plain out just not ready yet to hire you. There are many factors that come in play when accepting a new executive position and timing is certainly a big one.

So what does all of this have to do with severance?
 Well everything. While we have the perception that every executive that has received a severance package just stays home, plays golf and does nothing for months until that elusive opportunity comes knocking at the door, it is far from the case. You need to network, meet people, and consider many opportunities. You might be lucky and find something in just a few months but most often; it will take you a year or even more. Everybody have bills to pay and unless you have a lot of money in the bank (besides money saved for your retirement), unemployment insurance does not take you very far.

Pay it backward
 The Company needs to think of the severance package given to an exiting executive as a contribution for his next employer while someone else paid severance to the next executive that will join your business. Without this “pay it backward” system, a lot more executives would have no choice but to just pick a normal day job, reducing chances for an up and coming startup to find and hire a key player to take their business to the next level.

Filed under Business Principles, Finance, Human Ressources Tagged with , , , ,

Funding in games development

June 29, 2010 2 Comments

Just like any other market, people are often wondering if there is a holy grail in funding a game development startup. Where can you find buckets of money that will allow you to create your first title? Who is investing in this market space? The answer is pretty much the same as any other industry: there is no simple answer. You need to first understand what you’re looking for before finding out who could fund your initiative. I will put some key rules and elements on the table that hopefully will help you on the path to find the money you need.

Some basic rules:

  1. It always takes more time than you think, so leave a good buffer before you really NEED that money.
  2. We always need more money than we think. Unless your plans happen exactly as you planned (which never happens), you will overspend (which always occurs).
  3. Get market data at all cost. While the overall gaming market is huge, you need to make sure you have numbers that illustrate the type of games you are looking to do and platform you will be developing for.
  4. Find a competitive differentiator. What will make your business unique? What will you do that your competitors cannot or won’t do? Find things that will make you stand out – this can be technology, content or execution related.
  5. Why will YOU succeed? What are the factors you can provide to the investor that will increase their assurance that you do have a real shot at being successful?
  6. Draft a clear and concise plan. Investors read a LOT of business plans. So try to make yours clear and concise, and short.
  7. Get the money; don’t focus too much on valuation. While entrepreneurs spend a lot of time worrying about valuation, you will never achieve anything without money. As long as you get a fair valuation, take the money and focus in creating value.

What kind of investors are you looking for (and where to find them)?

All investors are not equal. Each of them will invest at different stages of a business – so you need to understand the type of investment you are looking for. If you need less than 150K, most likely the best type of investor will be love money; which is basically friends and family (no need to explain where you can find them). If you are looking between 100K and a million dollars; you most likely have a better chance focusing on angel investors. Most major cities have angel associations and events promoting the work of startups. Lastly, if you need more than this, you will need to rely on venture capitalists (VC). Again, there are many kinds of VCs focusing at different stages (startup, pre-commercialization, growth, pre-IPO/acquisition). Often, these VC’s will be attending the same activities as the angels.

Start local before hitting the road

While it is always tempting to try to get at the bigger VC’s out there, I always recommend starting local. While not being a replacement for a good business plan; investors often favor local companies. Of course, if you have access to VC’s out-of-town, it never hurts to go and pitch your project; but should never be the first thing you do (get you investor pitch nailed down before presenting to the big guys – you will increase your chances in getting funding).

Networking is at the core of raising funds

One of your best assets is to get investor to hear about you from different places. So stay active and work hard your network. Attend many events and networking activities. Make sure you fully leverage social networks such as LinkedIn (for one, it never hurts to edit your status mentioning your are actively raising some funds). The more noise you create, the better are your chances in getting investors excited.

Add to FacebookAdd to DiggAdd to Del.icio.usAdd to StumbleuponAdd to RedditAdd to BlinklistAdd to TwitterAdd to TechnoratiAdd to Yahoo BuzzAdd to Newsvine

Filed under Business Principles, Finance

Note to investors: hope is not a strategy

June 2, 2010 2 Comments

How many times do you see companies that are not doing the right things or do not have the right management or strategy in place? You would be surprised to see how many times these same companies have investors hopeful that things will work out at the end. Well I have bad news for you: hope is not a strategy.

A good strategy does not happen by miracle
Unless a company has spent the time to build a proper strategy, it won’t fall from the sky. And when I say a good strategy, I mean one that can be actually executed. Nothing worse than a strategy that while fantastic on paper, will never be close to be well executed or realizable. A strategy needs to be realistic, something that you know that the management team can really accomplish. Expecting something amazing to happen without execution is a pipe dream.

Does the management team really know what they are doing?
Anyone can blame outside elements for lackluster results: economy, weather, customers, competition, etc. How capable is your executive team in foreseeing potential problems? Do they have a plan of action if these occur? Are realistic are these sales targets? How sustainable are these marketing activities (and at what real cost)? No matter how hard the market conditions are, a great management team is capable to navigate in difficult waters and find the best path possible (don’t mean it will be easy or flawless).

The role of the Board
A Board is not just about adopting resolutions and reviewing budgets. There is a great responsibility in making sure the company is well managed, with a well thought out strategy and the means to execute. How often is the Board meeting in difficult time? Are there any special committees being put in place when the tough gets going? How accurate is the information flowing back from management?  If you’re Board is not taking attention to red flags, there just as part of the problem as the executive team. And there are a lot of red flags we just prefer to ignore (it’s amazing on how much you can discover by doing a few internal reviews and ask a few questions). We should not just be diligent when we acquire a business. Everyday should have its share of on-going reviews.

Shareholder return does not happen by chance
If your executive team is not building a sustainable business and a competitive advantage, you might just end up failing to successfully sell the company; at the right valuation that is. Any investor should never accept hope as a strategy. Expect more from your Board and executive team. They are playing with your money and you should make sure they know it. If something is not working out to your liking, you need to make some changes – and sometime at both levels. Often enough, just getting a new Chairman or CEO can make a lot of good in cleaning up a business and making it better. Don’t wait until hope is your last chance.

Filed under Acquisitions, Business Principles, Finance, General, Quotes Galore Tagged with , , , , , , , ,

Special deals and product discounts: how to de-value your Company

April 30, 2010 2 Comments

During the past week, I have been covering many aspects of a due diligence. My latest post was about the Company’s portfolio of products and services. I wanted to go deeper on a very important point that some companies seem to be missing. While product discounts and special deals are great to lift up revenue in the short term, they have a major impact in the long term on fair price and sustainability – ultimately valuation.

Fair price
So how much is your product worth? If you keep discounting it and give special deals, it will be very hard to represent a fair price for your product. This means that any financial projections you might do will be heavily discounted on customer adoption and on price. It will make it very hard for your Company to prove that you can maintain your revenue line and growth numbers. What happens when you stop making these discounts? Does this mean that you need to continuously maintain discounts and promos? As you can see, it makes it almost impossible to convince someone that is can be sustainable.

Sustainability and valuation
I believe that sustainability is a core component of the valuation of a company. If you are looking for high valuations, you need to prove that what you have built can continue growing and sustain not only on the top line but also the bottom line. The stronger you are in proving this, the better the valuation ratios (2x or better). On the other side, if you can’t prove that you can sustain business without all these fire sales, then expect to get a much lower valuation ratio (around 0.5x revenue). As you can see, the difference in valuation can be quite huge.

When can you discount your pricing?
Discounts should be the exception. It needs to be part of an overall pricing strategy. For example, you can decide that you give a 10% discount on larger orders or deals. Notice here that I mentioned a small discount. Larger discounts (20% -30%) should be prohibited – unless you have a very strategic goal in mind (for example, to displace your competitor in its biggest customer site).  As you can see, this should not happen often and if done well, will not impact your company valuation. Another reason for special pricing is on product launches. This is acceptable as long as this is done with a strict time limit.  There is nothing worse for your business to continuously extend promos and discounts. If you do so, how can the customer know when they really stop? You just create conditions by which customer never buys list price, waiting for the next promo or discount to happen soon enough.

The end of quarter syndrome
It’s the end of the quarter or the year. How much does your sales team push to reach their quotas? If you keep on pushing at each financial milestones, you will implicitly create customer expectations that waiting until the last day of the quarter (or the year) will give them the best price possible.  This can be a huge chicken and the egg problem. Your sales team begs for more deal making at the end in order to make your number and by doing so, you achieve your quarter. But how much could you do if you did not have this time-based behavior? One simple trick to move your sales team away from this way of conducting business is to start tracking linearity of your sales pipeline. Indeed, you can rapidly modify this behavior by doing so. While it takes some time to achieve close to perfect linearity, just working at it will help you alleviate the end of quarter syndrome.

So if you are stuck in the world of discounts and promos and are thinking of selling the business, I have one simple suggestion: STOP DOING IT. The faster you can stick to your list price and push business on it own merit and demonstrate that you can sustain in the long run, the better you will be (and hopefully gain some points on valuation). If you don’t (or can’t afford to take that risk) then you just need to accept that getting a much lower valuation might just be the best offer you will get at this point of time – if you get any offer that is…

Filed under Business Principles, Finance Tagged with , , , , , , , , ,

Investment 101: my basic top 10

February 16, 2010 4 Comments

I have been asked recently to give a short 15 min presentation to a bunch of startups about my experience with VCs. This got me thinking about what are my top 10 items that I could tell an entrepreneur about the investment world:

  1. It always takes more time than you think, no matter how realistic you are trying to be. Raising funds it always takes more time than what we initially anticipate. So leave a good buffer before you really NEED that money. Closing a round of funding (or any deal for that matter) is very much like a marathon; but you don’t know how long it will last.
  2. We always need more money than we think. Too many times, I am seeing startups that are trying to raise the bare minimum. Unless your plans happen exactly as you planned, you will overspend here and there. If you have investors that want to give you more, just take the money. No matter how much you worry about dilution, this money early on will most likely cost you less than when you are desperate to get more money.
  3. Your plan won’t realize as planned. Ok we take all this time to build elaborate plans but there is one guarantee in business: plans will change. This is why a startup needs to be agile, as things never happen as we think they should. The plan is key on setting a direction and focus but cannot be followed 100% when it comes to execution.
  4. Get market data at all cost. Spend time browsing the web, looking for any market data that will support your assumptions. Read annual reports of partners and competitors. Purchase market research. I know these can be expensive – but they do provide valuable data that you can actually REFERENCE in your plan.
  5. Find a competitive differentiator. What will make your business unique? What will you do that your competitors cannot or won’t do? If your plan looks like a plan that any other company could write, you are in big trouble. Find things that will differentiate you from the competition (and it does not need to be technology related).
  6. Why will YOU succeed? What are the factors you can provide to the investor that will increase their assurance that you do have a real shot at being successful? Being nice and hard working is just not enough. Take the time to identify the keys to your success.
  7. Draft a clear and concise plan. Investors read a LOT of business plans. So try to make yours clear and concise, and short. Get someone that is not deep into the process to review your business plan. This can be an employee, friends or a business contact (lawyer, accountant, business manager). After a few weeks drafting your plan, you will start losing perspective; getting feedback will be key.
  8. It is virtually impossible to be profitable within 2 years. No matter how much we try, there are a lot of things you need to put in place during the first 2 years of a business. Unless you’ve hit a goldmine of a business, it is very hard to be cash flow positive and profitable before you hit the end of your second year.
  9. What are the goals and objectives of your investors? As you are discussing a potential investment from a VC, take the time to understand how they function. How involved are they? What are there goals and objectives in regards to your business? Do they want to exit in 5 or 10 years? It is ok to ask questions such as these in order to find out if this is a good fit for your business.
  10. Investor relations begin at the first meeting and continue far beyond the closing of the round. Entrepreneurs spend a good deal of time with the investors in order to get the money. In my view, there is a lot more work to be done after as you need to make sure that your investors really understand how your business is doing. Don’t let an investor become pessimistic about your business; this is a hole that is very hard to get out of…

Looking forward to your feedback on this yet another top 10 list :-)

Filed under Business Principles, Finance Tagged with , , , , , , , , , , , , ,

The importance of leveraging your customer base when looking for funding

November 19, 2009 Leave a comment

Don’t you love reading a business plan filled with hypothesis where most of it is purely based on gut feelings or mathematical equations extracting a given percentage of a given market? I have been recently talking about credibility and today’s topic is no exception. Too many startups are not leveraging their first set of customers.

Finding patterns early
As soon as you have more than 20 customers, you need to start extracting trends (or lack thereof). How many are buying for the same reasons? Are they all from the same market segment? How about their size? Any indicators that you can find in your customer data can become valuable information as you build a business plan for a round of funding.

Growing from something means a lot
As soon as you can project trend lines for growing a specific customer base, it add credibility to your plan. Of course you need to be realistic about the accelerators that the investment will give you – growing at 300% or more in the first couple of years is possible but not over 5 years (scalability is not magic, even with lots of money). Any portion of your business plan that is not based on customer trends will be discounted a lot more. Predicting to sell 2M$ of something without having won any previous customers is always a challenge.

One is an anecdote, two is potentially a trend

While customer metrics and trends are important, don’t fall for finding trends where they do not exist. If one customer bought a specific solution for you, it does not mean more will buy. Having a second one will help but you need at least 3 customers of the same type and buying for the same reasons before you can start to get serious with any trending. If you can’t find any trends by simply looking at your customer data, then spend some time with your customers – asking them questions that will help you find any patterns.

More is not necessarily better

Ok so you must wonder why I am saying this after mentioning that you need more than a few accounts in order to begin to trend. You would think that having many would help. Well it does as long as your customer database is coherent. For example, if you are pushing a free version of your solution, make sure that your samples align with whom you are trying to sell. If you are selling a high-end solution, getting students and non-profit organizations to download your free software won’t help you commercial business. Even more importantly if you are calculating conversion rates to justify your revenue plan.

At the end, data analysis is not obvious and if you don’t have a lot of experience or are unsure about what you are seeing, seek some support from someone that has done this many times in the past. But don’t go without proper metrics to support your business plan.

Filed under Business Principles, Finance Tagged with , , , , , , ,

When profitability hurts the credibility of your business plan

November 6, 2009 3 Comments

I have seen a lot of business plans lately and I am always surprised to see so many of them focus on first year profitability and try to minimize the investment required in order to be successful. I agree this is not the easiest time to get funding, but this is not a reason to look for less money that you really need (hence the focus on profit) and to have a plan that does not address many key components required in commercializing a solution. I believe that this is not credible and will make it unsuccessful on execution – and most likely make you run out of money.

Basic company structure

No matter how nimble you want your company to be nimble, you need to make sure you have resources (including outsourcing) to take care of accounting, accounts payable, IT management, facilities management, human resources management, etc. Make sure you really measure actual cost savings when you have top engineering and business development talent take care of G&A related activities. Always remember that for every hour you spend on “clerical” tasks, you are not really creating value.

IT infrastructure

Are you offering a solution that requires an IT infrastructure? If so, this will not be done without an important investment and while you can amortize the cost over several years (from an accounting perspective), you will affect your short-term cash position – unless of course you got some financing to support this.

Customer support and service

How many customers will you have? How many of them will require custom development or specialized services? How complex is your solution? And while you can always plan to hire staff coming out of school, there is an inherent cost in building a support and service group – no matter how small it is at first.

Manufacturing

If you are building a hardware solution, you need to think ahead about your manufacturing and inventory management capabilities. This is rarely addressed on the fly (without significant cost) and good planning here will help you keep more money in the bottom line. And please do not ever underestimate the cost and effort to deploy larger volumes more than a few dozen units.

Demand generation and building the brand

How will you reach out to your customer in order for them to discover your solution? Do you need to invest in online advertising, social media, trade shows, in person meetings? What about brand value? What do you have to do in order to get your customer to short list you when they are looking at solutions? No matter how you do it, there is no free lunch. This will require either time or money.

Sales channel and distribution

Will you only do sales on the web (back to IT infrastructure costs) or do you need a more traditional directs sales force? What about resellers and distributors? Building a sales channel requires time to find the right partners, to train them, to support them and make sure they keep going at the right pace. Again, this isn’t cheap.

Getting to Product maturity

How much product development do you still have to do before you reach a certain level of product maturity? Rarely I have seen startups come out with mature product with v1.0 releases.

All of these elements often require more trial and error, time and effort (and cost) that we often hope for. Unless you have already planned for all these components within your business plan, there is no point of thinking of showing a profit. These are all investment before the curve and only payback after you’ve done the work. Of course, this will happen over a few years and this is why I don’t believe in business plans that show lots of profit within the first few months of going live. For me, it’s not a sign that you are a good business manager but rather someone that is overly optimistic about the cost of commercializing a solution and have missed key components that will be needed in the first couple of years of your business.

Filed under Business Principles, Finance Tagged with , , , , , , , , ,

← Older posts

Follow

Get every new post delivered to your Inbox.

Join 1,060 other followers