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.
