Business plans

A key reason why many start-up businesses fail

Here my short (impromptu) video on why I believe many business start-ups fail.

The old adage that “cash is king” remains as true as ever today, however, there is something else that I am increasingly seeing that can put the future survival of new businesses in jeopardy.

This issue is that: many startups fail to define upfront the market need or problem that their product or service will solve.

Seems obvious right?

You would think so but with so many new businesses looking to innovate into new areas and with technology providing an increasingly affordable platform on which to build new businesses, this consideration sometimes seems to get sidelined – typically until businesses seek funding and / or its too late.

So focus now on that particular market failure or wider need that your future business will plug in the world? What need are we anxiously waiting for you solve by creating your business? What frustrates you (and many others?) that your business will crack?

Be clear on the problem and your business solution and you will be one step ahead in defining future revenues and a potentially profitable business.

Seeking Seed Funding: 12 tips for early stage startups

I was recently put on the spot at a Technology event and asked how much I would charge for assisting a tech startup in preparing a business plan to secure investment funding.

I answered “it depends”.

A cop-out? Not in my opinion. Why?

Because it depends on where you are in the investment cycle.

If you are seeking early stage seed capital then spending hours (and lots of cash on professional fees) on a detailed business plan will probably turn out to be a waste of time because most investment managers or angel investors will be interested solely in:

  1. the scale of the market opportunity and
  2. the commitment/enthusiasm/experience of you and your team.

The rest is all pie-in-the-sky – you know it and they definitely know it!

But as an early stage start up, how do you make the right first impression to be able to enter into meaningful conversations with potential investors and ultimately pave the way to attract venture or angel funding?

You need an introductory prospectus flyer or one-page teaser that hits the key points of interest to an investor. Getting the content and tone right is key.

Here are some of the key questions I think early stage start-ups should be addressing:

  1. What’s the open goal in the world that your product or service will  fill? Killer question demanding a killer answer.
  2. What is it that your competitors are not delivering or are incapable of delivering? (Don’t over flatter yourself. They are already up and running. You are not. Be courageous enough to acknowledge their strengths but pick out the areas where you plan to differentiate and thrive.)
  3. How would your customers describe the pain they are suffering and how does your product or service solve this? What would they do without you? (perish the thought!)
  4. How much more will it cost to get your product or service out to customers? Is it finished and ready to roll or do you need more investment in product development and research?
  5. Where has the technical know how come from? Are you entitled to commercialise the rights? e.g. Is it coding that you as founders developed yourself or have you used third party software or coding (other than open source)?
  6. How will you reach out to your customers? What is your planned mode of attack? Distribution channels? What will it cost? Is there anyone out there who you can partner with? If so, who? Be specific. Don’t say that you’ll rely on word of mouth or viral marketing or solely on some mode of social media. It could happen. That’ll be a bonus. But don’t hang your hat on it.
  7. How will you continue to grow sales or revenue without incurring a corresponding increase in costs? The posh phrase is “is it scalable?”. Investors like scaleable businesses. Why? The clue’s in the question.
  8. How easy will it be for others (especially your competitors) to copy you? Again, posh phrase is “do you have any barriers to entry?”. Barriers to entry might include technical know-how that could take competitors months or even years to crack – even better if you have patent protection. How much might it cost for your competitors to get up to speed? Would it be possible for you to set up quietly and hoover up a discreet market? You could them move onto another market niche or segment and another before the big players have cottoned onto this new challenger in their midst. This buys you time and the chance to build a fighting fund of cash and expertise before you go head-to-head…
  9. What’s the 3 – 5 year vision? Sure, things will change. You don’t have a crystal ball but you need a road plan with target dates and milestones. When will you break-even? When will you hit £X’000 revenue and profits etc?
  10. What are the big unknowns? What could go wrong and what steps are you taking now to mitigate these risks?
  11. Are there any other success stories in your sector? What values did they exit for and how quickly did they do it? Where did they make mistakes and what will you do differently?
  12. What’s your story? Where have you and your fellow founders emerged from? Do you have stories of previous success in similar sectors? Have you built and sold other businesses? Are you from a corporate role which is aligned with your new venture thereby giving you valuable inside track experience? Are any of the founders still in fulltime employment and what are the plans for taking this business to the next level? Investors will want to see enthusiasm, passion and ideally a proven track record of success and relevant experience. (Avoid flossing up your previous experience with overly grandiose claims. Stick to the KISS mantra – Keep It Simple Stupid!).

Concentrate your mind on these sorts of issues and it should save you a lot of time, effort (and cash!) in securing investor funding.

This list will no doubt keep on expanding but please suggest any other key criteria that you think is key for startups seeking funding.