So, here I was sitting in my favorite coffee shop (St. Elmo’s, of course), when one of my frequent visiting friends joined my table. He is considering a new venture, developing his business concept and plans, and was hoping I would help him make his dream a reality. What an honor!
His concerns? He knows he’s full of vim and vigor and vinegar, but wants to make sure that this enthusiasm doesn’t cost him the success of his business.
Which is why I was thrilled to hear he was developing a business plan. Not because that road map will provide the exact path and trajectory for his business- but because it will produce a framework to ensure that when the detours arise, when events (akin to the weather) impede his progress, when the traffic to the destination (competition) stops everyone cold, he has ideas and processes in place to deal with these issues.
It’s not clear if he is going to need additional capital yet. (You did read that he is writing his plan and I have not yet seen it, right?) But, if he does need and obtain such outside capital, he will also need to include clauses to cover ownership for himself and some key folks he brings in. Standard clauses would have stock vested in others after three to five years, which means vesting would accrue at the rate of 1/36 to 1/60 of the totals- but NONE at all if a divorce occurs before 12 to 14 months. The founder[s] almost always get their stock at once due to capital gains taxes- but they generally lose it if they don’t stay for 12 to 14 months, too. That cliff (the 12 to 14 month of initial time) doesn’t apply if an offer to acquire comes over the transom- but the vesting still follows the same schedule of acquisition.
But, the bigger issue is to ensure that resources are available to enable the plan’s success. Whether that’s money, equipment installation, trade show registrations, etc., all these components need to mesh with the plan- or the plan is not worth the paper it’s written on- nor did it merit the time one took to write it.
And, if one is not seeking outside funding, those fancy plan templates are certainly not worth it. No matter whether you plan to use your own money (unless you are part of the 1%, which usually means your initial capital needs are $ 250K or less), grow your own capital as you go (about the same capital needs- because you can scale production as your grow), suck up funds from friends and family (this scenario runs from $ 100 to $ 400 K) , crowdfund (always less than $ 1KK), or seek out angel or venture capital (the sky is NOT the limit- these folks set the max they will invest), the questions that have to be answered are all the same. (It’s the format- and the detailed financials over 5 years- that is dependent upon the audience.)
And, here are the questions you must address for your new adventure:
- What business are we in? What will be doing? What niche are we satisfying?
- What is our mission statement?
- What are the goals (end) and objectives (progress points)?
- What is our business philosophy? (What is important for us to maintain in this business?)
- What’s the target market? What is the industry segment in which we will operate (growing, stagnant, changing, etc.)?
- What makes us capable of meeting our goals and satisfying the market demand?
- Will we incorporate or form an LLC? In Which state(s)?
Once those questions are answered, then- in more detail, the following issues need to be considered:
- Describe in detail the product(s) or service(s) to be offered. (Diagrams and specs belong here.)
- What are our competitive advantages? Where do we fall short? What will we do about those shortcomings?
- What’s the pricing or leasing structure for sales?
- What’s the market size, lead time, and ordering structure?\How will be penetrate those markets (marketing plan)?
- What’s the total market size? What market share do we expect (years 1 to 5)?
- What’s the growth history for this market? What consumer trends are changing it?
- What’s the ideal customer? How will we find it? How will we extend or reach from that one first sale?
- Who will stop us? (That means competitors.) Compare and contrast what they have and are to yourself.
- How will we promote and distribute our product?
- How will we acquire the basic materials? What will be our inventory demands?
- Who will manage the business on a daily basis?
- What is the training, experience, and special attributes for these folks?
- Will we have outside advisors- who and why?
- Whether you are seeking outside funding (which means financials over the first years is needed) or not, you must discern the breakeven for your business. What sales/deliveries are necessary to keep your burn rate to zero? Yes, you will perhaps exceed those- but this helps refine your sizing needs, your cash needs, your pricing, etc.
Go and succeed.