Innovate to Raise Hell, Articulate to Raise Capital!
Nowadays, the majority of business owners that are reaching out to me for help with the development of their company (or start up venture) seem to think that the first step of the process is to secure capital from investors and that the actual building out of the idea, its value propositions and introducing it to the marketplace is what you do after you raise the capital.
Many actually (and foolishly) believe that their “sweat equity” deserves compensation that entitles them to add a premium onto what they assume is needed in a capital raise for further development of a company or a new venture.
They couldn’t be more wrong!
The development of any company, whether it be an idea evolving into a startup launch or a small business that is trying to achieve the next plateau of “middle market-dom”, is contingent to first to develop methods to generate revenue.
Using borrowed or invested money in order to increase a companies payroll is never a good idea as it will ultimately impeded sustainable growth and can even result in a foreclosure or make you prey for a vulture investor.
Money from outside investors is way too expensive to use for permanent payroll, and will ultimately deter the next round of a capital raise, particularly PPO’s.
It is most likely that if a company is seeking capital for payroll, then they are probably spending more time seeking backers rather than trying to develop meaningful partnership and new customers. That would be going about it all wrong!
The mission of getting a business on a successful path must become a purpose even greater than yourself in order for both to be successful.
After all its not just about money, goals and missions are equally important.
In my view, getting from point A to point B starts with ideas and innovation. It’s what will keep you relevant in the marketplace. Getting outside help to innovate and create a marketing plan that disrupts and raises a little hell will set the stage for the next step in your business plan.
Your plan should include your understanding of the market you are raising hell in, and more importantly developing a message that properly articulates your mission to that market.
Simply stated, understanding your market is important, but eclipsed by the importance of your market understanding you.
Whether pitching to investors or a marketplace, articulation is the most underrated skill I know of, and in the pursuit of business success, innovation, execution and articulation (pitching) should be left to the experts.
When it comes to developing a business plan, the same thought process applies, thus some questions to be asked and answered with the plan. What is the purpose of this plan? Does it speak to an audience that you believe is its target market? Will this audience understand your business model? Is it an existing business that needs a strategic plan for growth? Do you need to plan for raising capital and if so, does the plan speak in a persuasive way to possible partners and outside investors?
The answer to each of these stage questions is actually the same and the key to creating a business plan that will start the company initially on the right road to growth and the ability to raise additional capital to support that growth.
A plan for a start-up should include growth for the future. A plan for growth in an existing business should have the same strategic approach with projections and hard data that will attract investment.
Building a business plan or strategy map is similar to putting together a puzzle. All the pieces must fit. Trying to put people or parts that don’t fit, will be result in a colossal waste a of time & money.
A good business plan includes a basic thesis on the market for the product and/or service. What makes this unique in the marketplace? There should be a portion devoted to barriers to competitive entry whether that is patenting a product or developing a service that is not easily replicable due to location or perhaps unique talent within the organization.
There should also be identification of the risks of the business. Money raising and the percentage of equity an investor is willing to provide and percentage of ownership in the business in return is largely based on how much risk there is in providing this capital.
What are the forecasts for the business? Forecasts should be both monetary based as well as market based. The market information should show the business has a firm command on their market with hard data coming from third party sources.
While hope and faith may be important in leadership, neither should replace nor become a substitute for intelligence & factual data in financial matters.
Ultimately, it comes down to ideas, articulation planning and execution and then the money will find you! When it does, you will need to understand the capital raise process and develop an exit strategy. I will cover that next month, so stay tuned!
About Me – I am an entrepreneur that has created and developed several global businesses including iComTrader. I now spend most of my time as an independent consultant for startups and a confidential business adviser to young executives at www.venatures.com and as a business developer, innovator, M&A matchmaker, advisory board chair and capital raise specialist for www.autuspartners.com