In an ongoing discussion on a great entrepreneurs mailing list I’m involved with, a member has begun talking about his desire to raise some serious capital to grow his business faster. In response, another member challenged him to write an “action plan” to detail what he was going to do so his business would evolve from its current nascent state. That’s not enough, however, and here’s what I wrote in response…
Actually, as someone who consults with investors and companies raising capital, I will say that what you need, and what any entrepreneur needs isn’t an action plan, but a business plan. You need to really flesh out the business opportunity, not the idea. Your business (Painted Snapshot), as a business, would need to have a quantified marketing plan, partners, affiliates, staff, a scalable backend, a method for identifying, qualifying and training additional artists (if needed), and a projected profit and loss statement with an emphasis on costs. Worry about 12 months, not years out, but you have to be able to show unequivocally that it is a lucrative, scalable business.
In my experience, the very last thing any investor does is loan you money to get your business fully fleshed out. The odds of an investment of that nature being a success (e.g., earning a decent return in 24-36 months) are very, very slim. Far more likely is what happened to one company we invested in when I was Entrepreneur in Residence for a small incubator: the guy just vanished once the check was signed and two weeks later I bumped into him at a café. He was showing off his brand new Harley. Not good. VCs know this and there’s a whole “yacht money” syndrome referring to this problem, actually.
Realize too that you don’t need to have a great business plan because in many ways, it’s the process of going through the steps to develop and realize your plan that are the most important. Instead of saying “we’ll get to marketing once we have funding” you have to actually plan out a coherent and comprehensive marketing plan, for example. Far more valuable. (see this too: how important is my business plan?)
Also, there’s a classic catch-22 in the staffing department worth mentioning too: too many startups tell investors “we have great execs lined up once we have funding”. That’s the wrong answer. The senior people need to already be on board and committed to the project, or they’re just filler in the plan, not real executives you can leverage when trying to raise capital. If they can’t afford to work full-time without pay for a few months, well, maybe they’re not the right match for your business after all. Remember, it’s passion that drives a young business, not capital.
So my advice to you as it is to all entrepreneurs is that you need to really get into the mindset of growing a business, not “doing something cool” if you really want to raise investor capital and grow your business to the next level.
Side note: The business in question is Painted Snapshot, and I’m a happy customer. Tom does brilliant work turning photographs into oil paintings. They’re splendid gifts too. Nonetheless, as discussed in this article, is there a business here, or just a very cool hobby?
I liked what you said. I try to build an Entrepreneurs Investors community. Our idea is to bring to entrepreneurs advice that will help t hem in the growth process. They can post their needs. Most entrepreneurs are too isolated and just don�t know what to do. They also do not have all the financial resources to ask for advice. We will be honored if you can participate to our community.
I leave you the decision to publish the address of the website (thestreetmarket.com).
Thanks and good work!
I completely agree with Dave regarding the business plan. When I launched my company Gittel on the Go, Inc. in Los Angeles, I was fortunate to hava marketing consultant that insisted I write a business plan. She warned me that a startup is a living breathing entity and must be treated as such. As the CEO I’ve had an incredible learning curve as I rode this bronco of a business throughout its first year in existence. In the first six months of my company I learned that I must be comfortable turning work down from my company so I can focus on the work that we do in an excellent fashion. I’ve had to be able to look closely at my initial vision and be okay with cutting away the fat to get to the niche that my company serves best. Now, I’m writing my third business plan in twelve months for Gittel on the Go. Startups are like children. They have to be raised right. My company is heading into 2008 really strong with a new strategic alliance and a solid identity. Now, I’m looking forward to shifting her into high gear and seeing what this S-Corp can really do since we have some legs on us now.
I would be grateful for advice with raising capital for my start up business in Austin. I realize that investors are looking for a decent return and very quickly, however my business will not deliver such high standards. It is an art workshop, which will produce a decent profit after one or two years, but certainly wouldn’t return the kind of numbers a software company would. How can I market this business to an investor if they won’t make a big return? Are there some investors willing to invest based on pure interest and being part of something good for the community? I am trying to raise $100k to give you a better idea.
Also, as a passionate entrepreneur, if I find this investor, can I still hold over 50% control of my company?
Thanks for any suggestions or advice!
hi dave. i am starting on a new transportation business and new as many pointers as possible to become successful..thanks
Excellent article. I agree that the passion must be there, as well as the willingness to make sacrifices.
Having a solid business plan is of utmost importance however what happens when a business owner has all of this and is still unable to obtain the working capital they need to grow or sustain their business? What options does a business owner have?
With the economic conditions and credit being tight often traditional bank financing is tough to come by. Many people do not know about any other alternative methods of financing.
Some businesses facing this situation may be a good candidate for Factoring. If generating business to business sales, you can “factor” your invoices to unlock the cash from your completed sale. You are able to access your money typically within 1 to 2 business days, rather than waiting the 30, 60, or even 90 days.
With the increase in cash flow businesses are often able to improve their credit, and resort to less expensive methods of financing.
Hey Dave i agree with everything you just said and i have done everything you suggested my partner and i have invested our own money to the tune of 1.5ml a pice but our business plan is for 100ml and the one thing that i am finding out if you don’t have all the capitol for your project business plan there will always be a cash flow problem….. what do you suggest?? by the way i am in the music and film and tv business and i know i am ahead of my time we are streaming live to the broad ban and the mobile phone pay per views ….. we also have the swaggmedia player that lives on the desktop not on the internet and have millions of eye balls….. would you like to review my business plan and give me some feed back??
i uderstood u very well..!
But me am a young boy from the third world and am curious to start my own business, and my starting capital is only 1000$..
i want to involve my self in agriculture and grow food products but neither my family nor my friend who can help me.
But i have done my reasearch in wat i want to do i am sure tht i will pay me 10 times in just a year, so here my only problem is that 1000$ as my capital so that i can start my on business and have a succesful life and manage to pay ma school fees..
Pease healp me what to do to get that money…
I have a business plan, am also revenue from my business but need capital for my business! My website is safeorsorry.net and my business plan is
just waiting to get into the hands of an investment firm. Could you direct me to investors who would like to invest in my million dollar company? I have the numbers. Please, email me or better yet call me?