In Financials, Investment, Startup Management

A technology startup that needs funding to succeed needs to prepare a story for potential investors about what it will achieve.  Most of these stories are going to sound in some way similar simply because they have to… So how can a company stand out and avoid the investor fatigue that results seeing the same type of story time and again – and seeing many of the companies that tell it fail?

The similarities of business plans arise in part from the Goldilocks dilemma – so many factors need to be just right.

The perfect example is ambition.

“We will revolutionise the whole field of…”  may be viewed as a wildly unrealistic claim that demonstrates the naiveté of the entrepreneur.

“We will thoroughly penetrate a single niche market” might sound realistic, but may be taken to mean there isn’t enough potential in the company to make it investable – especially since most companies do less well than the entrepreneurs predict.

The same problem applies to many other factors:

  • Investment needed (from £50k to £1m with Angels)
  • Time to first product (from a few months to a year or so)
  • Revenues in year x (in Scotland the answer is usually £5-7m in year 5 to meet SE requirements for a “high growth” company without looking unrealistic)

So how can you make your plan stand out?

I don’t think the numbers usually matter as much as people think.  What matters is how you arrived at them.  I think a plan that explains where revenue is coming from, how it will be generated, who the customers will be and how a product will be created is much more likely to be credible than a plan with similar numbers but less explanation.

Well documented assumptions help too, as does a sensitivity analysis showing what happens if everything is a little behind schedule, demand is less than expected etc.

As long as the ambition and numbers in a business plan are justified and robust, exactly what the numbers are is less important.

 

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