| There is an old adage in the funding community: | | | | the office environment will be crucial to closing sales |
| "Investing $1,000,000 to fail is expensive, investing | | | | and making deals keep the space as Spartan as |
| $5,000,000 to succeed is cheap. Investors will respond | | | | possible.Do not load up the staff with numerous family |
| to funding needs based on real world assumptions. | | | | members unless they perform an absolutely essential |
| They will be very cautious when assessing a venture's | | | | function. Just because cousin Myrtle has been laid off |
| real funding requirements.Think of investment capital as | | | | for several years, the focus of your startup is not to |
| fertilizer. If a farmer applies too little he harvests a poor | | | | give her employment, unless you can defend her |
| crop or worse. Too much fertilizer and the harvest will | | | | abilities and unique skills. Your judgement will be |
| likewise be disappointing. Experienced, successful | | | | questioned unless you can sell Myrtle's benefits.The |
| farmers know their fields, their climate, crop planting | | | | cash flows you project in your business plan will be in |
| patterns and their equipment. They will apply every | | | | the red (burning cash) for a number of months. Your |
| pound of fertilizer needed to maximize their harvest. | | | | ability to secure investment money will be largely |
| Investors handle their capital in exactly the same way.I | | | | effected by showing how quickly the burn rate stops |
| review many business plan submissions each year. It is | | | | and the business starts throwing off cash. This is a |
| amazing how many entrepreneurs can not identify, | | | | point that you must be able to defend aggressively. |
| quantify or justify the investment requirements they | | | | Investors will be very dubious about your cash flow |
| describe in their business plans. This is an absolute | | | | projections, and thus the level of investment you really |
| eliminator in terms of creating investor enthusiasm for | | | | need, not what you may think you need. The better |
| funding a project. This is one of the largest reasons so | | | | job you do of vetting assumptions and supporting them |
| many plans never receive a thorough reading.Often, | | | | with historical industry specific data, the more likely you |
| the entrepreneur woefully understates the obvious | | | | are to win investors and their money for commitment |
| funding level a new enterprise will require. The | | | | to your project.A business plan that does not show |
| justification, stated or not, is usually that they are | | | | cash burn slowing, then stopping and then turning to |
| attempting to keep the needed investment number | | | | cash flow positive during the first 12 months of |
| very low in order to create interest. They do not | | | | operations will likely not be funded. Investors want to |
| understand that there is no too high or too low | | | | see quick sales traction. A plan that does not show |
| investment number if the need for capital can be | | | | growth quickly enough will increase capital risk and |
| demonstrated, qualified and narrated. Investors want a | | | | sour investors.Whether you require $1,000,000 or |
| crystal clear look at the use of funds and how they will | | | | $21,000,000 the business plan should be written to |
| earn an appropriate return on their invested | | | | justify the needed funding level being sought. Too low, |
| funds.Seeking a number in excess of the amount | | | | or too high, and seasoned investors will walk away. |
| needed to successfully launch a startup is equally | | | | Think like a farmer fertilizing his fields during spring |
| disastrous. Investors are not seeking to build a Taj | | | | planting. He has so much land and needs to make |
| Mahal before the first dollar of revenue is generated. | | | | every square foot produce the greatest possible crop |
| Here are a few tips for building expense assumptions | | | | yield. The farmer does not waste seeds, fertilizer, |
| that will withstand withering investor | | | | water, labor or fuel. He makes sure that the crop is |
| scrutiny.SalariesInvestors do not want entrepreneurs to | | | | tended with all due diligence and given everything |
| starve. They also do not want to fund the lease on a | | | | needed to reward his efforts. Farming is hard work.So |
| BMW 745. Salaries should be based on sustenance | | | | is finding and securing investment commitments. There |
| requirements. Most investors I have worked with want | | | | are thousands of projects on the street every day |
| their management teams to make enough salary to | | | | seeking investment capital, partners or license. The |
| pay their bills and not place untoward strain on | | | | number of projects greatly exceeds the supply of |
| personal finance and marriages. Comfortable is fine, | | | | available resources. Do not injure your opportunity by |
| but they will not fund luxuries. Be very realistic.StaffingI | | | | loading up your offering with excess, fat and dreams. |
| often see plans with a list of proposed employees that | | | | Your pay out comes after you achieve success, and |
| resembles the list of animals on Noah's Arc. Keep this | | | | the investor has begun to see a return on their |
| area very lean. Use outside contractors, consultants, | | | | investment.Geoff Ficke has been a serial entrepreneur |
| and part-timers to fill every post possible. Employees | | | | for almost 50 years. As a small boy, earning his |
| add high fixed costs to the budget. Salaries, benefits, | | | | spending money doing odd jobs in the neighborhood, |
| training and equipment can be too heavy a burden for | | | | he learned the value of selling himself, offering service |
| startup projects to absorb. Another no/no is a squad | | | | and value for money.After putting himself through the |
| of vice-presidents. These are red flags that scream | | | | University of Kentucky (B.A. Broadcast Journalism, |
| excess and will all but eliminate any possibility of | | | | 1969) and serving in the United States Marine Corp, Mr. |
| receiving funding for a new business | | | | Ficke commenced a career in the cosmetic industry. |
| opportunity.FacilitiesPlan on renting needed office | | | | After rising to National Sales Manager for Vidal |
| space on a short-term basis. If growth happens as | | | | Sassoon Hair Care at age 28, he then launched a |
| planned it is always easy to find bigger premises. You | | | | number of ventures, including Rubigo Cosmetics, |
| do not want to obtain a larger space than initially | | | | Parfums Pierre Wulff Paris, Le Bain Couture and |
| needed to run the business in the most efficient | | | | Fashion Fragrance.Mr. Ficke and his consulting firm, |
| manner. You will be using too much of your precious | | | | Duquesa Marketing, Inc. ( has assisted businesses large |
| capital for an underutilized asset.This may seem | | | | and small, domestic and international, entrepreneurs, |
| obvious, but you should read the business plans I do. | | | | inventors and students in new product development, |
| Many entrepreneurs try to replicate the surroundings | | | | capital formation, licensing, marketing, sales and |
| they enjoyed when they were corporate employees. | | | | business plans and successful implementation of his |
| Recently, I reviewed a cash flow projection that | | | | customized strategies. He is a Senior Fellow at the |
| included an office expense for a daily delivery of | | | | Page Center for Entrepreneurial Studies, Business |
| flowers, and this was not a floral business. Investors | | | | School, Miami University, Oxford, Ohio. |
| are totally put off by expenditures such as this. Unless | | | | |