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