Developing a business plan is one thing, being able to execute it is another. We’ve worked with lots of entrepreneurs who have big ideas but bank accounts whose size don’t match up. Their hope is that they will find an investor who will realize the potential of their business concept, and provide them with the means to fund their business plan.
Of course, this does actually happen. Sometimes.
Taking advantage of Other People’s Money (OPM) is a time-honoured approach. But when this is the only option considered, it becomes an all-or-nothing proposition. If you don’t find an investor, either your business never launches at all, or does so in some feeble stripped-down version doomed to fail since vital elements aren’t affordable.
So it was quite refreshing to work recently with a group of clients who took the approach that they are responsible for funding their own start-up. We started with a concept, researched the market, set targets, debated the assumptions, and considered many different approaches to verify their strategy is as workable as possible. Every detail was triple-checked because there was no doubt that the plan is going to be executed. When the clients were satisfied that they had a workable plan, we figured out how much working capital they need and fine-tuned the plan accordingly. This became their base case, and the group intends to go ahead.
Like any other start-up they will have to focused, work extremely hard, and get a few breaks, but I bet they’ll make a go of it — if for no other reason, because they are extremely determined to find a path to success with the resources they have to deploy.
The second phase of developing their business plan was to figure out what they could do if they did have investors. This is the real role of venture and early-stage capital, to accelerate viable businesses by providing them with the resources to grow faster than they would otherwise. We determined both the magnitude of the investment that would be required to make a significant difference, and quantified what this difference would be. This is the business plan that will be used with potential investors. But they consider it to be Plan B.
This is the difference it makes when you don’t use OPM. Things are real. The business plan isn’t just a theoretical exercise. If you find an investor, great. You’ll get there faster. If not, it will take you longer and be harder. But to me, that’s the difference between a real entrepreneur and a wannabe.