Finance For Startups

Is It A Good Idea For Someone Else To Write Your Business Plan?

by Paul Simister on November 25, 2020

I’m often approached by start-up entrepreneurs and asked to write their business plan.

I won’t do it.

I think it’s a rotten idea.

So does Dragons Den entrepreneur Duncan Bannatyne. I read his book Wake Up And Change Your Life – it’s very good for any aspiring entrepreneur.

In Chapter 4 he says “You’ll find several people offering to write your business plan for you – and charge you an arm and a leg for it.”

Duncan then gives two exceptionally important reasons why you should never get someone else to write your business plan for you:

The first is about the money. He argues that it is poor judgement paying someone else to do something that you can easily do for yourself.
.
The second is that you’ll understand your business much better if you write your business plan yourself.

I’d add a third reason.

You’ll be much more committed to putting the plan into action if you’ve done it yourself. You’ll have thought through your actions and whether you really intend to do the things you need to do to succeed.

Let’s dig deeper into each.

Spending Money You Don’t Need To On Having A Business Plan Written For You

Very few business start-ups are done with a big pot of cash which lets the entrepreneur splurge and even if there is plenty of money, I recommend you are very careful.

It’s much easier spending money than it is earning it.

Researching and writing a business plan takes a significant amount of time and professional time is expensive. It’s also an area where price and quality are closely related so if you penny pinch and find the cheapest source, you can expect the quality to be poor.

Paying to have your business plan critically reviewed and to get feedback on it is different. You’ll find that family and friends are either very encouraging (you can do anything you want) or very discouraging (you’ll never make it work, it’s much better to stay in your safe job). A professional will tell you what you need to hear and challenge your thoughts and assumptions. You may not like it but it will help you to develop a stronger, more robust plan.

You’ll Understand Your Business Better If You Write The Business Plan Yourself

As a general rule, the more you think, the better prepared you will be for action. You can go too far, and spend all your time thinking and planning but often people leap into action with little thought and hit major problems which were all too predictable.

This thinking and planning is invaluable and it can be very useful to work through a structured thinking process.

If you’ve picked a market that ignites your passion, you should find the research interesting and if you don’t, it may be a warning that the business isn’t right for you.

You’ll Be More Committed To A Business Plan You’ve Written Yourself

Do you work better when you’re told what to do or when you are clear on your objectives and decide what you need to do yourself?

If you want to be told, you may not be cut out for life as an entrepreneur.

If you decide on your own actions, then you’re not going to stick to a plan written by someone else. It’s just words on paper with no meaning.

But if you decide you need to do A, B and C and you commit to it in writing and promise other people (like a bank or investor) then you’re likely to follow through unless you get a better idea. If you don’t, you lose credibility with your financial backers and even more importantly, with yourself.

If you can’t trust yourself to deliver on promises, then who can you trust and why should anyone trust you?

Writing A Business Plan Is Easy

Perhaps easy is the wrong word. It does take time and effort but it’s not complicated. This isn’t brain surgery.

You can do it, words and numbers.

There is business planning software to help you that you can get for a low cost or even free.

What Help Should You Get With Your Business Plan?

I don’t believe you should pay anyone to write your business plan for you but I do think there are services which will help you to get a better business plan. Generally I think it’s a good idea to have a mentor or coach for your business start-up.

Helping you to think better – start-up entrepreneurs can feel overwhelmed by how much could be done so it can be useful to get advice and help on how to focus your thinking on the critical issues. There will be plenty of distractions and people selling bright shiny buttons which promise a lot.
.
Reviewing your business plan – you’ll be very lucky if you get constructive criticism of your ideas from family and friends unless they own their own small businesses. Even then, they may struggle to take what they know and apply it to your business idea.
.
Help with the numbers – the profit and cash flow forecasts are particularly important if you need to raise finance and you don’t want to make errors which show your inexperience. The business planning software certainly helps because trying to model your business in a spreadsheet is complicated.
.
Polishing up your plan – if your plan is going to third parties to raise finance, it needs to sell your business idea realistically. If your plan is poor quality because you struggle to express your ideas in writing, then it is useful to get someone to tighten up your language and make your business case more persuasive.

Each of these are likely to cost money, but they should be working from a business plan you’ve drafted. You’ve done your thinking and tried to produce a business plan and you recognise that it could be better.

That’s very different from saying to a professional business plan writer, “Can you write my business plan for me please?”

in 2 – Your Inner Game, Business Problems And Mistakes, Business Start-Ups

Will Your New Business Start-Up Succeed?

by Paul Simister on November 19, 2020

Have you ever seen the TV programme Dragons’ Den where entrepreneurs and inventors pitch for real money from multi-millionaire investors?

The Dragons only have a short time to decide if they are going to invest based on whether they think the business that is being pitched to them will succeed or fail.

How do they do it?

How can the Dragons or any other experienced entrepreneur or investor decide if a business is going to succeed so quickly and especially if the new business start-up has little or even no track record?

Or how would you do it if you were in their place, listening to an eager and persuasive pitch from an ambitious entrepreneur eager for your cash?

I look at three major risks for new business start-ups and any business that hasn’t really established its position in the market:

Market risk – is there demand from customers and clients? Does the product or service solve a pressing problem? Will people be willing to pay for this solution to a problem?

Competitive risk – can the business survive competition? How is the business or the product differentiated and is that differentiation sustainable?

Capability risk – can the business owner and business deliver on the marketing promises? Is he or she prepared to do whatever is necessary to make the business succeed?

Which factor is most important?

They are all vital and you need to make sure that you’re getting three Yesses.

Preferably three loud, proud Yesses.

Demand Risk – Will Customers Buy The Generic Product or Service?

A business operating in a weak market – either with a solution to a problem that no one really cares about or with an unconvincing solution to a real problem – will struggle to first attract attention and second to convert some attention into paying customers.

This is the focus of step 4 your customers and step 5 the future are so important in my differentiation process. It gives you the understanding of what customers want and what frustrates them about the current solutions as well as looking at how those needs are likely to change in the future.

Competitive Risk – Will Competitors Offer A Product Which is Preferred By Many Customers Because It Is Better Or Cheaper?

A business which is uncompetitive or too similar to existing competitors in a strong market will be ignored. If competitors are better and cheaper, then you’ve got huge problems. What are the economics of the business like? Are margins high or low? Is the break even point realistic?

This is the main focus of my differentiation process, from step 3 on your competitors, step 4 customers, step 5 the future, step 7 your differentiation options and step 8 the differentiation strategy you choose.

Capability Risk – Can You Really Deliver On The Promises You Make To Customers?

A business may have a great market and appear very attractive but if it can’t deliver on the marketing promises, then unhappy customers will create chaos and ultimately destroy the brand.

Negative word of mouth can be even more powerful than positive recommendations and the big number of Internet searches for scams shows that buyers have learnt to be wary.

Step 2 of my differentiation process looks at your existing business (or your underlying skills if the business hasn’t started) and step 6 delves deeper after you’ve done the work on looking at customers, competitors and the future.

Putting It Together

Finally, your business may score three big Yesses but if you’re not prepared to do what it takes to be successful because of hang ups about sales and marketing or building a team to do the work necessary, then the business is never going to grow to its potential.

Steps 9 and 10 of my differentiation process are concerned with communicating with staff and the market.

If you’re going to invest your money – or your time and energy – you need to check the market risk, the competitive risk and the capability risk.

One risk can cause your business venture to fail. If there are problems in all three areas, then you’re best not to start.

What Do You Think?

What do you look for when assessing a business idea?

in Business Start-Ups

GXG Markets UK – Closing the Finance Gap

by Paul Simister on September 14, 2011

I was interested to hear about the launch of GXG Markets UK this morning which I thought was a great example of finding and filling a gap in a market.

What is GXG Markets UK?

GXG Markets offer a three tier London based equity market for small and medium-sized businesses.

GXG Regulated Market

GXG MTF

GXG OTC

The idea is that it forms a bridge between the private equity world of venture capitalists and business angels and the more formal small company markets like Plus and AIM.

What’s Different About GXG Markets UK?

GXG Markets are moving away from the market maker concept used on Plus and AIM where market makers list their buying and selling prices with potentially sizeable spreads in between to matched bargain trading where a price is agreed between buyer and seller.

Prices move with a market maker on sentiment and regardless of whether deals are being done at those prices or whether there is news about the company’s prospects.

For More Information About GXG Markets UK

Go to their website at gxgmarkets.co.uk

The downside is that taking away the market maker role will reduce liquidity of shares since to sell, you have to find a buyer or to buy, you have to find a seller.

in Business Start-Ups

Venture Capital: When You Need It & When You Don’t

by Paul Simister on July 6, 2011

When I was researching how businesses change or pivot their business plans, I found this presentation about Venture Capital and when you need it and when you don’t, by Union Square Ventures in New York.

Venture Capital Presentation

Since I have no control over whether it disappears from scribd, I want to pull out a few points about venture capital. First, high risk capital wants a 50% plus return a year – and that’s going to compound over time – that’s double the money back in about 18 months and much more if the investment is long term.

Second, raising venture capital is a 3 to 6-month project. Don’t expect the cash to be easy or quick.

Third, 99% of new ventures don’t need venture capital and venture capital firms look at more than 100 business plans for each investment.

Fourth average dilution from the initial venture capital investment is 40% and on exit, the average entrepreneur who uses a VC owns less than 10%. The logic is that 10% of something big is better than 100% of something small but it does show there huge culture change required.

Venture capital is wrong for you if you’re too early in the start-up phase, your business is too small or you trade in n industry which doesn’t have barriers to entry to stop plenty of competitors rushing into the market to share in your early success.

The presentation offers bootstrapping up as an alternative to venture capital as i mentioned in Why Don’t Banks Finance Startups . I also agree completely with the comments that “cash in the bank makes you soft” and “sell, sell, sell – your customer is your best VC”.

It’s well worth taking a look at the presentation before you start thinking about wanting venture capital.

in Business Start-Ups

Why Venture Capital Investments Fail – The Business Planning Implications

by Paul Simister on July 6, 2011

If you think about going down the venture capital route for funds for your young business, I recommend you read this blog post from Fred Wilson of Union Square Investments.

Why Early Stage Venture Investments Fail

It’s always good to understand the situation from the other side since it makes their demands seem more reasonable. You may not like them, but at least you understand why they are made.

It’s well worth reading for how the business plans are changed between the venture capital investment and exit and how success seems to improve when the business plan is changed.

I hope Fred Wilson doesn’t mind if I pull out a few quotes I particularly want to emphasise.

Dick Costolo, co-founder of FeedBurner, describes a startup as the process of going down lots of dark alleys only to find that they are dead ends. Dick describes the art of a successful deal as figuring out they are dead ends quickly and trying another and another until you find the one paved with gold.

This may not sound like the rational, straight line planning model you want to use for your new business but I think it’s a remarkably astute way of looking at business planning in a start-up. The planning helps you to think about the options and focus on those that you think have the best chance of success.

But the true test happens in the market.

Either customers buy… or they don’t.

You can go down lots of blind alleys if the cost of doing so is low. But if you are spending a million dollars on each blind alley, you’ll be out of business in no time.

Testing small is good… failing early is good when you learn what doesn’t work. It gets you closer to what will work. See The Lean Startup book by Eric Ries.

Most venture backed investments fail because the venture capital is used to scale the business before the correct business plan is discovered. That scale/burn rate becomes the cancer that kills the business.

This is interesting because it makes it clear that money isn’t the panacea to business start-up problems that many entrepreneurs think.

The answer lies in finding a winning strategy and proving it in the market.

Only when you are confident that you are right and you have the evidence that will stand up to third party scrutiny should you look for the finance to scale up your business.

in Business Start-Ups

Why Banks Don’t Finance Business Startups

by Paul Simister on June 2, 2011

One of the most powerful things you can do when negotiating is to see things from the other person’s perspective.

To find out why banks don’t finance business startups I want you to put yourself in the bank manager’s shoes when he meets an eager entrepreneur looking for cash to finance the great (ad)venture.

I don’t know you.
.
You’ve got no track record of running your own business successfully.
.
You’ve got little management experience.
.
You don’t know the trade you want to go into.
.
You haven’t done your homework.
.
The proportion of money you’re putting into the business is much less than the money you want to borrow.
.
You’ve got no security to cover the loan so the bank can’t get its money back if things go wrong.
.
Your business concept isn’t proven.
.
Your presentation and business case is badly explained with little logic and pie-in-the-sky numbers.
.
You don’t have a management team in place so the business can carry on if anything happens to you.
.
There’s nothing special about your business which will cause customers to choose you rather than your competitors.

I could go on but long lists of bullet points are tough to read.

It’s easy to criticise banks and in many cases right to do so.

But business startups are making rejection inevitable by making unreasonable requests.

If you think as the bank manager thinks, you’ll see that he’s got a number of interests:

He wants to protect his own position. He doesn’t want to look like an idiot and propose a no-hope situation to the credit committee to get final approval for the loan. He’ll lose the respect of colleagues and his boss and make them more reluctant to back his judgement on other proposals.
.
He wants to protect the bank. A bank isn’t there to provide risk capital and one bad loan which doesn’t get repaid takes away the profit from many good ones.
.
He wants to protect you. If your proposal is only so-so but you’ve got security (e.g. your family home), the bank can protect its position but you’re taking big risks.

Banks are in the business of lending money but it’s much easier to lend to an existing business with a proven record of sales and profits and with a stable and experienced management team in place.

Banks want to invest in winners (and avoid the losers).

The big question of you want to get finance from a bank for your business startup is “How can you give them confidence that you are a winner?”

It starts by trying to avoid the black marks that I listed at the start of this article. The more of them that apply to you, the less willing a bank will want to finance your startup business.

So what can you do instead?

First, can you put more money into the business yourself. I’ve known entrepreneurs who have money but didn’t want to risk it in the business. That sends a very clear signal to the bank about your confidence in the business idea. If you’re not confident, there’s no reason why the bank should be anything other than very nervous about risking its cash.

Second, can you borrow the money from family and friends or even have them as silent partners who own part of the business? My advice is to formalise any agreement – what interest you will pay, when you hope to repay the cash, what happens if you don’t? Also, if shares are involved, what happens if one person wants to sell up? It’s a good idea to get legal advice but it can be expensive and that creates a chicken and egg situation.

Third, think about what you can do to bootstrap your business. The sooner you get your business making profit and generating cash, the less finance you will need. I hate to hear business owners talking about “breaking even in year 3.” Look at how you can boost your revenues and trim your expenses by avoiding unnecessary costs at the early stage of your business.

Focus on what’s critical and delay the nice-to-have items.

Take advice where you can. From other entrepreneurs and from professional advisers. Often good advice is a lot cheaper than bad advice or no advice. It saddens me when I see essential money wasted on marketing that obviously won’t work because there’s no clear message or offer.

You may want finance for your business startup but it can often be used to disguise mistakes and inaction. These only become clear when the money runs out.

in 2 – Your Inner Game, Business Start-Ups