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January 8th, 2010On Securing Funding – By Someone Who’s Done It.
July 9th, 2009Who better to get advice from on how to raise money in this climate than an entrepreneur who’s actually doing it? Jonathan Weber, an entrepreneur who’s currently raising money to grow his business NewWest.net, wrote a recent article for Reuters on securing cash and – caveat emptor – it’s a little scary. Regardless, Weber tells it like it is – beginning with the truth about venture capital:
“Even though there are many hundreds of venture-capital firms with many billions of dollars at their disposal, the types of companies that interest VCs represent a tiny minority of all new businesses, and they have to fit a few very specific criteria,” says Weber. “Most importantly, there has to be the promise of a huge payoff in the event of success—at least 10 times the initial investment (which itself generally has to be north of $1 million for it to be worth a VC’s trouble) in a five-to-seven-year time frame.”
The good news is that Weber – someone who’s been pounding the pavement this year with his business plan – says that’s not reason to despair. There are other, good options, even when it seems like whole world is short on cash:
“Former colleagues or mentors can often be excellent prospects; good angels are usually invested in you as much as your business plan. I’ve also found that angels are very sensitive to who else is a part of the deal, so if you can get one person with a good reputation to sign on, it will be a much easier road from there. A pretty common level of commitment for an experienced angel investor is $25,000 to $50,000, though some angels will do as much as several hundred thousand.”
And he provides some good insight into what it takes to get a bank loan, too:
“If you’re raising money to buy hard assets, conventional business loans can be a good way to go. Banks might be reluctant to lend to small businesses, but it’s amazing how fast that reluctance goes away if there is collateral. Equipment purchases, and things like liquor licenses, are often fairly easy to finance, though, of course, pay close attention to the terms.”
Finally he makes a point that we think too few entrepreneurs consider before launching into fundraising:
“Time spent soliciting money is time not spent building the business. If you definitely need the money, be as targeted as you can in your approach. It’s always easy to find people who want to kick the tires, but finding people to write checks is, almost by definition, one of the toughest things in business.”
Check out Weber’s entire Reuters piece here and then thank us in our brand new spankin’ comments section below.
What You Can Learn From One Bank’s Failed Business Plan.
June 29th, 2009Forgive us our moment of schadenfreude here, but we love us a little irony: National Bank, the biggest lender in Greece, said that it’s scrapping its three-year business plan because it’s no longer relevant. According to Reuters:
“Due to the adverse global financial conditions and the continuing instability prevailing in the markets…the assumptions on which its 2007-2009, three-year business plan was prepared have changed and are no longer relevant,” the lender said in a bourse filing.
In a strange twist, it seems that the banks- the very institutions that require three years worth of financials in every business plan—are the ones proving a point they’ve yet to concede: when it comes to a business’ financials, no one knows what’s going to happen in three years let alone, three months. It sounds simple and clear enough, but try telling that to a banker. The respone you’ll likely get is rote: “You need three years worth of financials to be considered for a loan…’
Unsatisfying? Yes. Frustrating? Absolutely. Still, National Bank’s debacle does illustrate an imporant point: bankers know just as well as you do that figures three years out aren’t likely to be terribly accurate. And here comes the takehome lesson for those of you working on a business plan. Rather than wasting your time toiling over what may happen three (or even two years) down the road, focus instead on the first six months of your financials, and ensure that those are as accurate as possible. The truth is that no bank expects you to have accurately predicated your business’ financials in three years when, with their teams of financial modelers and economic forecasters, even they can’t get it right.
Is Starbucks Really A Small Biz Killer?
June 25th, 2009Here’s an interesting question to consider: are big chains like Starbucks and Wal-Mart actually as harmful to mom and pop shops as common wisdom dictates? Not so fast, says Temple University prof Bryan Simon, who tells Reuters that that it least when it comes to Starbucks (sorry, Wal-Mart), the assumption is flat wrong:
“‘In fact, Starbucks created the market for the small coffee shop,’ says Bryant, whose new book ‘Everything but the Coffee: Learning about America from Starbucks’ is due to be released in October.
Simon argues that 20 years ago you couldn’t find a ‘good’ cup of coffee anywhere, until Starbucks came along and ‘created a desire and a taste for specialty coffee’ that eventually gave birth to the corner specialty coffee shop.”
So the guy’s got a book to sell, and those kinds of statements make headlines because they fly in the face of what most entrepreneurial types believe to be true. But what do you think? Does the argument hold water? For once we’ll refrain from commentary until you weigh in. More tomorrow…
The SBA Makes More Loan Changes, But Will They Help?
June 25th, 2009Maybe good news for cash-strapped entrepreneurs with an existing business—the Small Business Administration has announced that it’s revised its 504 loan program to give businesses the chance to refinance if they plan to expand or buy equipment, reports the Wall Street Journal. While there’s a lot of technical nitty-gritty and fine print, here’s what you need to know: while it used to be that entrepreneurs could only tap into the 504 loan program if they were seeking new loans to purchase real estate or equipment, now the pot has been sweetened, and entrepreneurs can refinance existing SBA loans if that amount is 50% less than the new dollar amount they’re requesting. Here’s an example of how it might work:
“For instance, a business owner who already has a $1 million 504 loan could now refinance that to buy $500,000 worth of equipment, said Hayley Matz, a SBA spokeswoman.
There’s a catch, though. For every $65K the SBA guarantees, the entrepreneur must create or retain a job.
What do you think? Will this help struggling entrepreneurs?
The Business Plan Blacklist.
June 22nd, 2009Are there really certain words or expression you shouldn’t use in your business plan? The Wall Street Journal seems to think—and we agree. In an article that you should absolutely read if you’re working a business plan, the Journal gives its list of thing you should never say—and most are right on point:
-”Huge.” As in your market is “huge” or that your opportunity is “huge.” Says the Journal: “Translation: The writer hasn’t bothered to get reliable data on the market size, or has failed to think carefully about the initial target market, which almost always should be quite narrow.” To which we’d add that you should probably just avoid all superlatives in general. They make investors’ heads hurt.
-”Revolutionary.” Unless you’re inventing the next iPhone, you probably shouldn’t use grandiose words and phrases like “revolutionary” or “game changing.” We agree with the Wall Street Journal when they say that such words suggest that, “We are so enamored with our idea that we have not thought clearly about how to distinguish it from the other approaches and are not interested in what the customer thinks of it. Customers simply aren’t visionary enough to fully appreciate our technology.” While that may be going a biiiit far, we share the sentiment.
-”No competition.” This one’s our huckleberry. No matter what you may think, nearly every business has one form or another of competition. It just might not be obvious. “If there’s a single phrase that can send a business plan directly into the trash, this is it,” writes the Journal. “Of course you have competition! To prospective investors, perhaps surprisingly, competition may be a good sign, as it suggests that there’s a problem that someone besides you thinks is worth solving.”
While we think those are dead-on, the Journal took issue with a few that seemed a bit shakier to us. For instance:
-”Conservative.” According to the Journal, “Investors know that initial sales numbers—never mind the profits—rarely pan out. So, let the numbers speak for themselves, based on the evidence you’ve gathered.” While it’s quite likely that investors will assume that the numbers you’ve forecasted are conservative (and they should be) we see nothing wrong with driving the point home that you haven’t projected insane figures.
-”Assumptions.” While the Journal says: “If you’re ‘assuming’ most of your numbers, you’d better stop now,” we don’t know that there’s really any good way to create financial projections other to assume them. There’s no way you’re getting realistic figures on a first pass for a business that hasn’t yet started. Some educated guessing’s just part of the game.
What do you guys think? Are there other phrases or words that should be stricken from business plan vernacular? Tell us what you think in the comments section below (pretty please)!
No More Dead Air.
June 19th, 2009If you’re one of this blog’s two readers, you’ve probably noticed that things have been a bit slow around businessplan.com the past week. If you’ve just stumbled upon us, rest assured that there’s real content here…occasionally. While we’d like to say that the dearth of business plan goodness is the result of working on the 3GS or helping reintroduce wolverines into the wild, the truth is far less riveting. (Seriously—you don’t want to hear it.)
Suffice it to say, another dead week won’t pass. Check back on Monday for more business plan content, criticism, and other bits of entrepreneurial news. In the meantime, these wolverines are cute, aren’t they?
Kiva Funds U.S. Business Plans.
June 12th, 2009Kiva, the Internet-based micro-lending site that lets people give money to small business owners in developing countries, has an announced an exciting new program for entrepreneurs seeking funding with their business plan here in the U.S. Starting earlier this week, people can contribute cash to small businesses that are based stateside, reports Read Write Web:
“The test will start with 45 U.S. businesses, ranging from baked goods deliveries to child care and taxi drivers. For now, the loans are limited to New York and California, though Kiva is actively seeking new Field Partners to move in to more regions in the U.S.”
And here’s how Kiva works:
“The Kiva platform works basically as a middle man, providing profiles of entrepreneurs for lenders to choose from, collecting the funds to be distributed through Kiva partners, and giving the capital back to lenders (either to re-lend, keep, or donate to Kiva) once a loan has been repaid. To date, more than $75 million for entrepreneurs in the developing world has been raised through the site.”
So far, it appears that the lending program in the U.S. actually works as well. Some of the start-ups on the site, including a child and elder care facility and a catering business, are almost fully-funded. If you’re interested in a Kiva loan, you must contact the company’s two partners for its U.S. loans, ACCION USA, a non-profit microfinance institute, and Opportunity Fund, a community development fund in California. To apply for a loan via ACCION, click here and for the Opportunity Fund click here.
Happy News We’ll Hang Our Hats On.
June 12th, 2009The Dow Jones Industrial Average finally turned positive for 2009, reports the Wall Street Journal. And more good news: the Industrial Average has also surged 34% since itting its low on March 9. Let’s hope this is a harbinger of the hot summer to come.
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