WALKING ON WATER — AN ENTREPRENEURS GUIDE- Part 3 (Planning and Goal Setting)
This Article is part of a series of eleven articles from my book. You will find the links to the next feature article at the bottom of this page.
SKIP TO A PARTICULAR ARTICLE IN THIS SERIES
Part 1- Introduction
Part 2- The Beginning of a Business
Part 3- Planning and Goal Setting
Part 4- Act As If
Part 5- Financing your Business
Part 6- Investment Bankers
Part 7- Your Management Team
Part 8- Lawyers, Accountants, and Auditors
Part 9- Doing Your Homework
Part 10- Strategy & Growing Your Business
Part 11- Exit Strategies & Keeping Your Sanity
Chapter 2 — PLANNING AND GOAL SETTING
The Long Road to Success
My father once said to me, “Your life will never turn out how you plan it.” At first, I ignored that word of wisdom, but I soon realized that it applies to pretty much all areas, including your plans for your new business venture. When I was young, I set myself a goal of becoming a millionaire by age twenty-one. What people forgot to tell me was that I had to start three mediocre businesses to get to the diamond. It took me until I was thirty to hit the mark — but then I made up for it by becoming a multi-millionaire. Of course, by the time I was twenty-five I was feeling somewhat frustrated by my efforts until I watched a biography about Dave Thomas, the founder of Wendy’s. I took comfort in the fact that he was only thirty when he made his first million — and that was before he started Wendy’s. He made his first million with three Kentucky Fried Chicken franchises, a little known fact about the man who had Colonel Sanders as a mentor.
Unless you have a Microsoft or Google idea that is started in a garage, the average entrepreneur will no doubt have to start a couple of times to get it right, but that’s OK. Statistics will tell you that starting a company like Google is like winning the lottery — it’s nearly impossible. So the rest of us will just have to make money with companies that most Americans will probably never hear of. But for all of this uncertainty, it’s good to have a road map of where you want to be and how you are going to get there: your business plan.
When I think of a business plan, my mind conjures up an image of a massive dusty binder filled with useless words that nobody will ever read. If that image comes to your mind, too, forget about those old notions of a business plan; they have become obsolete in the twenty-first century. Now you are probably wondering why an article on starting a business would tell you to bypass the business plan, right? Good. My goals is to delete what they taught you in school or worse, in university, and to teach you what people actually use in the real world to run a successful business.
Reinventing the Business Plan
Most successful entrepreneurs will tell you stories about how their companies were started from ideas scrawled on the back of a cocktail napkin. Most professionals, bankers, and accountants will tell you it is important to write a hundred-page detailed business plan. So which is it? Three things to remember:
1. You don’t have time to write a book.
2. Your plan will be outdated within two weeks of your first investor meetings.
3. You need to know your business plan by heart anyway.
I think a lot of one’s success has to do with flexibility. You see, the reason why the cocktail napkin business plan is successful is because its small size allows room for you to just state a goal and nothing else, which leaves you with immense flexibility to reach that goal, whereas the banker’s business plan is chock full of details, data, and ways to get there with a well-researched background. Unfortunately, neither will get you money from investors. The napkin plan doesn’t show that you know your stuff, and the banker’s plan is too rigid and boring. Nobody reads it. I wrote a business plan once; I don’t think I ever read it myself.
Very early in my career as an entrepreneur, I learned that investors want to get an understanding of your business without having to read a book. This really stems from the fact that they are considering several business opportunities per day, and there is simply not enough time for them to wade through a lengthy business plan. Over the years, I have found a happy medium that has worked repeatedly. I call it the Ten Million Dollar Formula. That’s because I have never raised less than ten million dollars using it. It is comprised of three key items:
1. A two-page executive summary
2. A power point presentation of no more than ten to twelve slides
3. A term sheet
All three combined is what I call your Staging Kit. Each of these items serves a specific purpose. The executive summary is used as bait to get the meeting, the power point presentation is for the song and dance, and the term sheet is for the slam dunk. If you are somewhat perplexed by this terminology, rest assured that by the end of this chapter you will know exactly what these terms mean.
A little warning: Walking around with presentations and term sheets is frowned upon by the SEC. That is because securities law says you can’t just go door-to-door offering shares in your company to any random potential investor. More important for you, it could get you into trouble because your presentation and term sheet could be construed as an offering document that is assumed to disclose any and all risks to the investor, which is impossible to do unless you file an IPO document (initial public offering). In short, you could get sued if what you put in there turns out to be inaccurate, or worse, you miss your milestones. Always, always, always seek legal counsel that specializes in corporate finance before you attempt to raise money for your business (see my later chapter about lawyers).
The Bait — Your Executive Summary
The executive summary is something that you can send in an email to a potential investor without looking desperate. What I mean by that is the investor will want to make up his mind whether he is interested well before he meets you or before you drown him in due diligence material. But a power point presentation sometimes lacks the ability to convey the essence or finer details of your business — which should be reserved for an in-person meeting.
The nice thing about a two-page limit is that it forces you to condense all of your ideas, ambitions, milestones, and financing requirements. There is no room to ramble. As you are writing and condensing your executive summary, having the two-page limit in mind will force you to throw things out that are not necessarily important — and if they are not important to the investor or your pitch, chances are your business doesn’t need them anyway. Use the K.I.S.S. principle — Keep It Simple Stupid. The details are for you to know — potential investors are only interested in the big-picture view, such as what makes your business unique in your intended market. Don’t get technical unless the investor asks detailed questions, or if the investor you are meeting is an expert in your field.
The executive summary serves only one purpose: to get you a meeting and to weed out the people who will waste your time. There is nothing worse than pitching an investor who isn’t keenly interested in your industry or idea.
The Song and Dance — Your Power Point Presentation (Deck)
The term “song and dance” actually comes from the advertising industry, a group of people that gives presentations every day to potential brand name clients that are willing to fork over millions to ad agencies. But if you think about it, that’s exactly what your presentation is. You have but a mere minute to impress your audience. Think of Paul Potts or Susan Boyle on the stage of Britain’s Got Talent — everybody laughed at them until they opened their mouths and sang.
Your power point presentation should not be longer than twelve slides, including a Forward Looking Statements disclaimer that your attorney can prepare for you on the second slide, and your address on the last slide. That gives you precisely ten slides to make your point.
There is a specific format to follow for building a successful slide presentation. Since this format is somewhat of an industry norm with investment bankers, you need to know it. I have seen millionaires giving new business presentations only to lose the entire audience on the third slide, mainly because they didn’t follow the standard sequence.
I should also note there is a difference between West Coast Venture Capital decks and East Coast Equity Capital decks. Since you are not starting Google, I’ll give you the deck that works best for regular businesses.
The standard format your presentation should maintain is as follows:
1. Title — a slide with your Company logo and slogan
2. Cautionary Note — a legal disclaimer regarding Forward Looking Statements
3. Investment Opportunity — a quick summary of how much you are looking for and what it will achieve for the Company and the investor
4. Business Model — a quick overview of what sets you apart from the rest (think niche, old vs. new etc)
5. Strategy — indicate how you will get from A to B whilst creating revenue and net asset value.
6. Product Overview — Showcase your two best products with simple bullet points about how much you can sell, anything special about it and whether you have all the relevant permits/licenses.
7. Strategic Relationships — identify who your suppliers and partners are.
8. Management Team — Highlight using point form the three top employees that will make it all happen — showcase experience here. You should be one of them.
9. Competitive Landscape — In a graphic, show where you are in relation to your major competition.
10. Investment Highlights — Summarize your presentation — one point for each previous slide.
11. Contact Info — a slide with your name and contact information
The Slam Dunk — Your Term Sheet
A term sheet is a piece of paper with a table that simply outlines the terms of your contemplated money-raising efforts. It includes items such as how much you are seeking, use of proceeds, shares outstanding, and the price you are willing to sell a share in your business. This is something you keep on the side to be distributed after your presentation, once you have established there is keen interest in your proposition.
TIP: Make sure your presentation matches the term sheet and the executive summary. You wouldn’t believe how frustrated some investor types get if the numbers don’t match! They see it as carelessness, even if it was just an honest mistake. And above all, have a corporate finance attorney review everything!
WARNING! THE INFORMATION CONTAINED IN THIS ARTICLE IS FOR INFORMATIONAL PURPOSES ONLY. PRIOR TO CIRCULATING AN INVESTOR DECK OR BUSINESS PLAN IN PUBLIC, PLEASE CONSULT YOUR CORPORATE FINANCE ATTORNEY THAT SPECIALIZES IN RAISING EQUITY CAPITAL AND UNDERSTANDS U.S. SECURITIES LAWS. YOU MUST HAVE YOUR ATTORNEY REVIEW THESE DOCUMENTS TO ENSURE THEY DO NOT BREACH ANY SECURITIES LAWS IN YOUR JURISDICTION AND THAT ALL REQUIRED FILINGS ARE MADE.
