With several banker friends on my contact list, I was talking with one of them one day who shared with me this story. He indicated that the executives of a growing startup company went to his office to discuss financing to fuel their unexpected growth spurt. After the pleasantries were exchanged, they got down to business. They explained to my banker friend, with great enthusiasm, what the growth had meant for them and the possibilities for increased revenues opportunities for the bank.
My banker friend said he was intrigued but needed to bring his clients back to reality, so he started asking them some basic questions: How much money do you need? When will you need it? What are you going to spend it on? And more importantly, when are you going to pay us back? He said that the executives looked at each other and simply said that they were professional engineers and did not do the finances. My banker friend concluded that he politely thanked them for their visit, suggested that they had their finance department or specialist develop a financial forecast for the expansion plans they had, and to return to speak with him once they had a financial forecast in place.
Mr. Wonderful (Kevin O’Leary) from the TV series “Shark Tank” is famous for his phrase. “I am in business to make money, my friend.” It is therefore, of utmost importance that an entrepreneur have a business plan, especially if he is going to ask a perfect stranger to risk their money on his venture. Many times the entrepreneur has, what seems like a brilliant idea, and jumps right into implementation without first taking the time to think it through, looking at the bigger picture to ensure all the relevant risks are identified with a plan designed to mitigate those risks.
We are also familiar with Benjamin Franklin’s quote: “If you fail to plan, you are planning to fail!” Not having a business plan when pursuing an entrepreneurial venture is sure way to bankrupt yourself very quickly on a venture that could otherwise have been very profitable if it were implemented properly. Moreover, investors will not take you seriously and write you off as having a hobby.
Business planning will allow you to assess the probability of failure. You would look at your assumptions about the market and identify marketing strategies and tactics to position your product or service based on your value proposition. It will help determine your financing needs: to startup and maintain operating expenses covered until sales begin to grow. So given, that you will be risking your reputation, life savings, health, and family, is it too much to ask for you to take some time to plan for success?