Before we get too deep into this, let me clarify two things.
When I say without a “plan”, I mean without a formally
written business plan – not that you should be clueless about what you
want to do. And, when I say startup funding, I’m talking more about
early stage seed funding via angels (though most of these tips should apply to
VCs as well).
As a member of the local Boston entrepreneurial community and a
part-time angel investor, I come into contact with lots of new startups at
various stages of the process. It continually amazes me how much time
some entrepreneurs spend time writing (and rewriting) a business plan. Though
the planning process can often be
very useful, the degree of efficiency is often very low because taking your set
of thoughts, ideas, brainstorming and research and trying to “capture”
it in an externally consumable document is really hard and takes time. For
every 10 minutes you spend “thinking” about things (and actually
planning the business), you might spend an hour trying to get it into a form
that might make sense to the reader of the document. And, the real irony
is that very few people will ever
read the full document.
One of the main reasons I’m not a big fan of business
plans is that things change. Instead
of spending time writing a business plan and continually refining it, I’d
much rather see an entrepreneur testing the
market and refining the approach. Josh Kopelman posted a great
article on his recently titled “Failing
Cheaper”. It’s worth a read.
In any case, here are some thoughts I have on how you can
increase your chances of getting funding without going through the misery of
writing a formal business plan. I’m assuming here that you have the
ability to at least get an audience with a potential investor or investor
group. If not, then you have a different problem (and a business plan is
probably not going to help with that).
Quick Tips On Raising Startup Funding
Without A Plan Or A PowerPoint
- Have A Story: People like stories. Stories are
exciting. They have characters, they have a plot (even a small one).
Your story can be about a use-case (i.e. how will your product be
used to solve a problem). The story can be a description of how you
uncovered the opportunity: “There I was sitting in my office at
a big company and we needed a way to do [X]. We were losing customers,
hiring consultants and otherwise frustrated because we just couldn’t
find a way to get [X] done. Then I thought, here’s a simple
way to solve part of the problem…”. The story can be
about some anticipated “future state”. Example: “In
2 years, we believe that those that grew up with the Internet will no
longer accept the inefficiency that exists in most doctor’s offices
- Demonstrate Leverage: Different people call this different things (a
common phrase is the “unfair advantage”). Basically,
what you need to do is communicate what kind of leverage you have (or are
likely to get). Some of my favorite points of leverage that few
early entrepreneurs talk about is their capital
efficiency. Example: “We’re two college
students that have come across this really exciting market opportunity. We
think we can get build this with less than $25,000 while living on red
beans and rice and working out of a shared apartment…” This
leverage point basically says you’re going to learn your lessons
cheaper than others that may be doing the same or similar things. [Note:
Everyone is going to have to
learn some lessons, the question is how much money are you going to spend
learning them?]. Other favorite leverage points of mine are:
access to a group of customers (from a prior job/life), access to a
potential partner or distribution channel, access to unique “talent”
that can build the product, pre-written IP (you’ve already got a lot
of the code you need from a side project you’ve been working on),
etc. Basically, the idea here is to try and explain why you will
have a disproportionate chance of not screwing this up completely.
- Accept That Your Baby Is Ugly: Just like most parents think
they have beautiful babies, most entrepreneurs think they have beautiful
startups. In reality, just about all startups are ugly in the early
days. Don’t spend time trying to explain to others why your startup baby is beautiful. It’s
not. Instead, spend energy explaining why your baby is going to grow up into something that’s
beautiful. Describe how you’re going to tackle the problem of
building the product, finding customers, dealing with support, etc.
- Dream Big, But Plan Small: In the early stage process, entrepreneurs that
can get things done cheaply and efficiently are more likely to get funded.
The reason for this is simple. Too much cash allows you
to delude yourself into a false sense of what the market really wants and
how you might deliver it. The less cash you have, the more quickly
you have to deal with the really hard things (like figuring out a way to
get people to part with their money and buy your offering). Most
early-stage investors know this. Even though I know an idea is likely going to take
more cash than the entrepreneur things, I prefer backing people that believe they can do it with little
cash and try to do so. As Josh said, learn to fail cheaper.
If you’re new to the early-stage fund-raising game, it
is easy to fall into the trap of thinking that the only thing standing between
you and some angel funding is a pristine business plan with sparkling financial
projections and prose that is so compelling that the checkbook practically
leaps out of the investor’s pocket. I’m here to tell you that
this is simply not the case. Most startups today simply don’t know
enough about what they’re actually going to eventually become in order to
get it down in the form of a business plan.
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