As a member of the local
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 today.”
- 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.