If You Fail to Plan Will Your Plan Fail? by Jaroslav Trojan


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Financial planning and financing for startups, speech for SummerStart

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If You Fail to Plan Will Your Plan Fail? by Jaroslav Trojan

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  3. 3. What does success mean to you?What does success mean to you? We tend to look at success as a straight line going from a low point A to a much higher point B. Success is much more of a squiggly line than a straight one. We like the straight line because it's clean and simple. It makes success seem possible and clean, but reality doesn't share that depiction more often than not. The squiggly line may be a mess, and hard to understand, but it accounts for failure, missteps, bad luck, and all the things that might discourage you along the way. So however you define success, expect a messy—but ultimately great—path.
  4. 4. What went wrong for Frank?What went wrong for Frank? • He spent all/most of his funding on the development of the technology, product or service and almost no time and money selling and marketing his product to customers • Like many entrepreneurs, he assumed that marketing/sales was easy - once he’d developed the perfect product the customers would come knocking & in meantime investors would be impressed with the perfect product he’d developed • He didn’t use his funding to achieve milestones needed for more funding • Finally, he missed the opportunity to lower his start-up’s dependence on outside financing by securing early sales
  5. 5. Although you may feel that it is too early for you to start the planning process, it is much better to start now than later, it will benefit you more than you could imagine Although you may feel that it is too early for you to start the planning process, it is much better to start now than later, it will benefit you more than you could imagine in the future. For example, when you are seeking funding, when your goals change, when your business changes, or if you take on a partner or investor. Your plan should guide you, but not constrain you. If something in your plan doesn't fit just right, change it. Your business plan will never have a final draft. 5
  6. 6. In The Art Of The Start, Guy Kawasaki talks about the milestones critical to the success of a new venture. In The Art Of The Start, Guy Kawasaki talks about the milestones critical to the success of a new venture. • Prove your concept (both technical and business model) • Complete design specifications • Finish a prototype • Ship a testable version to customers • Ship the final version to customers • Achieve break-even and profitability for your business • Etc . . . Do I really have the milestones to raise EUR 3m now or should I raise a smaller amount? Prove some value first, meet your milestones and get a better negotiation position for raising money! Stay self-funded as long as possible ☺ 6
  7. 7. A business model = „how to get money from someone´s pocket to your own pocket“ (Guy Kawasaki) A business model = „how to get money from someone´s pocket to your own pocket“ (Guy Kawasaki) • Before building your financial plan, think through your business model, the plan to develop your technology, product or service, the market opportunity for your product or service and specifically how your organization will take your product or service to market. Your financial plan is the quantification of these business plan elements. Assumptions for Your Revenue Streams (Cash Inflows) • Market information including overview of competitive offerings • Revenue unit targets and pricing by customer segment and channels Assumptions for Your Cost Structure (Cash Outflows) • Key resources and how they are compensated/used • Key activities and what they cost • Key partnerships, their compensation based on contribution and other costs to support partnerships 7
  8. 8. Profit & loss statement • Profit & loss statement reflects your business results over specific period either historically or prognostically, it can measure a month, a quarter, a year 3 scenarios: optimistic, pessimistic and base case• 3 scenarios: optimistic, pessimistic and base case • break-even and profitability • milestones (market share, growth, sales, EBITDA, valuation, etc.) • compare results with your plan Revenue • Actual business results (no interest etc.) • Pricing and cost assumptions for your product or servicel COSTS • variable - it changes with the level of output vs. fixed costs - paid even though we do not produce anything, they do not grow proportionally with the increase in production • Develop bottom-up forecast based on your expectations, costs are easier to forecast • Review benchmark targets for your industry (later years in your plan) What‘s in development costs? • Teams tend to be comfortable forecasting these costs • Typically - largest component is labor costs for the team • Costs of patenting/protecting trade secrets • Any licensing costs to use technologies from 3rd parties But selling expenses drive sales!!! • Labor costs for sales, marketing and customer service team members – some may be geographically remote • Commissions – how does your plan compare with industry to enable recruiting top resources? • Marketing Costs – Public Relations, Advertising, Trade Shows, Website, Lead Generation, Case Studies, Customer Documentation, Channel recruiting/support costs • Travel, Living and Entertainment • CAC < LTV What‘s in general & admin? • Labor costs for operations, customer support, finance, HR, IT and admin teams, including CEO • Billing costs – credit card fees (Paypal, Moneris) • Rent and related costs (telephone, internet, supplies…) associated with running the office and operation • Recruiting and other HR costs – may be significant as team is ramped up • Professional Fees including legal, audit, tax, insurance • Board/Investor Relations costs • Misc. Costs – bank charges, courier, postage EBITDA • Earnings before interest, taxes, depreciation and other amortization • Benchmark for exit values in M&A and performance of public companies • Sam Walton says - „There is only one boss and that´s your customer. He can fire you at any time simply by not buying from you.“!!
  9. 9. The balance sheet records the state of your assets, equity, and liabilities at a specific time, usually at the end of the yearusually at the end of the year Assets should equal equity and liabilities :-) The growth of assets = cash outflow The growth of equity / liabilities = cash inflow Important if seeking outside investment or loans – measures Key Assets/Liabilities
  10. 10. “Cash is king” in start-ups Your cash balance needs to be monitored frequently (daily or weekly) Understanding & managing cash flow is key to success You’ll need to forecast: • How much total funding your business will require over its life? • What is the logical timing and available sources for getting funding or revenue and what milestones will you have to achieve to ensure you get next required investment? • Based on the above, what is estimated round size and how much can you reasonably invest yourself or raise from your network of investors? Develop forecasts for time horizons that make sense, monthly/weekly in near-term for your own management tool For investors: monthly for first year, quarterly thereafter usually works TO DO • Separate your personal and company cash - put your money into equity or as a loan and pay every cent from company account • Monitor your cash flow on a daily basis • Make short term projections (weekly, monthly, etc.) for your internal need • Hire an accountant - and meet him/her monthly • Ask Credo guys for help ☺ • Report to your investors on monthly basis => cover the HockeyStick reporting
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  13. 13. Cognitive Security – an exampleCognitive Security – an example a provider of Network Behavior Analysis products and services. It uses advanced Artificial Intelligence techniques to complement current firewalls and Intrusion Detection/Prevention security systems and to protect its users against modern sophisticated network attacks. Quick pitch: experts in Network Behavior Analysis Location: Prague, Czech Republic Funding: EUR 1 million (4/2011) Exit: sold to Cisco Systems (2/2013) 20
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  15. 15. http://www.youtube.com/watch?v=48TR0vUPQCshttp://www.youtube.com/watch?v=48TR0vUPQCs 23
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