I recently heard Manny Villafana talk to the annual Wisconsin Entrepreneur's Conference (The Early Stage Symposium) about the essential characteristics of entrepreneurs.
(Manny is the founder of both Guidant and St. Jude Medical and now Kips Bay Partners, a new venture fund in Minneapolis.)
When asked what was essential in a successful entrepreneur and his venture plan, he said:
1. Honesty
2. Technical Knowledge
3. A cash flow plan
4. A marketing plan
5. Key personnel in place
This is a succinct summation of the plan elements everyone talks about. It seems simple but there is a lot of subtlety here. Honesty gets assessed by the impression the entrepreneur gives and his ability to answer difficult questions factually and quantitatively. It's bad to have to admit to not knowing something you ought to know; it's worse to try and sell a bullshit answer and get caught. It's especially bad if the catching takes time and the investor remembers you - unhappily.
It's interesting that Manny thinks the entrepreneur ought to have technical knowledge, rather than have it on his team. I suppose this doesn't mean that unless the entrepreneur is willing to be the CEO, the investor shouldn't be interested. And if the leader of the business isn't passionate in an informed and meaningfully high-content way, that probably is a red flag.
A cash flow plan addresses the key issues of "how much" for "how long" and reveals all of the assumptions made not only in the plan but also in the business. It provides a firm basis on which to have a lot of discussions around the essentials of starting.
But a marketing plan? Well, yes. Who will the customer be? Is it compelling? What will their acquisition cost be? How long before they will, on average, send you a check? A great series of questions! I saw a plan the other day that was not invest-able. The company wanted $1.5MM and planned to invest it all in a "marketing and advertising agency" and some salaries for employees. I wonder why we sweat blood and tears over the product and then think we can hand over the final "red zone" work to outsiders?
Key personnel in place. Yes. and No. I think this is risky. It asks the entrepreneur to correctly identify leaders for a startup who will take it to the next level -- even though the entrepreneur is probably ill equipped to do this and lacks experience in this critical area. When in doubt, identify the holes, and wait. Don't hire some consultant who has never run anything and wants his "shot" just because he seems to speak fluent finance.
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