Every business needs cash from someplace.
At RTMS it was from customer revenue. We had $500,000 in annual sales on the day we opened the door in 1989. We built the business from there and never had professional investors until ten years later.
We never had to take the "Investor Test," jumping through the hoops of plans and projections, diligent market intelligence, close examinations of our team, and the like. The closest we came was a personally guaranteed loan from a friendly banker for $75,000. He asked to see "an outline of the business."
I did that with six slides. (Meaning little pieces of film mounted in a paper frame.)
We grew tenfold in a couple of years and were one of the players in the early CRM business.
By the mid 1990s we were golden.
I'm teaching undergraduates at Marquette University in a class called "Entrepreneurship for non-business majors" for the first time this year. And I love it. They are bright, eager, engaged and interested.
But they do ask, constantly, "will this be on the test?" Somehow they are trying to manage their time and try to remember only those "things" that they will be responsible for.
I think the Investor Test is the same thing. I assumed in 1989 that since I didn't have to take "the test" since I didn't need any money from investors, I didn't need to study for it or know the answers - or even the questions.
In the words of Beethoven, dumb de dumb dumb.
We were unprepared for the discipline of rapid growth. For the complexities of managing a team for success. The only thing we were really great at was hiring real stars and keeping the target squarely on making money for our customers.
That was enough for a long time. Eventually quasi-competition overtook us in the heyday of the late 90s. We were competing with companies preaching change and talking a good game but delivering...nothing. A couple went public, and crashed. One CEO had to return his secondary offering cash - in its entirety - or face the SEC.
While we were smart enough to avoid such lunacy, and stay focused on our customer, I think that if we had taken the investor test in 1989 we would have been a different company - and a better one.
We would have failed, no doubt - and again, and again until we got it right (no failures in life just tests that get repeated until you pass). But the learning would more than have made up for the work, a thousand times.
BTW the company today is doing great and the exit was fine.
But it could've been "start a foundation great" exit rather than just fine - if we had passed the test.
Not every tester knows what they're doing, of course. Some ask dumb questions; others ask good questions but have the wrong answers. But there are those who really do know what to ask, and what the right answers are.
A good deal of this process is well documented. Bill Sahlman at HBS wrote a great article in HBR ten years ago, "How To Write a Great Business Plan," that is right on. Critical thinking skills, working from hypotheses rather than assumptions, focusing on the workings of the business model rather than the projections, these are all components of "the test."
Even if you are without need for investment, take the test. See what you learn.