Mentor Column

 

Opportunity Lost?

 

By Kent Thomas

 

You spent months, perhaps years, working on your business idea and countless hours refining and perfecting your business plan. You talked to everyone about this opportunity. You may have mortgaged your home, borrowed against your retirement plan and maxed out your credit cards, and your spouse is reaching the end of his or her patience with your idea. You now have a working prototype that you can demonstrate to potential investors and you're perfecting your PowerPoint presentation. You have the opportunity to spend 20 minutes with a group of investors (a VC firm, a group of angels or friends who have agreed to meet with you), now what?

I've seen this drama replayed many times during my years of mentoring and far too frequently, I see the same result — a lost opportunity because the entrepreneur or management team hasn't done their homework. They just aren't prepared.

Think about what you have invested and consider that your financial future may rely on the outcome of this presentation. Would you ever consider taking that kind of risk without proper research and preparation? Far too many entrepreneurs do just that. Why, you ask? Because they don't know what they don't know. My friend Chuck Coonradt, author of "The Game of Work" calls this "unconscious incompetence." Please allow me to share some of the more common mistakes that I've seen:

 

>>The financial forecast is incomplete and has little or no basis in real life. The entrepreneur likely hired his neighbor, who is a student at the local university or is employed as an accountant, but who does not understand the complexities of preparing projections that are supported with well explained assumptions, contain a forecasted balance sheet and cash flows, and that allow the entrepreneur or a potential investor to conduct "pro-forma" analyses of the forecast.

>>The entrepreneur does not understand his or her customer. Can you imagine spending the kind of time and money that I described at the beginning of this article and having never actually talked to a potential customer about your product or service? Neither can I, but I've actually seen that happen.

>>The team has no practical experience in the distribution channel that they have identified to reach their customer. They may have identified the right channel, but if they do not know how to execute on that strategy, the likelihood is that much of the money invested in their venture will be wasted with false starts and errors.

>>Arrogance. This is perhaps the saddest of all, but too many entrepreneurs believe they are the "final source" of all knowledge about their product or service and do not want to have anyone tell them what to do or that there may be a better way to market, sell or produce their product.

 

Before you risk it all, learn everything that you can about your industry — study existing business, accounting, marketing, distribution and production strategies and consider how you can incorporate or improve on them in your strategy. Build a team that has successful experience and knowledge in the areas that you are weakest and listen to them. Ask for advice and above all, listen and learn. You can reduce risk if you are smart and wise and you will engender confidence from investors if you have a thoughtful and thorough plan, but are willing to listen to and learn from their pointed questions and criticism. Good luck!

 

Kent L. Thomas is a licensed CPA and the founder of CFO Solutions He has been the Controller, CFO or CEO of a variety of companies from startup to over $60 million in annual revenues. Kent and his team at CFO Solutions have helped their clients raise over $300 million in equity and debt financing since its founding in 1996 and they currently advise more than 50 clients in the Utah market.

 

Launch - Mar/Apr 2007