Step by Step ...

A team of entrepreneurs came to me with an idea on a power-point presentation. I found several areas of improvement, and gave them some suggestions to think over. As they were leaving I asked how much money they were looking to raise. The answer surprised me, they were looking for a whopping "4 million dollars"! This was not the first time that I had heard something like this. I decided to do something about it. So I sat the entrepreneurs down and shared my thoughts with them...

As exhilarating as the entrepreneurial journey may be, it is also quite agonizing if there is no sense of accomplishment. An entrepreneur may have a fantastic vision, a wonderful place to take the enterprise and create unprecedented economic wealth for all stakeholders. So, is the job not done until you get to the destination? Are you afraid to face your investors, your family and yourself until the job is done? Well, that is no fun.

As I described in my last blog "An entrepreneurial journey simplified" there are several stages or phases in getting to the end goal. When an enterprise goes to the next stage it completely transforms itself. A simple example is one where the enterprise goes from an idea stage to a prototype stage, from prototype stage to an pre-revenue stage, from pre-revenue stage to revenue stage, and so on... The point at which the enterprise transforms itself is an inflection point, a good place to energize a whole new set of resources including funding. Although the entrepreneur knows where he wants to take the enterprise, he has the greatest visibility and control over the immediate stage, and the definition of the next inflection point. Having defined the next inflection point he can work backwards to figure out what tasks need to be completed, how long those tasks will take, and what resources will be required.

The team that I was speaking to earlier that was in the idea stage, raising $4 million makes very little sense. To develop a prototype, as an example, would take about $200K - $500K. This will take 3 to 6 months. Once the inflection point is established, and the set of deliverable fleshed out, it forms the basis for discussions with investors. So in the process of raising the funds the expectations are set well, not only with the entrepreneurial team but also with the investors. Everybody knows how long it will take and how much funds would be consumed. With regular communications all the stakeholders are in sync. Hence when the prototype is done and the inflection point reached, it is time for a party! Why not? There is a sense of accomplishment, a sense of achievement that should be celebrated every so often in the long journey. Once the party is done, the next day the team is energized to take on the challenges of the next stage with the confidence that they were able to pull of a victory in the last stage.

A raise of $200K for a company in its early stage makes sense in terms of dilution as well, whereas a raise of $4 million would probably leave the entrepreneurs holding less than 10% of the company. In more ways than one, going step by step is a well established model for building enterprises. It provides clarity, predictability and direction for all involved.

Executive Mentors and Program Mentors at MentorSquare speak to the members at inception and on a regular basis to establish and refine the next set of goals that the enterprise should work toward. It is then clear to the Member and to the network of Mentors as to where the enterprise is headed so that relevant business advice and appropriate support is given by MentorSquare.