Tag Archives: startup

Entrepreneur Blog – Getting Funding

Chirag Shah Family Photo Sept 2013 Edited
SMF Chirag Shah, a successful serial entrepreneur

In my previous blog I discussed the importance of ‘knowing your numbers’ – the key business metric of knowing how much you need to sell of something and at what price to NOT LOSE money. Of course in reality you wish to make money (lots of it hopefully) and this almost always results in the need to spend money upfront in order to make more money afterwards. For this, you need a business plan.

There are so many How To Guides on writing a business plan that I won’t go into the details here. Rather, I will focus this post on a few tips to assist you when preparing your business plan.

Do it Yourself
As entrepreneurs we are itching to dive into the lab and perfect our mousetrap, or get out on the street and talk to customers. But you need to have a deep understanding of what all the costs are and how much money you will need – not just now – but for the foreseeable future to ensure your business can prosper. There’s plenty of ‘advisors’ out there who will prepare a business plan for you, but you really must avoid this. However painful it might be for you to sit in front of a PC, if you don’t understand what went into your plan then you don’t really understand how you are going to make money from your business.

Understand the Dependencies
Most folks tend to lean on Microsoft Excel for the production of their business plan. And I have no issue with that but there is an issue with Excel that one has to watch out for or be an extremely sophisticated XL wizard. When you put all your costs and all your revenues into your model be careful to link them as much as you can. For example, you may have assumed that you will acquire four customers from each Marketing Conference that you sponsor.

If you then find that you are only acquiring two customers you need to rethink your approach to Marketing Conferences and change the business plan accordingly. Most people get that. But did you also modify all your costs to reflect the slowdown in customer acquisition? Maybe you assigned some part of executing the plan to a colleague who is innocently plodding along acquiring all these staff/supplies/premises as per the requirements in the business plan. Sounds trivial? Believe me, you will never stop having to adjust and re-adjust your plan and the successful entrepreneur is the one that a) intuitively understands the inter-dependencies and b) has the strength to swallow their pride and modify the plan in the face of adversity.

Shah’s Law
This brings me to the final point in this blog – which I have coined Shah’s Law – because I’m not aware of anyone else coming up with a similar heuristic before.  So you are proudly looking at your shiny new business plan with all your costs and revenues and it all adds up neatly and shows lovely profits at some point in the future, right? At this point you need to apply Shah’s Law which states: “Your sales forecast is over-optimistic by a factor of 4 divided by the number of start-ups in your experience including this one”.

For example, if this is your first venture, and you estimate you will be selling 2000 units a month by the end of six months, then Shah’s Law predicts that you will be selling that number by the end of 24 months. But if this is your second venture then you’ll probably be hitting that number by month 12 and if you are on your fourth business – happy days – you are probably staring at a business plan that is actually quite accurate!

Why Shah’s Law? Well, two factors feed into this; firstly sales forecasting is a delicate skill that can only be honed through experience (school of hard knocks) and secondly, as you conduct more ventures your business credentials – reputation, risk, contact network – all improve which in turn contributes to reducing the sales cycle in subsequent ventures.

So, go back and take a knife to that hockey stick forecast, but don’t despair, if you’ve got your inter-dependencies connected then your costs will go down too!

The cash shortfall in your business plan is then the amount of money that you need to get your business funded. We’ll look at how to fund this in the next blog instalment.

Entrepreneurship – My Experience of Getting Started

Jonathan Selbie
SMF Jonathan Selbie is a Director of Swarm Systems which develops unmanned aerial systems (UAS) and autonomous systems technology for the Aerospace and Defence Industry. Jonathan’s early career was in motorsport, working in the Research and Development Departments of two Formula One team, leading development projects from concept through to end use at races. After his MBA, Jonathan helped build Swarm Systems from scratch into an established supplier to the UK Government. He has developed relationships and carried out successful collaborations with key suppliers, partners and academic institutions in the UK, Singapore and China. More recently, Jonathan is leading Swarm System’s projects to develop nano-UAS technology.

In the final year of my undergraduate Engineering studies, as part of an entrepreneurship module, I attended a lecture given by two recent engineering graduates. They had started a company after university and were now running a three year old, multi-million pound business. The stories they told of starting the company in desperate surroundings sounded almost romantic. Their do-or-die attitude allowed them to survive the early days – but only by the skin of their teeth; they relied on paying their first employees with sandwiches and finding their first customer only thanks to a serendipitous misunderstanding.

The tale of their struggles, from a worthless, bedroom-based entity to a company with plans for international expansion, filled me with excitement. Even more exciting was their plan to sell the business only four years after graduating. In talking about the sale, the numbers they bandied around suggested they could not have retired – but a first (and probably a second) home wasn’t out of the question.

As I left the lecture hall, my mind was filled with possibilities. The notion that one could earn a living, and more, by pursuing one’s own dream held some ideals and inspired me. So I decided I was going to do it. Job offers would be ignored (they weren’t that interesting anyway), caution would be hurled to the wind and I would go and work for myself. 12 years later, I finally got started.

I have often wondered why it took me so long.

The problem is that getting started is not romantic. It involves hard work and uncertainty.   When you get started working for yourself, there is no structure or framework to guide you. There is no boss to check you are on time or that your work is on target; and nobody senior to whom you can defer when things go awry. Instead, you must develop the discipline and skill to do these sorts of things for yourself. This requires commitment and sacrifice and is a marked transition from what I had been used to at school or in previous employment. Getting started also tends to be all-encompassing.  Success is often only achieved through delayed gratification; putting off holidays and buying a home or even having a family later on.

This is hard; I found it much easier to convince myself that the reason I hadn’t got started yet was because of funding problems or the idea wasn’t quite right (or even very good).  I was often able to build up the enthusiasm about a particular new piece of technology or business model – only to find that enthusiasm dampened a few weeks or months later thanks to some further analysis and a natural inclination to be sceptical (I am an engineer after all!).

I suppose the point is that getting started is, ultimately, a leap of faith that requires courage and confidence to undertake.  The popular media suggests starting a company is glamorous, highlighting personalities like Larry PageMark Zuckerberg and those guys who sold Instagram for a billion. But the reality of giving up the structure and relative normality of employment can be quite unglamorous.

In my case, there were two key elements to helping me take the plunge and get started launching a new venture.  The first was confidence. This was thanks in no small part to my studies for an MBA whilst at INSEAD in France. Not necessarily for the technical skills but for the opportunity to immerse myself in an entrepreneurial community. To understand on a very practical level the steps that could be taken to get started. Developing plans and ideas in this environment felt natural; help was never far away if I had problems.  As much as anything, it showed me that getting started was not rocket science.  The idea did not have to be perfect. Raising capital was possible. It was extremely reassuring to see how it was done first hand.

The second element was realising the necessity of working on a venture in a team.  Whilst operating alone enables complete autonomy, in my experience exchanging this for the opportunity to share and discuss issues and problems is a trade well worth making.  Since getting started myself, I am always amazed at how often problems that seem insurmountable can be chewed on, processed and solved by discussing with a partner or team of like-minded passionate individuals. And, for me, winning as part of a team has always been better than winning alone.

Getting started and being successful in a new venture requires confidence and tenacity as well as good fortune and stamina.  For me, it has been both stimulating and exciting. There have been setbacks and it has been important to remember to stay optimistic no matter what has gone wrong. However, I have learnt a great deal and been exposed to wild and varied situations which have been fascinating and will, I feel, be invaluable in my career going forward.

I believe the venture in which I am involved will be successful. But if it is not, I doubt I will regret much. For in the end, it is the exposure to those wild situations and the experience of those setbacks that creates the romance and glamour of getting started – and this is really what I was after in the first place.