Platt Perspective on Business and Technology

Planning for and building the right business model 101 – 28: goals and benchmarks and effective development and communication of them 8

Posted in startups, strategy and planning by Timothy Platt on April 16, 2017

This is my 28th posting to a series that addresses the issues of planning for and developing the right business model, and both for initial small business needs and for scalability and capacity to evolve from there (see Business Strategy and Operations – 3 and its Page 4 continuation, postings 499 and loosely following for Parts 1-27.) I also include this series in my Startups and Early Stage Businesses directory and its Page 2 continuation.

In Part 27 of this, I focused on planning and building a new business venture from its initial planning stages outward, from the perspective of the initiating founder and the founding team as they assemble such a group around this endeavor. And I did so in terms of what amounts to a checklist of steps and considerations that I further adjust as to wording here, as follows:

1. Start with as clear as possible a statement, of what the new business’ founder and their founding team seek to develop as a business. Couch this in general goals-oriented, mission and vision terms for what this venture would offer to its markets, and for what would competitively set it apart there.
2. Then reality check that characterization of intended overall goals, against an equally clearly stated inventory listing of the resources and assets that that founder and their team can bring to this effort, and starting with what these people personally bring to the table as far as skills and experience are concerned that would support and enable this venture, as well as any financial or other resources that they can commit and devote to it. And to complete this list, include any negatives as well (e.g. anything like non-compete agreements with previous employers, as that would impact upon one or more members of this group actually being able to perform in this new venture as intended and desired.)
3. And now bring this all into more specifically actionable terms with at least the initial planning, outline details of their business plan thinking, that would help them leverage their Point 2 resources in developing a venture towards achieving their Point 1 goals. The goal in this step is to build a foundation for iteratively, step by step fleshing out the business plan that is to be followed here, with a consistent, orderly, mission and vision statement-oriented focus,
4. And to identify where possible, any places where Plan B refinement or initial-idea replacement updates might more predictively be called for, to make this new venture as secure in its succeeding as possible; plan for flexibility and resiliency here. That means being ready to step back and make changes and corrections as needed, and with a goal of making the business plan followed, a dynamic adaptable game plan for moving forward.
5. And this (ongoing) effort enters into completing a full business plan that all involved stakeholders can comfortably sign off on. And it also enters into early development stage planning and strategic reviews as both the expected and as the unexpected arise and have to be dealt with and resolved too.

This only represents a bare bones outline to the start of what would in practice become a much more complex, and I add individualized agenda, with that individualization based on a detailed understanding of the business itself and its particular mission and vision, and of the people building it, its intended markets, and any other internal and outside contextual factors that might realistically be expected to hold importance there. And this list of issues and considerations and a more individualized and fleshed out variation of it, complete with a more fully developed business plan, constitutes the basic road map resource that would best be pursued over a significantly more long-term timeline than would usually be included in any initial new business, startup framework per se.

I offer the above approach as a de facto starting point for adding due diligence into business and its planning and execution. And I would contend that the basic issues and approaches that I offer there do make practical sense, and they in fact do at least as measured against my own experience when working with entrepreneurs and their startups and early stage businesses. But this discussion up to here still primarily only addresses one side to a still-larger story: the insider perspective, and with outside considerations added in more as pro forma side notes. My goal in this posting is to expand upon that narrative to include an at least somewhat more detailed initial consideration of one of the categorical level outside forces that can also enter into and shape this process.

I stated at the end of Part 27 that I would turn here to consider outside stakeholders such as angel or venture capital investors as they might become involved here, and in ways that mean their holding an equity stake in a new business venture. My goal here is to at least briefly explore how differences in overall goals and priorities that would drive business development, can and do play out in building a new business, and how those differences can arise in this insider plus outsider context and in general. That, among other details means really thinking through and understanding where outside guiding and shaping forces and sources of influence come from. And with that in mind I point out that:

• A founder and their team cannot plan for or effectively develop a new venture in ways that effectively, proactively response to factors that they have not explicitly identified and considered.
• They can only address the unexpected and un-prepared for reactively and after the fact, and even when retrospect would indicate that they should have seen at least some of those at-least potentially impactful “unexpected” circumstances coming. And that type of business-as-reaction and business-as-remediation as needed, is not planning.

I have written a number of times in this blog about venture capitalists and in this general context. And add that I have come to know a number of people active in this field as venture capitalists, and entrepreneurs who have turned to them for support. So I will share some thoughts concerning their type of outside participation in the issues that I raise here, in the course of what follows. But I also want to shed some light on how angel investors can significantly influence and shape a new business venture here too, and even with their lower levels of investment and thus ownership share, and even when they take a much less hands-on approach to the building and day-to-day running of a new business that they would invest in. I begin with the venture capitalists and with their larger and even vastly larger capital investments in the businesses that they agree to work with.

• Venture capitalists, as just noted, make major investments in the businesses that they invest in, and at levels that often extend upwards into the millions of dollars now. And they seek out ventures that they would work with in this, with a great deal of care in order to minimize their risk of loss of invested funds, and in order to increase their likely profitable return on investments. If they gamble, and investing in new business ventures always has at least a gambling element in it, they do so with care so as to control the odds in their favor from their selection of where to place these bets and how.
• And on the how side of that, they often seek to actively improve their odds by working with the founders and founding teams that they invest in, as mentors and even as active participants. It is not unusual, for example for a venture capitalist or venture capital firm to agree to offer investment funds to a later stage start-up or early stage business – but only if the owners of that business agree to bring in a Chief Financial Officer of their choosing, who they have vetted for their expertise and experience in shepherding new business ventures of their industry, through their early stages. This possibility in fact offers real value to all concerned.
• It is least as common and probably more so for venture capital supporters to want and even insist upon having one or even two of their representatives on the board of directors of the businesses that they invest in, to offer guidance and support through that channel too, as well as for giving them a say in how their investments are used. And this can offer real value to all concerned too, and particularly where these added-in board members offer real depth and breadth of specifically relevant experience – as they usually do.
• The issue that I would focus in on here, and certainly in this context when considering these outside investors, is that of possible conflicts of interest and particularly when the founder and leading team members of a new business venture seek to map out their new enterprise in accordance with a process flow of the type I just outlined above in my five point list.
• Outside, venture capital sourced board members come in very explicitly as representing the interests of the investors who they work for, and even if this is specifically couched in terms of helping to increase the likelihood of success for the new business itself. But when a business takes on – brings in a C level officer such as a Chief Financial Officer, and as a full time member of their team – not just short-term as an interim hire, they are bringing in someone who should be a true insider there.
• A business’ Chief Financial Officer is supposed to hold to and honor a genuine fiduciary responsibility towards the business they work for and in all of their dealings there and should carry out that responsibility as a true member of the team that owns and runs the business. What happens if and when the owner and leading managers and executives of a new business come into conflict with the venture capital investors who have bankrolled them and who now hold an ownership stake in the business and perhaps even a significant one? Who should the CFO support in this situation when they are part of the business and its leadership but when they were selected by and for outside investors? A best answer to that might or might not be easy to discern, and the issues and priorities that arise there might not be clear cut, and particularly where differences in proposed paths forward for the business stem at least in part from differences in understanding as to the likelihood and nature of perceived risk and benefit faced.
• I have seen disagreements of this type develop and this is where possible divisions of loyalty will become problematical if they ever do – and with officers such as that CFO potentially caught in the middle. Owners and their founding teams do not always know best and neither do the venture capitalists who support them – and particularly where these groups of necessity focus on differing timelines to success in how a business is built and developed.
• Owners and their founding teams at least should be focusing essentially entirely on the long-term and on building to last and with as much of the revenue coming in, going into the business itself as is possible to ensure that happening, and certainly when they are just beginning to bring in revenue. Prudent and certainly conservative entrepreneurs tend to be willing to wait before seeking their own profits from these ventures, to ensure that their new businesses survive and thrive – and become steady reliable sources of profitable value to come and for all stakeholders.
• Venture capitalists want to see the businesses that they invest in to succeed too. But they also follow a business model of investing that is built around their capturing large returns on investments made, and as quickly as might be realistically possible and both to cover any loses from other investment ventures that they enter into that do not work out for them, and to bring in liquid profits for themselves – much of which they would reinvest in next-cycle business investment ventures.
• This timing difference in and of itself can reframe how these two differing if collaborating groups would view the actual carrying out of the type of five point to-do list that I offered at the top of this posting.
• And I leave off discussion of venture capitalists as outside participants – and as forces of shaping influence in this with that point, and turn to consider angel investors.

I have probably cited and made note of angel investors at least as often as I have venture capitalists and their business models in this blog. But I have devoted a great deal more of my overall discussion in this blog to the venture capitalists, and for a simple reason. They actively seek to influence operational and strategic planning and follow-through, and in ways and to degrees that angel investors per se would never even consider. And I do spend a fair amount of my time in writing here, focusing on operations and strategy.

Angel investors tend to make significant smaller investments in new ventures than do venture capitalists. And they tend to focus their investment efforts on supporting new business founders who present them with missions and visions that they find compelling, as a driving impetus for their becoming involved with them. A great deal of angel investment activity ends up being directed towards new ventures that hold forth mission and vision statements that smaller but still significant investors would see as being societally important in some way. Angel investors are more mission and vision driven than they are operations and strategy driven.

I tend to write about outside investors for their impact on operational and strategic considerations, and those considerations are tremendously important in any business and of any type and at any stage or state in its development. But even the most day-to-day and strategic planning, hands-off angel investor can still come to have a large and even a tremendously significant impact upon a business, and from the earliest, first step of the type of business development model I raised in my above five point list. Their participation and their vision and understanding can come to shape and even fundamentally bring into focus the underlying mission and vision of the new business as whole – shaping the starting point of that list, that all else would be built from. This certainly holds when a prospective angel investor has themselves, a compelling story to share that would enter into and inform that mission and vision, and one from their own experience or from that of their family. And that certainly holds when an already aware business founder and owner finds themselves facing a voice of parallel experiences and perspectives, that could resonate with their own thinking and expand on their vision or give new focus to it. Venture capitalists and other larger scale investors tend to focus on Points 2 and following as touched upon in my above-stated list, and on the issues and tasks that enter into them. Angel investors can in effect help to set the entire playing field for all of this by influencing and even helping to form the initiating Point 1 step that all subsequent effort stems from.

I stated at the top of this posting that I would discuss in-house and insider, and outside forces and factors in general in this narrative, and I will expand out my list of what I would address of that in a next series installment. In anticipation of what is to come there, I will begin that posting by rounding out the financial influence portion of this discussion that I began delving into here, by raising the issue of crowd sourced funding as a third outside funding alternative. And with that added as a third area of financial and funding impact, I will move on to more fully consider how outside factors per se enter into business planning and development; I will at least briefly consider other non-financial outside factors that commonly arise as holding importance for new businesses. And I will at least briefly outline a few of the key details as to what this range of perhaps seemingly disparate outside forces and factors, in fact all hold in common in a new business context. And to pick up on a detail that will prove important there, I explicitly note here that the only way to really understand what has impact in this is by:

• Explicitly understanding where and how these factors directly and specifically influence and shape that business’s capacity to create value. That is where these factors impact upon and influence and even shape the business at its most fundamental level, and outward from there. I will discuss this too.

You can find this and related postings and series at Business Strategy and Operations – 4, and also at Page 1, Page 2 and Page 3 of that directory. And you can find this and related material at my Startups and Early Stage Businesses directory too and at its Page 2 continuation.

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