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Does your business plan look so good that...
January 11, 2006

Does your business plan look so good that investors are little afraid of it? Figures don't lie, I know, but that's, only because they can't talk. As a matter of fact, they're just as truthful as the person who's behind them.

It's been my experience that there are two kinds of figures--educated and uneducated ones--and that the first are a good deal like the people who have had the advantage of a college education on the inside and the disadvantage of a society finish on the outside-they are apt to tell you only the smooth and the pleasant things. Of course, it's nice to be told that the shine of your shirt-front is blinding your best customers; but if there's a hole in the seat of your pants you ought to know that, too, because sooner or later you've got to turn your back to them.

Most investors will give you the benefit of the doubt that your plan is truthful; as long as they believe you are, but they will forever wonder if there is anything you don't say in it?

A good many entrepreneurs are truthful on the "installment plan"--that is, they tell their investors all the good things in sight about their business and then dribble out the bad ones like someone who's giving you a list of their debts. They'll boast that the business has increased twenty percent, and then own up in a whisper that their selling cost has increased thirty. In the end, that always creates a worse impression than if both sides of the story had been told at once or the bad had been told first. It's like buying a barrel of apples that's been stacked--after you've found that the deeper you go the meaner and wormier the fruit, you forget all about the layer of big, rosy, wax-finished ones that were on top.

Investors seldom worry about the side of a proposition that they can see; what they want to get a look at is the side that's out of sight. The bugs always snuggle down on the under side of the stone.

Just think about the so-called best years posted by companies like Enron or WorldCom. These were the same years when these companies reportedly awarded pay and incentive increases, and swelled up their numbers. It took the world a while, to wake up to what had happened, and years to get over feeling as if there was sand in their eyes when they compared the actual results to what had be reported. An optimist is as bad as a drunkard when he comes to figure up results in business--he sees double. Though it is true investors like optimists to get results, they use pessimists to figure out and analyze them.

Whoever said you can't make a silk purse out of a sow's ear obviously wasn't in the meat packing business. You can make the purse and you can fill it, too, from the same animal. What you can't do is to load up a business plan with moonshine or financial statements with wind, and get anything more substantial than a moonlight sail toward bankruptcy. The kittens of a wildcat are wildcats, and there's no use counting on them being angoras.

After investors go through your business plan, listen to the management presentation, and conduct their due diligence, they'll deduct a little more from your figures just for luck--bad luck. That's the only sort of luck investors can afford to include in their calculations.

To minimize deductions, learn to prepare a strong case for your business based on hard, factual evidenceā€¦the kind of evidence that earns confidence and trust.

Wishing you success,

Mike Elia


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