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Financial Plan Guidelines
After expending some time, cash, and brain cells, I have a guideline for financial plans:
Work it out from top to bottom
- With any new idea, plan the financial plan first
- Quantify in dollars the problem that your new idea solves
- Look at cost of alternatives to solve the problem
- Goods costs
- What is your operating costs?
- Set a selling price
- Find the number of immediate customers (with most pain) in the first THREE months
- What is the cost of customer acquisition? (related to creating awareness and attracting traffic to your business)
- Cost of sales? (different from customer acquisition and due to closing a deal)
- What is the revenue in the first THREE months?
- Is it a recurring sale?
- Find the cost of retaining a customer
- Cost of growth for percentage of growth
- How the cost of customer acquisition/retention changes with your growth?
- Net profit and gross margin (minimum 50% for technology companies)
You should be able to infer from the financial plan
- How much investment is needed?
- When is the break even point?
- How much more for a faster growth? In how long?
- Is cost of sales decreasing?
- Is cost of customer acquisition decreasing?
- Is gross margin increasing?
Giving UP?
Reminders
- Business is about winning
- You have hardcore smart competitors
- Opportunities are very scarce and far apart; there is no second chance!
- Keep it simple, stupid!
- Always be closing
- Constantly work on your presentation/business plan
- Listen to your customers
- Cash flow speaks the truth about your business
Brainstorming
Tom Kelley’s “The Ten Faces of Innovation”
- Go for quantity; throw in 100 ideas, and pick best 5
- Encourage wild idea and expect the unexpected
- Be visual; write on a draft paper and find new relationships, just as in drawing
- Defer judgments; hear all the 100 ideas and then criticize
- One conversation at a time
Secrets of Success in 8 Words, 3 Minutes!
Start-ups vs. Established Businesses
(Established) Businesses are all about 3 fundamental things:
- Production (be it building hardware, software or whatever),
- Operations (i.e. administration, human resources, management) and
- Marketing and Sales
Money is made in ONLY step 3 (Marketing and Sales). Operations is ONLY about moving (effectively and efficiently) from Stage 1 (production) to Stage 3 (Marketing and sales).
Start-ups are also quite similar but different in ONE key aspect from established businesses:
- Production,
- Operations, and
- Learning & Discovery (of customers & market)
The customers are unknown in start-ups and as Steve Blank in “The Four Steps to the Epiphany” asserts the emphasis for start-ups in early phases MUST be on Learning & Discovery (of your market, your customers, what problems they TRULY value and so on).
Only after a start-up has truly figured this one out, does it transit to Marketing and Sales.
Hazem Awad
Competitiveness
Question: how to keep competitiveness besides a core patentable technology?
- Management team (I keep coming back to this one)
- Access to big customers
- Access to certain distribution channels
- Corporate culture and company’s vision are most difficult to replicate