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INNOVATION
& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads | | FEBRUARY 24, 2003 ENTREPRENEUR'S BYLINE By David E. Gumpert Burn Your Business Plan! It may sound like heresy, but concentrating on the nuts and bolts of building a business will do you more good than wooing venture capital
My partner and I sent our plan around to venture capitalists and met with several to make presentations. No money came of this effort, and at several points during 1995, we contemplated giving up on the venture. But we had recruited a board of advisors with broad experience in growth-company strategy, finance, and marketing, and the members advised us to spend less time massaging our business plan and more time making sales. The financing will come later, they suggested. So we made a few sales, enough to stay afloat through 1996. In 1997, when we made a major change in our strategy and product offerings, and sales failed to grow as quickly as we expected, we decided to try the financing route again. This time, we figured, financing should be easier to obtain, since we were fairly well established. Once again, our advisory board told us not to bother. Professional investors don't want to back a company that actually needs money. They're like bankers in that they like to support companies that don't necessarily need the funds. Get out there and promote yourselves and make more sales, they advised us, in what was becoming a regular refrain. BANKING ON A PLAN. But we were stubborn. We dusted off our old business plan from a couple years back and spent many hours rewriting and updating the document. We went off seeking financing and, once again, it was thumbs down. Down certainly described our feeling, since it seemed that every new Internet-related venture in the world was obtaining financing. The numbers would suggest that, as the amount of venture capital -- a seemingly substantial $7.7 billion in 1995 -- had grown to $16.4 billion by 1997, according to the MoneyTree Survey, sponsored by PricewaterhouseCoopers, Venture Economics, and the National Venture Capital Assn. Our choice at this stage was stark: Find ways to grow the business without financing or fold up the tent. We took the first choice, and lo and behold, the business began to gain traction. We engaged public-relations professionals, and they succeeded in getting several of our most successful corporate clients written up in business and industry trade publications -- with mention of our agency as the key force behind these clients' online success. Those write-ups got the phones ringing with new prospects, several of which turned into clients that generated additional sales. Even as the business grew, though, we were vigilant about monitoring our expenses and aggressively collecting receivables. We got a kick out of the stories of venture-backed Internet startups purchasing fancy $1,200 conference room chairs. Our conference room chairs were mostly desk chairs we wheeled in from vacant workstations for meetings, and then wheeled back out when meetings ended. At one point, we partnered with another agency, with venture backing, which confided that many of its receivables were six months or more past due. Once again we had to chuckle, because we had become obsessive about phoning clients on day 31 if invoices weren't paid, and thereby maintaining a healthy cash flow. By 1999, we were operating profitably at $2 million annual revenues, with nearly 20 employees. The amount of venture capital being invested nationally had soared to an astounding $55.5 billion, but we paid little attention, as our interest in outside financing had dropped significantly. (Venture-capital availability would soar even further in 2000, to a peak of $85.5 billion.) RETHINKING THE STRATEGY. My point in recounting our financing experience is twofold. First, the venture-capital route is closed to the vast majority of businesses that seek it out -- even during good times. While it might have seemed back then that nearly every business that wanted it was receiving venture capital, the reality is that most entrepreneurs have the same experience my partner and I had: Their carefully crafted business plans are rejected out of hand by venture capitalists. Second, it's often amazing what you can accomplish without the financing you are convinced is essential to stave off failure.
 Entrepreneur's Byline comes to BusinessWeek Online readers courtesy of EntreWorld.org, a resource for entrepreneurs that is sponsored by the nonprofit Ewing Marion Kauffman Foundation. Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | FEBRUARY |
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