Question: What exactly are you going to do with the money?

When I was managing a firm in Milwaukee, as the Chief Operating Officer, I was approached by a small Venture Capital (VC) firm to attend a meeting to discuss their desire to fund another start-up. The VC wanted me to provide a COO’s opinion on the business model and operational planning.

The meeting started with 3 eager entrepreneurs, who were recent graduates from one of the local Universities. They had created a unique service that was focused on college students and they were enjoying the traction they were seeing in a few of the Midwest colleges they had approached.

I listened to their business model, taking notes, and asking probing questions focused on how they’ll handle growth, could they replicate their model into other markets, and understanding how they built their business framework.

Then came the fatal question. I asked, “How will you spend the $500,000 the VC invests?”

Their answer was to hire a Chief Technology Officer (CTO) and a Chief Marketing Officer (CMO). There was silence at the table. They were going to spend their entire investment on 2 top-level hires. There was no plan for what these new hires would accomplish before the 500k ran dry.

Failure: There was no plan for how they would increase capacity.

When someone is considering investing in your organization, the first thing on their mind is how they will get their investment back, plus a share of your profits. You’re not getting free money. Your investor wants to see a detailed plan that will increase your capacity to double, triple, quadruple your top line and that you have a plan for efficient operations that will carry profits down to the bottom-line.

There was no investment for that start-up that day, in fact, it took them 30 months before they received and accepted an investment offer.

#yourbusinessguru