Thursday, May 5, 2011

Primer for Starter Uppers

Vanessa Wilson
    Whether you are just starting a new venture or have been working on one  for some time, it’s important to go through some very basic exercises.  Recently, angel investor Vanessa Wilson, who teaches entrepreneurship for the Athena Program at Barnard College, shared some of those first steps, based on her experiences with new entrepreneurs.  Before becoming an  investor, Vanessa had a distinguished  Wall St. career at several blue chip firms; as an equity analyst she participated on teams  which led  15 initial public offerings; she was selected a member of Institution Investor’s All Star Research Team for 10 years. Currently, as an investor, mentor and  teacher, Vanessa observes that  all start ups face one overriding issue: accomplishing a lot with  scarce resources.  Below are her five  recommendations, which emerged from the interview on  how to get started on the right foot.

  • Organize a realistic  Personal Plan before you do a Business Plan.  Many  entrepreneurs start up with  great ideas, tons of enthusiasm,  but also with $50,000 of student loans and no plan for how to pay for food and rent!  Start-ups rarely reach cash flow break-even in the first 2 years --- particularly if they are big ideas which may grow quickly.  For an entrepreneur to make the 110% commitment required to get an idea up and running, they don’t have time to worry about how to pay their rent.  Don’t count on outside funding early on; even seed funds often require proof of concept.    
  • Create an organizational chart with four essential boxes: CEO, COO, CFO and CMO for Chief  Marketing or Medical Officer.  Even if you are alone and have to put yourself in the  boxes, it forces you to analyze the needs of the business as you move forward as well as to take a hard look  at  your strengths and weaknesses.  If you have two or three co-founders, an organization chart requires that  you  determine who  the key decision maker is.  Eventually you can in-source or outsource these positions, but be sure to cover those four critical areas with sufficient attention and expertise.
  • Surround yourselves with credible people early on.  If, like so many start ups, you begin with a round of investment from family and friends, remember they know you and therefore are confident in your ability to do what you promise. But no one else does, including  suppliers, clients  or  potential investors. They’ll all  look closely at the people around you.  Who are your other investors, advisors, and mentors?  And when you hire employees, it’s not worth hiring someone  because they don’t cost much if they don’t bring sufficient expertise and  project the professionalism or right image for your venture. It’s better to have part time help with good credentials whose presence will validate your plan, than fulltime help who may not add sufficient value.
  •   Forecast your cash flow for at least 12-14 months, and then  for three years once you get going. So many companies get caught up in the development and marketing of the product that they ignore their current cash position.  Six months of cash to fund your business provides many more options than 6 weeks do. Figure out what milestones you can achieve with the cash you have and allow  time to raise funds—often  much longer than you anticipate.  Founders must determine  how much they will need for  day-to-day operating expenses,  including  rent, salaries, and consultants; capital investment in machinery and office equipment; software programs or development costs;  growth capital for sales and  marketing At the bottom of your cash flow chart, put the amount of cash you have available in  your bank account as a constant reminder of your current finances. 
  • Make accurate, not wishful,  projections of your  sales cycle and allow yourself enough time to execute your plan.  From the day you cold call a client to the time you deposit their check in your bank account will always be much longer than you anticipate.   Most start ups fail NOT because the idea wasn’t good enough, but because the founder runs out of cash earlier than expected. Remember too that in n this economy, clients are slower to pay than ever
           The next  Primer for Starter Uppers deflates some common myths about the “great ideas.”


  1. Thanks for sharing this. These points are so practical, perhaps even obvious, and yet many entrepreneurs fail to do the basic. The 2 points I would underline are 1) beware of undercapitalization and 2) anticipate that the sales cycle will be longer than projected. To the list, I would also add: Have a very clear vision of one's goals for the business at the outset. In my experience, that vision of the future is the key to identifying the strategy, the organizational controls and the workforce / skills one needs to get there.

  2. Surround Yourselves with Credible People:

    This point is very important! Every young entrepreneur should have a mentor. If not a mentor an established advisory board to help steer you in the right direction helping avoid early mistakes. Also, protect equity but don't be afraid to set some aside for the right people. Start-up's are high risk with high reward potential, the right people on the bus is what matters! Lastly, sales projections and market share assumptions mean crap! Invest in processes and technology that can be replicated and result producing.