Ladies and Gentlemen, What's Your Business Model? Part #4

futurelab default header

by: Sigurd Rinde

More on ‘Extreme Business Modelling’ – following #1, #2 and #3 and Hugh’s here.

Investors, VCs – they’d really like a neat five year plan showing nice profits etc. so they can calculate a value today without too much hassle. Like what they do here.

And they’re in good company, the templates, the blueprints for how your Business Plan should look like are much the same everywhere.

But if you’re a start up: Those five year financial projections could just as well been written by the brothers Grimm.

And as you can imagine – ‘Extreme Business Modelling’ does not exactly correspond with their black-and-white template-and-blueprint driven ‘reality’ 🙂

My first spreadsheet was Visicalc, on an Apple II. Neat stuff in those days, and I used it to do pro-forma P&Ls, balance sheets, cash flows and sources & uses of funds for banks when seeking funding for projects. The banks were much impressed.

Then we used it as a rough budget. Did not take long before map and reality diverged – but nothing that a small adjustment of margin, market-share or other in the map (spreadsheet) couldn’t fix! Red numbers turning black in a jiffy.

Of course that led to no good. Dressing up the bride for the bank to extract funds was one thing, but using it to trick yourself was not so smart. You could end up with the wrong bride.

In conclusion:

"If you cannot make the case for real profit on the flip side of an envelope, without a calculator, then abandon the project!"

Start there. A quarter sheet of paper, all should go in there. Simplicity is beauty. Simplicity is always closer to the truth. Then see if the VC or investor gets it.

If yes, you have a potential partner – then make a proper five years from that – but be abundantly clear that it is only for illustrative purposes!

If no, be polite and say "thank you for your time" and move on 🙂