Business Plan Series: Part 9 – Financials

As we come toward the close of our business plan series we reach probably the most important section of the plan next to the Executive Summary, the Financials section.

Despite the work you put into creating a stellar business plan most investors will read your executive summary first and then dive right into your financials. Their reasoning is to see how well you have thought out your business model, when you will reach profitability and with a proper exit will it provide the return on investment they are looking for.

So what are the core elements of the financials section?
The financial plan section of the business plan consists of three financial statements, the income statement, the cash flow projection and the balance sheet and a brief explanation/analysis of these three statements.

The way I have done most of these in the past is to build my financial model to detail the relevant expenses and revenue streams to automatically create these statements but also allow me to model the business and change things based on various assumptions.

When it comes to expenses think of your business expenses as broken into two categories; your start up expenses and your operating expenses. Startup expenses are all the costs of getting your business up and running go into the start up expenses category. Operating expenses are the costs of keeping your business running. Think of these as the things you’re going to have to pay each month. Your list of operating expenses may include salaries (yours and staff salaries), rent or mortage payments, telecommunications, utilities, promotion, loan payments and office supplies.

That is just a partial list of things to get you started. Your operating expenses are the costs of what it will take to keep your business running each month. This is also called your “burn rate”. If you take your startup costs and six months of operating costs that is the general rule in how much money you will need to get your business going long enough to get revenue coming in to get you cash flow positive.

Beyond the core financial statements
Many startups can take longer because they have development and staff costs that are high and have such an extensive burn rate that they need outside investment. This is why your projections and return on investment are so important for others to understand what they are getting themselves into. About.com sums it up nicely with what you will need:

  • A short-term projection of the first year, broken down by month
  • A three-year projection, broken down by year
  • A five-year projection. Don’t include this one in the business plan, since the further into the future you project, the harder it is to predict; however, have it available in case an investor asks for it.

Scenarios
Another thing you must consider in your financials is the case of scenarios. Scenarios are projections that show what the business would look like if certain things happened. Things like no customers for a while vs. a quick rush of new customers, rapid development costs vs. slower development costs.

You really only want to show two scenarios

Funding Requirements
For many of you going out and getting external funding will not only be required at some point it will be mandatory in order to meet the goals you have set out to achieve. From your financial model you should write in your summary and be able to show on your projections the following:

  • Funds required to start the business
  • Anticipated funding over the next two, three, and even five years
  • Use of funding
  • A timeline for funding

Good link love
Here are some excellent links on financials:
Michael’s Big Idea
SCORE Templates
About.com – Financial Projections

In our final section, Part 10 – Appendices, we will discuss all the stuff you would love to have put in your business plan that would add value but made it a 160 page plan instead of a 25 page plan. These documents are the things that will be critical as you move through the review and due diligence process with potential investors.

If you have thoughts on what you would have done with your financials and what advice you can share with others please leave it in the comments.

Blogging and Facilitating Conversation

A few weeks ago, I spoke on a panel at WordCamp Dallas where we discussed the concept of business and blogging. Three years ago, this would be breaking all precedents of marketing and PR, but slowly companies have figured out that the best way to cultivate a loyal customer base in the age of social media is via transparency.

Direct2Dell demonstrates a company that has figured out that conversation with customers is a valuable trust and brand builder. Sun Microsystems CEO Jonathon Schwarz successfully blogs in an ongoing conversation with Sun customers. Zappos Shoes is fanatical about their communication.

These are just a handful of corporate blogs that exist today. It’s increasingly difficult to find companies that do not have blogs and those companies would likely tell you that they don’t regret it one bit.

The old style of marketing and communications said that there were such things as “internal memos” where a company could say or do something internally and pretty much ignore what happened outside and chalk things up to being “internal”.

Realistically, though, the conversation about a company’s brand and reputation is going to happen anyway. Simply ignoring it doesn’t make it go away. Facilitating that conversation in such a way that builds trust and confidence in the brand is crucial.

Today, it is ever more impossible for companies to not be “out there” and be successful. Podcasting and video are great new media tools to put a human, approachbale face on a company. The next key , of course, is to actually be approachable.

PodCamp Rule #7 to be Instituted

There are 6 rules of Podcamp (There used to be 7, but former rule #4 dictating that PodCamps be free was revoked after PodCamp Boston 2). The rules governing the organization and execution of PodCamps are (as listed by co-founder Chris Penn):

  1. All attendees must be treated equally. Everyone is a rockstar.
  2. All content created must be released under a Creative Commons license.
  3. All attendees must be allowed to participate. (subject to limitations of physical space, of course)
  4. All sessions must obey the Law of 2 Feet – if you’re not getting what you want out of the session, you can and should walk out and do something else. It’s not like you have to get your money’s worth!
  5. The event must be new-media focused – blogging, podcasting, video on the net.
  6. The financials of a PodCamp must be fully disclosed in an open ledger, except for any donor/sponsor who wishes to remain anonymous.

My guess is that there will soon be a new rule #7 instituted after PodCamp NYC 2 this next weekend.

If you don’t understand this, just smile and nod. :)

PodCamp DC Review

Yesterday, I mentioned that PodCamp DC was happening and it was a successful event, in my books. The organizers worked their tails off to pull off the event, the sessions were great – I’m hearing wonderful feedback from the session hosted by Andy Carvin of NPR and Jim Long (NewMediaJim) from NBC.

PodCamp DC Signage - Technosailor Sponsors!

This is now my third Podcamp (and first one to sponsor). Let me frame my feedback around the pros and cons of the other two, before I explain my feedback surrounding the DC event.

PodCamp Philly

PodCamp Philly was an amazing success. It was the first event I went to and I think a large degree of success came from the venue. It was held at Drexel University and centered around hundreds of square feet of common area. The common area had a Starbucks (where a tab was graciously kept open for most of the day by Comcast), the wifi was working, and we were in walking distance of food and drink. In fact, on Saturday during that event, I spent a significant portion of the day spending time with Viddler and have maintained a great working relationship with them since that day in late September, 2007.

Vibrant Bar Colors

PodCamp Boston 2

As much as I love Chris Penn and Chris Brogan, PodCamp Boston represented epic FAIL in my books. I think both of them would largely agree with me, and little of it was their fault.

Epic FAIL might be a bit harsh. The people were great. But the venue sucked (Boston Convention Center). There was a restaurant in the hotel that was attached to the convention center and a Starbucks across the street. Outside of that, there was very few places to escape to throughout the day. The convention center was so big it was the anti-common meeting area. Too many people came from out of town, myself included. half of the 1300 registrants actually showed up. However, Rule 4 of the Podcamp Tome was revoked – now PodCamps do not have to be free. This was a lesson learned that is valuable and largely an excellent move.

PodCamp DC

PodCamp DC was a one day event. That was a bit bizarre for me, as the other two were two day events. That said, I think one day works. The venue was a horrible spot for a podcamp as there were no open common areas for people to meet, sponsors to setup booths, etc. Everything was spread across classrooms on three different floors which made for a very tiring day.

Geoff Shooting Film

Rosslyn, Virginia is nice, but is truly suburbia hell. PodCamp DC attendees were encouraged not to drive, and in fact, I would have done the same thing. Rosslyn metro access on the orange/blue lines made commuting a breeze. Later in the evening, the after party was held in a place that, while metro accessible, was really only so if you wanted to walk around a traditional suburban mall. Not the kind of place to have an after party when attendees were encouraged to not drive.

That said, it was a wonderful evening topped off by a visit from lifecaster/musician Jody Gnant (ustream), who I shared a special moment with over a shot of tequila. (Not that kind of special moment, mind out of the gutter!)

Added After: I loved the fact that PodCamp DC was largely supported by local people. It’s nice to have folks from out of town, but it’s super nice when our own people got involved, attended, spread the word and boosted the event. Go us.

Joel Mark Witt

I give Podcamp DC the following ratings:

1) Marketing/Message: 6/10
2) Venue: 3/10
3) Pre-party: 6/10
4) After-party: 7/10
5) Speakers: 8/10
6) Support from Rich Media Community: 6/10
7) Organizers: 8/10

Well done, Tammy, Joel and Ernie. Can’t wait for PodCamp DC 2.

Podcamp DC

Podcamp DC is this weekend and Technosailor is a sponsor. I’m a fan of the Podcamp movement, but I’m particularly a fan of them being locally based. Local sponsors, local organizers, local attendees, local issues, etc.

Last year, I drove up 95 to PodCamp Philly (I consider Philly to be relatively local since it is an easy drive away). It was one of the most well organized, community-driven events I had ever attended. I decided to make the jaunt to Boston a month later for PodCamp Boston 2, which in my opinion ended up really sucking.

While I love Chris Brogan and Chris Penn, I think they would agree that 1300+ registrants (only half showed up) was a little much for a “grassroots unconference”. The Boston Convention Center was too big, the meeting rooms were too spacious, etc.

Plus I just had a horrid weekend between travel difficulties and my Macbook dying. Not a good time.

Podcamp DC is here now and I’m excited. I’m excited by having an event here to energize the community. There are already fault lines developing in the business community and I get the sense that people are trying to figure out what the hell is the value of what this community is, especially if real business value has yet to be seen on large scale.

Podcamp is not specific to podcasting and video. It is the collecting point of internet media in a local scene. In fact, I’m venturing to guess that most of the attendees would not fall into the category of podcaster or videocaster, though we’ll certainly have those too.

So, I hope to see you down in DC tonight and tomorrow supporting the local media community!

Interview with the Entrepreneur: Ann Bernard of WhyGoSolo – Part 2

I recently had the opportunity to speak with Ann Bernard of WhyGoSolo, an innovative social networking startup here in the DC area. She has been working hard to create a platform that might change the way you look at events and various other things that you might have gone to by yourself and were looking for a buddy to join you in something that interested them as well.

In the first part of our interview we talked about what WhyGoSolo is, what makes it unique, its roadmap and revenue creation. Here is the second part of our interview:

1. How many employees do you have at WhyGoSolo now? Is it important that they all share your entrepreneurial spirit and drive? How do you find that in new hires and keep that entrepreneurial energy alive?

We have 4 “œemployees” working with on WhyGoSolo. None of them are getting paid in dollars so I would definitely say “œheck yea it’s important they have the entrepreneurial spirit and drive!!”. They are doing the work they’re doing and taking risks because they believe in the potential of WhyGoSolo and the team they are working with.
Yesterday, Doug our VP. of Sales/Biz Dev “œguy” (titles are still a little loose at the moment) made some calls for some research we’re doing in building our revenue model and he spoke to quite a few sales people. One woman he spoke to has offered to donate her time to help us ““ she wants to make some calls and sale WhyGoSolo for us.
I love that!! You know you have something exciting and fun when people want to donate their time to help out. Lets you know that when we get funded they want to be the first hires ““ the people who have stuck around and are joining us now are looking to be part of something that will soon explode. We let their guts decide. We also only talk to the best, smartest and most passionate. That keeps the entrepreneurial energy alive.

2. What are the most important elements for a successful startup company?

It starts with the Vision. You must have a Vision that you can build a strong business and team around. The Vision includes having a solid market, revenue streams, exponential growth potential and passion/excitement/love for what you’re building.
Next is the team ““ you bring the best and most passionate of each professions you need together and you give them the room and tools to shine.
I hate to say this, but I have to admit that proper funding is also an element of a successful startup. We’ve been bootstrapping for over a year and we have the Vision, a strong business concept and a growing team, but we’re extremely limited in what we can do because of resources (dollars)

3. You are self-funded which is poses a different set of challenges versus those who get money from the likes of Sequoia and Novak Biddle. Can you give us a bit of detail on your approach to managing cash flow while trying to grow?

Haha!! What cash flow? There is no cash flow. Everything is out of pocket and we’ve kept our expenses to the bare, bare minimum. I’m surprised we’ve spent money on business cards. Our biggest expense is hosting. Everything we’ve done has been through word of mouth, going out and talking about WhyGoSolo and leveraging the web.
WhyGoSolo exist because of sweat equity ““ mine and that of other people. If you don’t know what it’s like to work 14-16 hour days, 7 days a week for over a year and not make a penny for it ““ you don’t understand the meaning of sweat equity.

4. Is there room in the social networking space for more competitors? Have you seen any recently that seem interesting?

To be honest I haven’t been as diligent lately keeping an eye out. I see a lot of mobile, location based services coming out and I obviously think those are great concepts”¦anything that makes bringing people together easier and simpler. (We’ll be going mobile as well)

5. What approach to marketing plays a significant role in promoting and attracting customers to WhyGoSolo?

Like I mentioned, we’ve created a concept that provides a service and is saleable. Our sales pitch is probably best compared to what PR firms go out and do when they pitch a social media campaign. We pitch ours to event promoters and brick and mortar venues in the entertainment industry. Part of the pitch is a win-win-win partnership between them, WhyGoSolo and our members. We’ll all grow together and cross promote each other.
The more venues that build communities on WhyGoSolo and offer members discounts and value the more members we’ll get on WhyGoSolo.

6. If you want people to remember one thing when they think about WhyGoSolo, what is it?

Value added. This is the core of all successful businesses ““ we’re determined to add value to everyone we service on WhyGoSolo.

I wanted to take the time to thank Ann for doing this interview and everyone should make a visit to WhyGoSolo.com and sign up to see what a great site this is.

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I Told You So: Blockbuster Sued over Facebook Beacon

In December, I wrote a post stating that Companies using Facebook Beacon as a marketing tool would get sued and demonstrated the privacy policies in effect at a number of the Beacon partners. One of those is Blockbuster, which as noted in the December post, was so over the top with it’s privacy policy. It’s, in fact, criminal, in my opinion.

Techcrunch is now reporting that Blockbuster is in fact being sued by a Texas woman who under the premise of a 1988 federal law called the Video Privacy Protection Act (18 USC § 2710) which was enacted after Supreme Court nominee Robert Bork was b0rked when video rental history was released during his confirmation hearing. The law prevents video rental companies from disclosing personally identifiable data regarding a member and his/her rental history.

Sidenote: Can someone do a LEXIS/NEXIS search for me and find out if this law has ever been upheld by the SCOTUS?

This is pretty important. Admittedly, I have not done any significant research into how Beacon works with partners since late last year, but at the time, the data was shared by identifiable email addresses. How else do you associate a users partner activity with a Facebook account?

This flew in the face of their privacy policy which stated:

Blockbuster will not provide User or Member e-mail addresses to business partners, unless the User or Member has provided express permission to Blockbuster.

Regardless of whether a Facebook user has opted in or out of Beacon advertising within Facebook, express opt-in is required on the Blockbuster side. And at the time, and pertinent to this lawsuit, even with consent it is criminal for video rental companies to share this kind of data, per 18 USC § 2710.

Stick around Technosailor for more of what you need to know. ;-)

Update: Online Media Daily writes, “But the Beacon platform still allegedly transmits information about people’s activity from Blockbuster to Facebook, unless they have checked a box telling Blockbuster to never send such information.” Enough said.

Interview with the Entrepreneur: Ann Bernard of WhyGoSolo – Part 1

I recently had the opportunity to speak with Ann Bernard of WhyGoSolo, an innovative social networking startup here in the DC area. She has been working hard to create a platform that might change the way you look at events and various other things that you might have gone to by yourself and were looking for a buddy to join you in something that interested them as well.

The interview is in two parts and for Part 1 we discuss her background, what is WhyGoSolo and its business model and how this in this “everything for free” era WhyGoSolo will make tons of money.

So let’s get started….

1. Please provide us with a bit of your personal background in business and entrepreneurship. I was born into an entrepreneurial family ““ I was working in restaurants, arcades and on construction sites at a very young (and illegal) age and loved every second of it. Although I joined the Marine Corps, I always knew I would build my own empire someday. When I got out of the Marine Corps, I became a life and business coach and that gave me the opportunity to work with a lot of small business owners. I feel blessed because I was born business savvy ““ my clients always wanted to know how I knew what I knew and all I could say was “œIt just makes sense to me.”

2. Your current venture is WhyGoSolo – what’s your elevator pitch for it?

WhyGoSolo is the ideal online solution to quickly create one-on-one or small group connections for active participation in offline activities. The Social Media Platform For the Entertainment Industry: WhyGoSolo aims to serve as an all-in-one social media platform for event promoters and entertainment venues by providing the technology and the tools needed for online targeted promotion and community building.

3. There’s a ton of competition in the social networking space. What makes WhyGoSolo unique?

A few things:
First ““ WhyGoSolo is focused on making offline interaction take place. You don’t come to WhyGoSolo to hang out online ““ you come to WhyGoSolo to find what you’re looking for and than go out (offline) and be active. We bridge people’s online worlds to their offline worlds.
Second ““ We are building WhyGoSolo has a social platform that will act as a hub not as an end point. We’ll deliver the information our members want ““ where they want to receive it. We fill the gaps that exist on the bigger social networks.
Third ““ We are the New Media platform for the brick and mortar establishments and groups looking to create and take part in social media and building communities.

4. Since your business model seems really aligned with pushing the boundaries using Web 2.0 technologies. What is the general roadmap of your platform so readers get a sense of your vision.

Hmmm”¦not too sure how much I want to talk about this one I don’t want to jinx myself. What I can say is that at the end of the day it’s old business logic ““ provide a service that provides much added value and people, organizations and companies will pay for that service.
Everyone talks about free being the way of the web, but I don’t completely agree with that. I also don’t agree that you should build a product online and worry about the business model down the road.
So the actual answer to the question is that our general roadmap is to offer our members the most value possible and become a service they need and love. Be a service they turn to as part of a solution to either their problems or to enhance their lives.

5. Could you elaborate a little more on your approach to revenue creation?

We have three distinct revenue streams. We’re not sure as of yet which one will lead the way or how well once one is selected; we’ll be able to implement the other two. We’re raising money to finish development and hire a sales team. WhyGoSolo is a SALEABLE product and service and that will create revenue!!

That was a great Part 1 and in Part 2 we will continue our discussion of people, funding competition and what makes a startup company successful. See you next time.