Measuring how Start-ups succeed or fail early
Why do entrepreneurial start-up business fail and what to do about it. I hear a lot of people talking about the start-up business failures and not about the start-up business successes. The big reason many new businesses fail is because know one is really measuring the start-up business after it has received the initial funding. Measuring a start-up businesses early progress is a very simple, yet no one is doing it. You see, a business is like anything else you start, you're going to make a few mistakes and you need to learn from those mistakes. Whenever we do business plans for a start-up businesses, we always factor in a feature we like to call...MAM. MAM is designed to help any business succeed, it works like this. We compare all new start-up businesses to the overall industry and see how other similar businesses are selling their products or services in the market. Once we determine the average sells price for a product or service in an industry, we measure it against the local market price where the new business will be located or selling its product or services. Now that we have a fairly good idea of a market price or a more realistic price for the new business products and/or services, we can now determined what the business will do when it comes to generating its own revenue. When an entrepreneur builds a business plan, they never factor into the financial plan all the possibilities, or the what if scenario, because they really don't know their own market that well and for that matter neither does the banker or the investor. If an entrepreneur said he can sell a sandwich for $1.00 less than subway and his/her business is not a subway, you should ask them how can you do that? If he/she can show you on paper how they were able to accomplish it... sell their sandwich for less and still make a profit, they need to explain every detail to you, so you as an investor or lender can really understand it. Showing you some good looking financial numbers on piece of paper is OK, however, they still need to be able to justify them. Now, my simple idea is this. The start-up business owner or entrepreneur is going to have 30 days to show you he can generate those financial projections he presented he presented to you in his business plan. You as the investor or the bank will need to see how close he/she came to those financial projections at the end of the month. You can't take a monthly payment from a failing business and not take a look at those number again...that's irresponsible on your part as an investor. If he reaches the goal in the first month GREAT! However, on the other hand, if he/she misses the mark, they will need to revise their numbers again and come back an see you the next month to see how they did. Until the new business owner can show you he can consistently make those number's and he projected in the plan and then revised again, you'll need to be looking over their shoulders every month or every week if needed. Your money is at stake and this business has not done anything they said they could do in their business plan. This is the missing element in the equation, and why so many start-up businesses fail today. An investor or lender is only interested in looking at their business plan and the management team past successes. A group of talented entrepreneurs getting ready to start-up a new business venture, is still a START-UP!
Most start-ups fail because the investors and/or the lenders won't bring them in each month and go over their financial reports and goals they promised you. Doing this is really....STOOP-ID.
If you sit down with the start-up business each month you can almost guarantee their success by doing this simple little exercise each month or each week for the first few months of start-up and then do it again every 2 or 3 months after that, if they achieve some milestones. Finally, investors and lenders need to look at the management and the business plan more subjectively and not how well it's prepared by the entrepreneurs. Management is a good generic place to start for a new business because it tells you who the team is and how smart they were in the past, however, it is not a good indication of how well they will do in the future with a new business venture and your money. If you want to see start-up business succeed, you have to follow their progress for months very closely and make changes as needed. If the start up is not reaching any of their goals or revised goals in the first few months of start-up or after revising their plan for 2 or 3 times...the only smart solution in the final analysis, is to cut your losses sell their business and give someone one else a chance to succeed and recoup your losses for you. If investors and lenders would use these simple principals for start-ups, the success rations will go up another 30-45 percent. A start-up business needs to understand that a business plan is a ma and it needs to predict how the business will perform or the entrepreneur does not know his business or his market. Just a thought.