When you create (or update) your business plan, whether for sharing with venture capitalists or for internal use, you need to plan three to five moves ahead, just as you would in a chess game. Investors want to see that you have anticipated future challenges and that you are preparing for them.
Companies that don’t think things through often run out of cash or reach insurmountable roadblocks that could have been avoided. Following are the most important areas to focus on.
Key future hires
You can think about hiring key employees years before you actually need them. Thinking about human resources in advance is an important piece of planning. True, in your first year as a business, when you’re likely focusing primarily on building and testing your product, you probably don’t want to spend valuable money on a sales manager, for example, who would be expensive and not particularly useful when the product is not yet available for sale.
Still, you can begin to discuss the qualities you may want in a sales manager, and you can begin looking for the right person.
When you develop your pro forma, you may develop key ratios, such as adding a sales person for every $1 million in sales. You can do the same for other key positions as well. Here are a few of the key roles that you may consider filling in your first few years of operation (but don’t think that everyone on the founding team needs to have a C-level job title – sometimes this just looks ridiculous!):
CEO (Chief Executive Officer): Responsible for leading the company, creating a funding strategy, and working with the board. Companies with a technical founder should be aware of their need for a CEO to replace the founder.
COO (Chief Operations Officer): Responsible for overseeing the day-to-day operations of the company. This position can vary widely depending on what the company does. It could focus on manufacturing, quality management, measuring performance, or leading a technical team of software developers.
CFO (Chief Financial Officer): The CFO is one of the last positions to come on board primarily because non-revenue companies that have never raised money don’t need them. A company with minimal financial complexity should consider working with fractional CFOs, who may work for as many as five or six different companies. They provide high-level thinking and strategy while a bookkeeping service can handle the day to day accounting.
CTO (Chief Technical Officer): The CTO is the position often given to the technical founder when a full-time CEO comes on board. This person drives the technical direction of the company and leads the engineers and/or designers in their process.
CMO (Chief Marketing Officer): The CMO is a key position to develop the company’s brand, messaging, and product development. Many tech-based companies need the CMO to force them to get out and talk to customers to find out what they need versus what the engineers want to develop.
If you bump into someone who has the right background, start developing the relationship now, even though you may not actually be able to fill the position for several months. If you can get a commitment from a great candidate based on your ability to raise your funding round, you can then include the new hire in some of your discussions with investors.
After all, it’s great to be able to say, “We have the following people on-deck, ready to join once you invest.” If the VC knows the people and respects them, then that can help close your deal.
Identify exit possibilities
Exit opportunities may occur through serendipity, but the smart route is to plan your exit from the earliest stages of your business. Your exit partner is your real “customer,” and substantial thought should go into what your potential acquirers may be looking for a few years down the road.
Your company will be designed to be attractive to several larger firms in your industry or parallel industries that want to break into your area. At specific times in any company development, selling the company is easier than other times. Identify and plan your company strategy around these potential exit points.
Your company will be attractive to acquirers when you have just completed major accomplishments. Companies are less attractive when they are undergoing major changes, such as hiring a lot of people, pushing out a new product or product line, or breaking into a new part of the country. However, as soon as a company succeeds in one of these major breakthrough changes, they could be attractive to an acquirer again.