Having a plan
I read somewhere the other day that you can only go for an IPO when you have a minimum of 1–2 years of nailing your financial plan. I’m not sure if that’s true but it sounds about right.
From my own experience, I know that to raise a good value Series A, you have to have shown investors over a period of at least 6 months that you can execute on what you said you were going to do the previous month. So, you basically have to be ‘on plan’ and growing. They then give you a lump of cash in the hope that you can scale this plan as you said you would (plus a load of other stuff like market size, competition, team etc etc)
Having no plan at all
The problem is, in the early days, you have no plan. You and your co-founder probably laugh about how you don’t really know what you’re doing. All you know is that you have a good team, a decent idea and a big market. (If you don’t have the first and the last, you have no chance at all). In your head you just think — ‘we’re smart, we’ll work it out’.
Having a plan is probably a good idea
The thing is, with the examples given above (IPO & Series A), it’s probably a good idea to actually work towards the point where you can actually hit a plan. I’m not talking about doing a detailed set of financial forecasts. That stuff is a joke, any monkey with a GCSE in ICT can do =(revenue*1.3) and drag it horizontally across 12 cells Jan-Dec on Microsoft Excel.
I’m talking about a process of evolving a plan from when you are early stage to a position where you can raise a Series A and beyond
So let’s say you have an MVP out and you need to go out and validate it with some early traction. Give yourself a 1 month plan. It might be speak to 20 potential customers. Find out what it would take for them to pay for your product then iterate MVP with feedback from customers. You then do the next 1 month plan. Get one paying customer.
Let’s say 6 months down the line you have 5 paying customers. You might be in a position to plan for the next quarter. It could be trial 3 different forms of marketing, SEO, Facebook ads and Twitter and iterate to find lowest CPA. Grow to 20 paying customers with £Xk mrr.
You might raise a Series A at this point and you’ve then got a 12 month plan to quadruple annual revenue, open up 3 new offices internationally and grow to 50 staff.
Evolving a plan
You’ve evolved from having a 1 month plan that ensured you got traction, to a quarterly plan which saw you grow revenue and then a post-Series A 12 month plan to scale.
What I’m saying is, it could be a good idea to get in the habit of having a plan, even if it is just a plan for the day. You can change it the next day if you want. In fact, in the early days, you should be changing your plan all the time because you are learning so fast. You can have a weekly plan, monthly or yearly and you probably will change the plan every other day. Just having something written down somewhere that you are judging yourself against will be really helpful. If you don’t nail your plan that’s fine, it gives you a benchmark and a reason to ask why? It gives you something to measure yourself against.
Most importantly, the better you can get at executing against a plan that you set out, then the better you are getting at building your business.
p.s. your plan needs to be smart, if its not, then you will either never hit it or if you do it’s pointless anyway. In the early days, your plan should be about how fast you can learn and test assumptions. Later on, your plan should be to focus on key metrics and nothing else.