When my husband and I started our first business back in 1997 we had aspirations of getting millions of dollars in venture capital and starting a free Internet service provider (ISP). We were so excited by our idea – and remember, this was during the dot-com boom – that we quit our jobs and took out a loan to start our company.
We were young, enthusiastic… and highly deluded.
But as we spent the first few weeks pouring over our business plan and financial projections, I began to feel increasingly uneasy. We were speculating about sales in a business we didn’t even know would work!
Of course, that’s what most dotcoms did at that time… but it didn’t sit right with me. Somehow, I felt that spending weeks on pie-in-the-sky projections was not just misguided, but a colossal waste of time.
And then our dreams were shattered. I still remember it to this day. We had just finished the latest presentation to the investors who were considering funding our business. We had shown them a demo of our advertising-based-free-ISP idea and given them a copy of our 100 page or so business plan.
I think they asked us to go away and come up with further numbers but I read the subtext somewhat differently. It was quite clear: “your numbers don’t stack up and we’re not confident you have a real business here. We’re not giving you our money.”
Now, the sad truth is that many investors and venture capital firms that invested in dotcoms during the late 1990s never let such misgivings stop them from funding similar businesses. (One day I’ll tell you about the company I know that got $12 million in capital… never made any sales… and let all that money slip through its corporate fingers…)
After all, many VCs’ sole aim was to make money by selling their stake at an initial public offering (IPO), and the performance of IPOs at the time indicated that such an approach was quite lucrative (even if it wasn’t sustainable)!
In any case, the financiers we talked to seemed to be reluctant to invest in our idea at the time, which left us in a rather difficult situation. It was a harsh reality check: we had no jobs, no money, debt up to our eyeballs, and NO business.
It was, however, a reality check we needed. One which got us on the right track.
Funnily enough this ‘right track’ also got us into trouble. But I’m increasingly coming to the view that it’s the kind of trouble that most, if not all, successful startups almost ALWAYS go through…
I’ll reveal what that trouble was - and what the major take-out is for YOU - tomorrow. But for now, here’s today’s ‘lesson’:
Spending all your time on financial projections without knowing WHAT you can sell and IF you can sell it… is an exercise in self-delusion, as well as being a massive waste of time and opportunity.
I’m a big fan of planning… but after a certain point, planning and projecting into the future is just guesswork. The best kind of planning is based on reality and the faster you can experience reality, the more accurate and helpful your planning will be.
More on the trouble we got ourselves into tomorrow…
