Blog: Scaling for Growth

Thinking back each year I try to assess what can be done to better presentations, to increase my interest after another year of watching several presentations.  In many presentations given to investor groups, the founder/entrepreneur has 12 minutes to make an un-interrupted presentation, with maybe 12 to 15 slides and then questioned by the group for another 12 minutes. In most presentations, one question that can be counted on is, “Can the business be scaled up (growth)?”

Investors are looking for a return on their investment and most likely that can only come if the company grows successfully. There are two other important aspects of growth, beside product validation and raising initial cash. One is having the cash needed for operating growth (working capital) and two, the business model for getting there. Growth depends on the resources planned, and therefore cash in needed for them.

I have found in the question sessions many of the questions are related to marketing which is a necessity, but in my opinion, in that short period of time credibility is most important, and credibility can be lacking if the growth angle isn’t properly presented.

A presenter normally shows a five-year financial P&L projection and I get the feeling that those asking questions, who are interested, assume that those five-year projections are going to happen. In my opinion, any multiyear projection depends very heavily on the cash needed to get there, which then depends on planning.

This is where the business model makes sense to help get there. No doubt, any follow-up in due diligence exercises will surface these needs. If these elements are better defined in the 12 to 15 slide presentation, the founder/entrepreneur would have a better chance of providing enough interest to the audience to go to the due diligence step.

One of the aides to planning scaling is the utilization of the excel worksheet. There is a downside as it just provides numbers. Numbers do not identify the quality of the resources needed and people to get there. Also very important numbers do not give an idea of what the tactical strategy and activity is needed.

I have seen presentations wherein the presenter seems to believe that whatever the profit is in a year, they also present the profit as cash. For me, this is a red flag.

In many cases it’s assumed that the founder entrepreneur will make the five-year projections occur. This is interesting, because at that point in time a lot of effort going has gone into validating the product and preparing to raise the money. But how do you make it happen.

What I’m suggesting is, the presenter add a cash line as part of the financial projections. This will define the cash needed to reach the projections and help the investor to evaluate if the desired ROI target can be met to supplement the P&L projections and a business model slide in the presentation. Cash flow can be done with an Excel spreadsheet, and the business model could be done in what I consider the best template around called the campus business model.

Business sections models presented in the canvas template go far beyond validating the product. It forces the entrepreneur to start to address the question “HOW.” The canvas model covers major elements like the demographic of the customers, the value proposition, strategic partners, sales channel and actually what will be the pricing to attain the revenue projections. The biggest reason for the difficulty for the first time entrepreneur startup is a lack of experience – never been there before, and not knowing what lies ahead. It is dangerous to cast any planning document in concrete. No matter how good the plan is for startups there are numerous changes needed as company goes along, that may not be foreseen.

The business model can be a living document and modified as the business starts to grow.

Scaling up the growth absolutely requires cash. Profit and Lost projections do not include cash elements that only can be found in the Balance sheet. I believe the entrepreneur should prove they understand cash flow before I will continue evaluating whether it’s worth investing.

Nowadays, with the increase in Internet and social media involvement, the primary response to challenge, might be, “What? You don’t think I can get hundreds of thousands of customers out of over 7.6 six billion people in the world?” My answer is no, until I see the business model.