Common Mistakes of Early-stage Companies

According to a review of recent studies, the top two reasons start-up and early stage companies fail to attract financing and early customers willing to take a risk with a start-up:

1. Unable to articulate a business plan

In most early meetings with investors, entrepreneurs are expected to share the details of their business plan, both verbal and written to the potential investors. Obviously it is reasonable to expect this business plan to communicate clearly how the company's future cash flow will be achieved. As crazy as it sounds, I have met entrepreneurs who have had the goal of tripling their sales revenue within 3 years, yet they could not articulate a lucid strategy for how they were going to accomplish it. This disconnect leaves the investor asking obvious questions and very confused about the soundness of the leader and the business model, even if the idea is great.

When an entrepreneur fails to effectively articulate his business plan, he signals to most institutional investors that he does not know how to deliver the future cash flow. Quite reasonably, this often leads investors to discount whatever future cash flow streams the entrepreneur might have in his financial projections, possibly leading to lower than desired pre-money valuations.

2. Not convinced of the business model

The business model is expected to demonstrate to the investors how the business generates cash flow and sustains itself. As with the business plan very often, entrepreneurs and management cannot articulate clearly the business model to the venture capitalists. Investors must understand how the business generates revenue from its customers and competes effectively in the industry it operates in. Investors usually get cold feet when the revenue stream is unstable or the financial projections are too bullish without any substantiated assumptions.

The entrepreneur and management are expected to "know the business numbers cold." Most do not seem to understand the differences between the cash flow and profit of a business operation, and many lack a good grasp of the main numbers - revenue, sales volume, operating cash flow, operating expense, capital expenditure and net profit.

Other common, and easily avoided, mistakes early stage companies consistently make:

3. Failing to articulate a statement of vision and goals
4. Failure to establish strategic priorities
5. Failing to differentiate themselves.
6. Failing to raise the barrier to entry.
7. Failing to identify the leverage points and the metrics for success
8. Waiting too long to implement change
9. Getting sidetracked by "fire drills" - having a short-term focus
10. Struggling to assemble and solidify a team

PrimeAxcess exists to guide the entrepreneurial management team through the processes of analyzing all of the assumptions that underpin the client's business. We will do whatever it takes to increase the strength of your value proposition and your level of mastery over the task of communicating your O.P.E.R.A. We cannot guarantee your business will be the next Google, but we can guarantee you will NOT make one of the ten mistakes on this page. Give us a call and let us show you how we can empower your business.