Most start-up founders accurately predict how they'll make money, and how much it will cost. But there's one thing they almost always get wrong.
I've built five businesses. I teach business. I regularly judge business plan competitions. And I advise both mature and start-up businesses. And there is one thing that everyone always gets wrong about a new venture: timing.
I've lost count of the number of spreadsheets I've perused, each one attempting to outline in minute detail how money will flow in, eventually exceed costs, and then head to the heavens. In many cases, the general idea is sound, the estimate of expenses is more or less right. What isn't right is how long it will take for the company, or the product, to gain traction.
I used to advise new business owners to double the horizontal access of their graphs: imagine that incomes takes twice as long to come in as you anticipate. Nowadays, I might suggest that three times longer is a safer bet. The reason for my conservative advice derives from a few observations:
1. It takes longer to get products right than anyone imagines. Software, notoriously, never ships on time. But even services take longer to refine, explain, and match to market need. All products, whether goods or services, rely on people who rarely turn up at exactly the moment you need them. That said, the best are worth waiting for.
2. It takes longer to get positioning right than anyone imagines. You may imagine you're unique; that could be because you haven't done your research, or it may be because no one wants (or will pay for) what you're offering. It takes time to find your sweet spot. One Inc. 500 company took 10 years to find it.
3. Money comes in more slowly than even the worst pessimist imagines. Even with no real interest payable by banks, every customer delays paying its bills. Even if you have the cash flow or the credit line to weather this, waiting for money can slow down hiring and innovation. So the whole business grows more slowly.
4. Decision makers take their time. In most companies, any new product or service is adopted only after numerous meetings. Organizing the right people to get together with adequate information takes weeks. Even if the decision is straightforward, you are dependent on the schedules of other people who have a lot of other things on their plate.
5. Reputation, the best marketing device you will ever have, takes time to build and circulate. You can't do anything about this except ensure that every relationship is positive. But momentum requires hundreds of encounters.
That the business grows more slowly than you would like is a problem only if you haven't the cash to sustain yourself in the meantime. Innovation is great--but cash and faith are the cornerstones of all successful companies.