In this “ever changing world in which we live in” it’s hard to believe that I’ve been plying my trade, individually and now corporately, as a part-time FD for 25 years. Gulp.
I didn’t start in the mythical bedroom or garage but in the corner of someone else’s office. Without the internet it was rather a slow start – 4 clients in year one became 5 in year 2 and eight in years 3, 4 and 5. Progress was so, er, steady that the greatest highlight in those early years was spotting a burglary in progress, three floors below in the adjacent houses.
When I wasn’t staring out of the window I managed to raise some money for a management buyout and create the business model for a help desk business that was financed by 3i, contracted with Microsoft and sold to Softbank.
So what’s changed since then? Apart from the ability to communicate faster and more easily over ‘t’internet’ not much, it seems. At a presentation last week I was informed that 2% of business plans get funded by equity investors. Despite the advent of Crowdfunding and the growth in angel investors this is exactly the same percentage as it was in 1991. Business plans still appear with valuations in excess of £1m despite no sales. And many of those with sales happily predict three years of losses before achieving stratospheric profits in year 4 due to the miraculous effects of marketing and business development. As was noted the other day in a programme on eating habits and the amount of sugar that has become available over this period, 25 years is no time in evolutionary terms and so maybe it’s no surprise that we haven’t evolved much.
Those same business plans may talk of early adopters as essential for their success, without themselves being early adopters of better business planning. With my experience, and that of my colleagues most notably co-founder Richard Brooks, may I suggest what a good business plan, one that has evolved, would include?
- Use a small amount of capital to achieve some results. £50,000 is considered by some of us to be the benchmark. If you can’t achieve results with that then I for one would have little confidence in entrusting an investee with a six figure sum.
- Don’t make vague assumptions about success in a number of columns, sorry I mean months, time. Spreadsheets are seductive – I should know I’ve been in love with them my entire career. But they are a means to the end not the end themselves. It will take a minimum of five years to be even vaguely successful (I consider year 7 to be when FD Solutions became established).
- Invest small amounts in the things that you think will work. Most of them won’t work well the first time so learn from the mistakes, adjust and try again until you can see what works. Then, and only then, can you expand rapidly.
In 25 years we have worked with almost 1,000 businesses whose success has varied from plan to a greater or lesser extent. But whatever the outcome I hope that they still feel that they were in safe hands, those of my colleagues and I who used our skills and experience to make sure that cashflow was always positive, as demonstrated by a clearly presented up-to-date spreadsheet. Spreadsheets themselves don’t solve anything but technology has allowed us to produce better and better information, so that nowadays any business can analyse all its activities as often as necessary. This has meant that in the Great Recession businesses, including ours, survived falls of 40% in sales, and now, as the economy expands, we can take the risks necessary for success and gauge their impacts before it’s too late.
I don’t know what the next 25 years will bring but I suspect that people will still only invest in 2% of business plans. I suggest that success will come to those who use the expertise available to turn data into information. That for me would be cause for golden jubilation.