When Do I Need a Model? I am Bootstrapping

Written by Sean Murphy. Posted in 1 Idea Stage, 2 Open for Business Stage, skmurphy

Open For Business I have condensed this from a recent series of conversation with bootstrapping entrepreneur. I thought it captured many of the key questions that you need to be consider once you are “open for business.”

Bootstrapping  Entrepreneur: I am just getting started on a new project. I have several advisors and one has suggested that I build a complete financial model to get a good idea of my cost structure. He supplied me with a list of questions that look to me like an A round presentation checklist. I am not sure that I agree with this approach, I would prefer to get launched and see what I can learn.

Sean Murphy: Your advisor may be on auto-pilot giving you “eat your beets” guidance about the need for a rigorous financial model, in which case you should defer 90% of the effort until you have more proof of interest. It’s possible that he has already reached the conclusion that you do have a market and are likely fundable. Ask him directly and if it’s the second case ask him what data, events, or indications he is looking at. 

Bootstrapping  Entrepreneur: I understand that it’s useful to think things through but I should be clear what stage we are:  the fundamental question of whether people will pay for our solution has not yet been answered. We are bootstrapping and building a prototype to see if anybody cares.

Sean Murphy: Building a prototype and getting feedback on it is a great idea. What model are you using to keep your team–and spouses and significant others–in the loop as to the state of the business. The startup deathclock is probably a little too simplistic.

Bootstrapping Entrepreneur: We are using QuickBooks to keep track of expenses. We are at the “no salaries, no office, just founders putting time in ” stage.

Sean Murphy: Are you “open for business?” If someone likes the prototype can you take their money? Also, it sounds like you are steering by looking in your rear view mirror, what kind of plan are you working to?

Bootstrapping Entrepreneur:  We are incorporated, we have a bank account. The founders have kicked in seed funding to cover expenses. But I’ve never seen an early financial model whose projections were worth anything  when compared with actual numbers. It bothers me to make stuff up.

Sean Murphy: Are you able to set goals and hit them? Do you have a list of what everyone needs to get done this week? This month? It sounds like how folks are spending their time is the most significant resource allocation issue over the next few months. I am not talking about time sheets and hourly accounting, but you have to be able to scope efforts and hit intermediate milestones. How well are you tracking against your expectations?

Bootstrapping Entrepreneur: coding and release milestones are on track, whether anyone will pay for the product is what is keeping me up at nights.

Sean Murphy: How many folks have you talked to in the last week or so? What has their reaction been? Do you have a list of twenty to thirty people you can approach and get their feedback? If you don’t: call in some favors and find prospects to talk to. Or last least talk to people who are knowledgeable about the problem you are attempting to solve.

Bootstrapping Entrepreneur: We have only talked to one person in the last two weeks. I plan to E-Mail  a woman I used to work with and see if she can help us clarify whether our solution is going to be able to help.

Sean Murphy: That’s a start. I think you have to talk a few people each work, some old friends and some who are friends of friends, perhaps even a few strangers who have been recommended to you.  I would try and build a very simple model that identifies the critical numbers driving the health of your business. Here are a couple of suggestions but yours but it’s a function of your unique business needs:

  • First time sales calls
  • Active prospects
  • Revenue
  • References – Every customer should be a reference.
Thanks for you time.

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