| Business investors are sensitive to at least three | | | | the world, the average Japanese kitchen was too |
| major constraints when evaluating business plans. | | | | small to accommodate the new appliance. |
| I call these constraints The Three R's: reality, | | | | Moreover, the prevailing attitude among |
| readiness, and resources.RealityMany creative | | | | homemakers was that dishwashers were for the |
| entrepreneurs with ideas for scientific | | | | lazy or the idle rich. It took over a decade of |
| breakthroughs have ended up frustrated with | | | | attitude, social, and cultural changes before the |
| business investors who just don't seem to "get it." | | | | timing was right to successfully introduce |
| The truth is, however, that it's the entrepreneur | | | | dishwashers to the Japanese market.Business |
| who's not getting it.Unlike creativity or scientific | | | | plans not only fail to gain support when they are |
| breakthroughs, starting or expanding a business | | | | premature, they also fail when they are late. |
| requires the entrepreneur be keenly aware of | | | | Think how many American and European watch, |
| their customers, competition, and core | | | | automotive, or camera manufacturers lost their |
| competencies.Creativity and scientific | | | | competitive advantage in their respective |
| breakthroughs often disregard the customer, the | | | | international markets because they resisted |
| competition, or a company's core competencies, | | | | automation or robotics until it was too late. It is |
| which is why they are usually risky and often | | | | unlikely that investors would support a U.S. |
| require significant capital over several years | | | | business plan based on automation or robotics in |
| before they are monetized. The opposite type of | | | | one of these markets today.ResourcesIt's |
| investment most business investors seek.For | | | | amazing how many entrepreneurs ignore or |
| example, suppose you had an idea for a new | | | | neglect this constraint. Perhaps they believe that |
| everlasting light bulb. After researching the | | | | this is the entrepreneurial way...to know no |
| market, you determine that customers do want | | | | obstacles. Although this attitude may impress |
| such a bulb and are willing to pay a premium for it. | | | | self-help gurus, it won't impress business |
| Preliminary manufacturing studies show that you | | | | investors.The business plan graveyard is filled with |
| can produce the bulb and profit nicely from it. | | | | plans that failed because their entrepreneurs were |
| Would business investors be receptive to backing | | | | not sensitive to resource limitations. In most |
| a business plan that puts you up against the likes | | | | cases, these limitations range from the |
| of General Electric or Westinghouse? But, you | | | | entrepreneur's lack of sensitivity to their own |
| say, your plan is to some day sell your idea to | | | | internal resources and skills to not fully |
| these competitors. Again, how receptive would a | | | | understanding what it takes to execute the plan |
| GE or Westinghouse be to a plan that obsoletes a | | | | itself.This is especially true of businesses that are |
| major product line? What would HP do with a plan | | | | trying to expand through diversification. The world |
| that killed its aftermarket in print cartridges? Do | | | | markets are filled with food companies that have |
| you see the flaws in such thinking? Business | | | | failed trying to enter pharmaceuticals, chemical |
| investors do.That's why business investors like to | | | | companies that have failed trying to enter foods, |
| invest in business plans that are grounded in | | | | or electronic component manufacturers that failed |
| reality. Plans based on reasonable risks that can | | | | trying to enter final assembly.For start-up |
| be monetized quickly and generate a return on | | | | companies, entrepreneurs often fail to adequately |
| their investment. Although the everlasting light bulb | | | | estimate cash requirements or the time and |
| strikes a consumer hot button, it fails the reality | | | | resources required to build distribution channels, |
| test by not addressing the distribution network | | | | win customers, or to launch or sustain a |
| and shelf control of large competitors. More | | | | business.Business investors, experienced ones |
| important, the strategy to sell the business to one | | | | anyway, are all too familiar with the importance |
| of these competitors is a flawed exit | | | | of resource constraints. So, when business |
| strategy.ReadinessThe second major | | | | investors zero in on this area and challenge your |
| consideration that a business investor wants | | | | assumptions, don't get too defensive. Instead, |
| addressed is readiness or timing. Unless the time is | | | | listen to their concerns with the knowledge that |
| right for the proposed business plan, business | | | | they can help you tighten up your plan and |
| investors are not likely to support it.Take for | | | | improve your chances of success.Mike Elia is a |
| example a business plan to introduce dishwashers | | | | chief financial officer and an advisor to venture |
| in Japan in the early 1970's. When dishwashers | | | | capitalists and leverage buyout specialists. |
| were rapidly becoming popular in other areas of | | | | |