The plan articulates the product, its market and how the entrepreneur will go to market and genera
The plan articulates the product, its market and how the entrepreneur will go to market and generate consistent cash flow to repay the borrowed funds and create value. This logic works great, except for one problem: A business plan is exactly that, a plan. Nobody, not even the passionate entrepreneur, can guarantee that what the business plan says will be. Wouldn’t it be useful if both the entrepreneur and the funder had more certainty that the product or idea stood a greater chance to gain traction and be successful? Wouldn’t it be great if it could be proven that the idea can work, before the entrepreneur invests countless sleepless nights and the funder commits millions of rands? Most people start by writing a business plan or, even worse, get a consultant to write it on their behalf. They then take the business plan to a funder, who lends funds
on the strength of the plan. Eventually, they go out and start the business. Seems logical? I say, no. Why risk all that time, effort, and money on something that may be a bad business idea and a waste of lenders’ funds. Why not follow the same process, in reverse. Why not start by trying out the business plan? There is immense value in proving to yourself and to your future funders, upfront, that your good idea makes for good business. There is no better way to do this than to invest a small amount of your own money and sweat and tears to manufacture samples of your product and go out and sell them. The lessons you will learn in doing so are immense and invaluable. On the supply side, you will learn, early in the game, the key challenges in sourcing raw materials, your suppliers, what affects their pricing, the external factors that affect pricing, including foreign exchange rates, interest rates, and commodity prices as well as ways and means to manage their volatility.
On the demand side, once you start selling, you will know first-hand whether customers are prepared to pay for your product. Some ideas are simply just good ideas and not necessarily good business ideas. Selling your product will show you how much customers are willing to pay for it, and whether they will pay in advance or in arrears. These two factors will have a material impact on your eventual business plan and the timing of cash flow. You will be more enlightened to the risks, the competition, customer preferences and the right price. Most importantly, you will have the confidence that your business idea actually works.
lKhumalo is the CIO of MSG Afrika Group and founder of MyStartUp