When we have a business idea and we want it to become an actual business, we have to define many things in our business plan: Which is the product or service we are going to sell, the business model, the value chain, the market size, the operations plan, the schedule, the risks and the financial analysis, among others according to the business plan model you are using. In this last item – financial analysis- in addition to the business profitability and financial projections, we must determine our project investment requirements. When determining this “magical number” many entrepreneurs try to make it as low as possible but over time I have learned that this is not our best option and I will explain why.
What happens if we make as low as possible the investment requirement? This path that many entrepreneurs take, it is only achieved by reducing or eliminating some items that on the end might be necessary and determinants for the success or failure of their business. For example if you had determined that you needed certain amount of money for advertising and then you make it halve the amount it is most probably that you don’t achieve the sales that have made the business profitable. This is why I do not advice to reduce in this way the investment requirements.
But then why is it so easy to find entrepreneurs that take this path? The reason is that in many countries venture capital is scarce and in this way it is very difficult to find companies that will be willing to invest in projects that require a high amount of investment. And other options such as banks or friends loans, are much more difficult to get when the projects require high investment.
So what can entrepreneurs do in this case? In other times when the world was not as globalized as it is today, I think this fears where justified because it was very difficult to find investors for our ideas in other countries. But today in some European countries and United States it is easy to find venture capital for businesses in other countries including developing countries. And the best part is that they don’t skimp on expenses. If you have reasons to require that amount of investment and have a very good project, you will surely find someone to finance your business idea. For the investors it is more important that you ask for the amount that you really need and in this way the success probabilities arise than you adjust it to the minimum and later your project turns out to be a failure because you don’t have the resources you needed.
In this way I think you will understand my answer to the question posed on the title of this post: Exactly what you need, not a penny less.
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