Exit Planning: Planning for failure can never come too soon

I work, and have worked, a lot with entrepreneurs and entrepreneurial "want-a-bes" in the earliest stages of their enterprise formation. After listening to the things which fire their passion -- the germ of their idea, their pride of inventiveness, and their dream of wealth - they will ask for my help to find money for the project. Before I even consider the project, I ask them one key question, "And what is your plan B?" This determines whether this is a real prospect or a Dreamer. My exist plan for Dreamers is -- "Conclude the interview", "Move on" "But do it politely."


Dreamers use up your time and they don't pay for any advise you give them.


The recent catastrophe in the Gulf of Mexico with British Petroleum (BP)'s Deep Water Horizon explosion and the oil well rupture has capture the national and international news. The crisis is now two months old with no immediate end in sight. This disaster brings home the cost of not having a Plan B.


Now you might ask, "What does BP, a multi-billion dollar international corporation, have to do with me and my small business? The answer is Everything.


Every oil well drilled is an entrepreneurial venture risking $100s of million dollars. BP has the experience and resources for opening new wells. One would think that they would have a plan B in case of failure or accident. But in their narrow, "get it done quickly and cheaply" mind set they have put not only the project at risk, but the company,and all the contingent stakeholders as well. These include those who depend upon the company for their livelihood, the investors, especially pension programs, their neighbors including the fishing and tourism businesses and the tax payers of the states and the nation whose oil they had been given a lease to exploit.


My clients, and prospective clients, don't have the resources of a BP. They don't necessarily have the experience or access to the expertise in their business that BP has. But going into a new business venture carriers the same risks of failure. And while the size their potential losses may be no where as large in absolute terms, they are proportionately infinitely larger for these entrepreneurs than they are to BP.


The lesson here is that BP did not have a Plan B for the Deep Water Horizon well venture. This is proving to be very costly for the company and all its stakeholders. Because there is no Plan B, it could even mean the end of the company as we know it today.


As sole proprietor of your business, you have placed everything you have at risk of success and at risk for failure. If you opt for some protection you might wrap yourself in a corporate form such as a LLC, Limited Liability Corporation, but even that will not totally protect you from the risks of failure.


So how do you protect yourself or at least minimize the risk of failure?


You do so by planning FOR FAILURE. I strongly recommend that you consult the following book if you doubt me - The Ten Commandments for Business Failure by Donald R. Keough.


Oh, I know, this is not the "positive thinking" that new age career/business coaches and gurus preach in their books and seminars. They teach you to think positively, develop a positive attitude, and practice "the Secret". They preach and practice the "build it and they will come" philosophy. But just as a candy bar in the late afternoon can give you a temporary sugar high, these doses of magical thinking don't stay with you very long, become habit forming and lead to a fat, obese ego at the risk of "personality diabetes".


Planning to fail is not negative thinking. Planning to fail is rational, realistic thinking. Planning to fail is like walking into the crowded theater, looking for the exits, and making note of the best route to take out of the building in case of fire. With such a plan, the show can be much more enjoyable. While you don't expect to use the plan, in the rare event that there is a fire, you know what you have to do to survive. Many others without such a plan will more than likely panic and their survival becomes problematic.


Planning for failure can also be planning for success.


At the end of the show, your escape plan can now be your exit plan. That is, you know where the exits are, you see the crowd moving toward the front exit and becoming stuck as they slowly make their way through restricting doorways. You, on the other hand, walk in the opposite direction, go out a side door, and get into your car thus beating the traffic. You succeeded in enjoying the performance and you saved yourself time and effort in the process by having an exit strategy or plan.


Planning for failure can help you to reduce your loses and planning for success can help you to maximize your profits. Planning for both contingencies is called EXIT PLANNING.


When is the best time to build your Plan B? At the same time you are building your Plan A. Too many people build their houses with all the doors opening into the house. If you look around, you will see that most businesses, because of fire codes, have their doors open out. That is their basic Plan B in case of emergency.

The big question today for everyone involved in the Gulf Deep Water Horizon venture is: "How do I get out of this catastrophe alive?" As we see from the news reports, nobody apparently planned for failure. Today they are simply trying to survive and if they do survive,for years to come they will be paying the price for their failure to plan for failure.

Do you have a Plan B? What is your exit plan for failure? What about for success?

Here at B. R. Bainton Associates, we are prepared to help you evaluate your risks and coach you in developing you own exit plan. If you have questions or comments please contact us at brbainton@gmail.com

How do you spot a fake venture capitalist on the Internet?

Recently someone asked me, "How do you spot a fake venture capitalist?

Apparently, she was concerned by the recent financial scandals and what she could do to avoid being taken. Margaret has a business idea which she has turned into a business plan (BP). She explained, "I have been shopping it around to ALL the VCs on the internet."

She had met a number of Venture Capitalists (VC), or persons she thought were VCs on the internet. They were from the USA, Europe AND Latin America.

She told me, "The US VC's seemed real and had money; but the others ... Well, they seemed fake."

I asked her what she meant by that. She said that the Europeans and Latin Americans (she is Hispanic), she had spoken to seem to be just interested in getting her BP and then trying to sell it to a bank or someone else for a fee.

Others were "Consultants who wanted to charge her a fee just to look at the BP. None of them had any real money to invest."

She asked, "How can I tell? I seem to be waste my time and I'm afraid I going to make a mistake. What can I do?"

I told her the following:


"My experience with the start-ups and start-up funding is that the VC often come in much later than the Business Plan (BP) stage. They are looking for a going concern that has proof of concept, intellectual property protection, a basic corporate structure and systems in place, and some key human capital in place. VC will do a deal for a piece of the action and an active role in the future development of the business. VCs will be there for the 'long term (3 to 5 years)'. They will also own 50% - 80% of the business."

"There are deal makers who may claim or allow you to think that they are authentic VCs. But these are middle men who will shop around your business plan to investors (Angels, and others) for a fee. Their fee is based on successfully matching you with an investor.This is what you will be buying from them."

"Deal makers can be useful in opening doors, but you should not expect more from them than they can deliver. Deal makers invest their special knowledge of the small investor network. Deal makers are not there for the long term."

"Yes, there are the Consultants who are there to earn a fee for their advice. Consultants invest their intellectual and experiential capital in your business plan. They can be a valuable resource to help you identify the strengths and weaknesses in your Business Plan and your marketing strategy for the plan. Again don't expect them to get the funding for you. It is your BP, not theirs."

I then asked her:

"Do you want to spend days, months, or years searching for just the right investor? If so, that is your choice. But if you want to take your dream and turn it into reality, you are going to need help."

"That help comes in many forms and to succeed as a business you will have to learn what help you need, where to look for it, and how to use it to your advantage."

"You have been focusing too much on your idea and not on the job of selling your idea. VCs are only one part ofa complex investor market made up of many different parts."

"What you need to learn is management. Management is the most difficult lesson an innovator like you, hoping to become an entrepreneur, can learn."

Lesson:

Once you decide to turn your idea into a business, you must change your orientation from innovator (the creator of the idea) to manager(the one who guides and nurture the idea through the development process).