Full Steam Ahead

The Team, the Results & the Future

To raise capital, you need a plan and a team. I have to agree with inspirational speaker Baggett Byrd when he says, "Show me your friends, [and] I will show you your future." Great advice, but all my friends are looking for their own seed capital. My new partner and I don't have $4.6 million, but we did know people we could talk to about joining us. We hit the road to find another seller and more team members.

Consultants, accountants and lawyers will be your best friends-as long as you pay them. In my case, I needed advisors with great contacts, and technicians willing to work long hours for free. To attract this kind of talent, you need a plan that has a lot of blanks in the "Management" section.

Your goal at this point is to outline your vision and add people who will propel each other to success. The qualities of the people on your team will attract others. It also helps to create momentum by adding top-notch talent.

One of our big breaks occurred when I approached C5 Partners with draft 13 of our plan. C5 Partners is a Dallas consulting group that helps potential hypergrowth companies prepare for financing. C5 was excited about the idea, but I couldn't afford their monthly retainer. I had to find a solution.

The Trade-Off

Amazingly, people who share your vision will help without immediate return, as long as you're willing to share. I've found that the people who are the most concerned about what they can take from a deal are the ones who will frustrate the process or drop out early when the workload is steep. Weaker players insist on the most security upfront, because they fear their inadequacies will be uncovered.

In the case of C5 Partners, I told them we could not pay their retainer, and, if they wanted to be on board, it would have to be for a piece of the equity. A week later, we had a signed contract, granting them a big chunk of the company-but only if they succeeded. That's when the real work began. That was 18 months ago.

The Long Haul

Not long ago, I attended a workshop where one of the featured speakers had won an Academy Award for best original screenplay. "Yes," he said, "after 10 years of repeated rejection, I became an over-night success."

In context, this statement was not only about perseverance, but also about timing. Business investment goes through phases and trends. Your timing must be right. For example, in 1999, if you were not the champion of some Internet concept, capital firms weren't interested. Today, investors are seeking strong potential for a consistent return. If you show up with a scheme for the Internet, it had better be an extension of an already proven business model. Investment firms formed to handle high-tech companies are now taking a closer look at low-tech businesses. So if you have an old business plan on the shelf, it may be time to dust it off.

The Results

After 18 months, draft 42 of our business plan has been finalized and is ready for submission. I've spent $10,000 of my own money and about $100,000 of my time. Every holiday for the past two years has been spent in pajama bottoms with a bottomless cup of coffee as my glassy eyes bore holes into my computer. My obsession kept me in the office on Christmas. The consultants will permit no shortcuts, evasive answers or uneducated conclusions. This is the "work" in the workable deal.

We submitted our business plan to some A-list investors, and it feels as if I just spent $110,000 on a lottery ticket that has a 50 percent chance of winning $13 million. I've pitched the project to interested investor groups, and one group in particular is scrutinizing the thoroughness of our thinking, preparing to make their investment.

I am now in Northern California as the general manager of Nor-Cal Mobility Inc., a store we have a binding contract to purchase. The furniture in my quarters is made of cardboard boxes, and my bed is a mattress on the floor, but I don't despair. In fact, I feel empowered. The owner has also joined our team and signed the sales contract, knowing full well that my checking account had $2,500 in it at the time. He is subsidizing our inevitable success, and I am helping him prepare for growth. Key people in the industry have approached us and have expressed a desire to join us. The seller's controller has burned the midnight oil with me. The train has left the station, and there are many who wish to ride with us.

The Future

I wish I could tell you that this story has a happy ending, but I can't, because too many hurdles remain. In my years as an attorney, I've seen fully negotiated deals fall apart at the closing table. It's amazing what an adrenaline high this journey has been. The harder you work on something worthy, the more you appreciate it. Right now, our collective business dream is like one of those trick birthday candles-many have tried to blow out the candle, but it just keeps relighting itself.

The next step will be to negotiate with the investors about what we must be willing to lose in order to use their cash. If that doesn't work out, we will start again, because the only thing more painful than discipline is the pain that comes from regret. It would be crazy to let this vision die. I can see the day when the funds hit our account and the morning we change the signs on the storefront. They tell me that's when the real work begins.

Today, we have a phone conference with the newly formed board of directors. Our recently appointed chairman of the board is Nathan Morton, former chair and CEO of CompUSA. In the spirit of making this deal a workable one, he has also agreed to defer his compensation until we are funded. In a week, we'll hear from our potential investors. Things are good. Could we have our check, please?

Business Plan Don'ts
  • Make vague or unsubstantiated comments or claims
  • Exaggerate growth or income claims
  • Overcompensate your team or be greedy in allocating equity to investors
  • Let your competition know of your plan
  • Send a mass mailing of the plan to venture groups

is a franchise attorney and small-business consultant.

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This article was originally published in the September 2004 print edition of Entrepreneur's StartUps with the headline: Full Steam Ahead.

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