Although I have written on and around this general topic many times, I continue to see many investor decks that seem not to present a minimum viable business model (“MVBM”). Everybody understands the issues of getting an MVP launched, but that does no good if it is done outside the context of a compatible business model. A truly viable model is one that can plausibly generate venture returns to investors while using the founders’ time and talents to maximum advantage.  

We all know financial projections for startups are a method of communicating a promising story. Their primary purpose is to show what is reasonably possible. They are not hard and fast roadmaps that will be followed carefully over the years ahead. They do provide a way to stress test an idea by showing that a collection of careful assumptions can result in a desired outcome. They give you a framework which has many uses. You can work backward from say an 8-year endgame to calculate how much of the company you must give away in your first rounds of financing to provide your investors the prized 10X return. You can see if that leaves enough room to accommodate the founders, future key employee options, and potential growth stage financing rounds so that everybody’s objectives are satisfied. Equity is expensive, and if you add up the sales numbers and can’t offer a competitive return to your equity holders, your fundamental model needs revisiting. I’m not talking about just changing some cells to make the math prettier; the task is to review product pricing, margins, distribution methods, customer acquisition costs, and all the other inputs to the success of your concept. It’s just as easy (or hard) to pursue a big idea as a small one, and basic numerical exercises will help you distinguish between the two extremes.

The waterfall chart is a handy way to keep your projections in bounds. Convertible notes with caps and discounts stacked over a few layers can produce some nasty surprises. Your company may be hitting the marks, but if you have not been careful in structuring your financings from day one, a waterfall chart may illustrate that you as a founder can end up with a dry bucket. If you are missing the marks and are forced to accept down rounds to keep the business alive, then the last money in may leave very little upside for every earlier investor. You get stuck. You can’t afford not to proceed because you want to recover at least something for your investors, and you want to feel like you and your team have accomplished a worthy mission through your considerable toil over the years. Be as smart about your financing stack as you are about your technology stack, and you are more likely to enjoy the full fruits of your effort.

Surely you went through a process of customer discovery in the very beginning, and what you learned in that should have informed all the assumptions in your model. You should know how big is your potential market and how costly it is going to be to reach it. You should have a gauge on how appealing and novel your idea is and have developed confidence that there is “authentic demand” for it. You should be able to demonstrate on your spreadsheets that you can build the company to scale from the ground up step by step and reach the desired goal. Never talk about TAM and assume you can get x% of that because of your charm and good looks. Always talk about how you will build your company like you would build a house — from the foundation stick by stick to the roof. Be convincing that you are an operator and not a promoter.

Show total focus from day one. It is very hard to get practicing investors to buy into a deal that does not hold your undivided attention. I’ve got scores of decks in my files that present spinoffs of earlier ideas with a continuation including shared management. The theory is to segregate the rosy future of the newest ideas into a model than can achieve a higher valuation from investors. However, savvy investors don’t want management to have an easy fallback if what their money funded has a hiccup and you and your team can just cross the hall and go back to your former way of making a living. They want you committed like the pig at breakfast. Here again you don’t want to get cast as a promoter hoping one of many ideas will stick.

Your MVBM will change continually. Serendipity will present you opportunities you never anticipated and tug you along a better path. It may also present you unexpected difficulties and force you to retrace a few steps. You are always operating in something akin to the “fog of war.” What’s important is to be alert to these serendipitous occasions and get all over the good ones. The famous lesson of the microcomputer era was Gary Kildall’s going sport flying when IBM came to Monterrey looking for an OS for the impending IBM PC. When Gary ignored them, they went straight to Seattle where Bill Gates rounded up a small company that instantly gave him MS DOS to license to IBM, and Kildall’s CP/M was summarily vanquished. Nearly every business I’ve personally been associated had some serendipitous event that radically changed our direction, more often than not for the better. 

In golf parlance, you want your MVBM to be in the middle of the fairway. There are many other startups competing for the same funding sources you are pitching, and the ones that are uniformly in the fairway will be favored over those that are caroming around the trees. The best golfers I know keep their games as boring as possible from tee to green and then celebrate with a low score at the conclusion of a round. The ones who get too creative and who can’t control their mental and physical abilities on every single shot suffer the high handicaps. A creative and highly demanded business concept is great. But, just as with golf pencils, operate your startup as if there are no erasers on your financial tools. In golf you have to play each ball where it lies and accept whatever score you have earned at the end of the round, and in business the rules are pretty much the same. Winning is all about repeatability, performance under pressure, meticulous decision making, and a lucky bounce here and there!