The venture should have a clear revenue model and a workable path to profitability. Furthermore, there should be a plan of how the wealth created will be harvested by the owners. A comprehensive financial plan will be designed to demonstrate the potential for growth and profitability that is based on accurate and reliable assumptions. With the financial plan in hand, sources of investment capital will be explored and tested. Then the terms and valuation of the deal with the investors will commence. The presentation of the total business plan will require a compelling story about the venture. Furthermore, skillful negotiations with all owners and partners will be required. When funded and launched, the venture team must continuously and ethically implement the business plan and adapt to changing conditions.

How will a new venture generate revenue and achieve positive cash flow?

A new firm creates a sales model describing how it will generate revenues from its customers. Then it determines a cost model and how to generate profits from its revenues. The revenue and profit engines show how the firm will create powerful value for its customers and how customers will enable the new firm to profit. Many new ventures assume that profit will flow naturally from sales but discover that profits are not guaranteed. It is difficult to operate in a market that is chronically unprofitable.

A new firm seeks positive cash flow as soon as is feasible and acts to move to profitability early in its life. Managing revenue growth is important since uncontrolled growth can lead to negative cash flow and the need to constantly raise new funds from outside investors. Furthermore, a firm needs a plan to harvest the benefits of its growing venture for all owners. Entrepreneurs must also be realistic and accept that termination of the new venture is a possibility.

How do entrepreneurs describe the financial elements of their new venture?

Entrepreneurs build a financial plan to determine the economic potential for their venture. This plan provides an estimate of the potential of the venture. Of course, any estimate is based on a set of assumptions regarding sales revenues and costs. Using the best available information and their intuition, entrepreneurs calculate the potential profitability of the venture. Furthermore, they need to determine the flow of cash monthly to identify the cash investments that will be required over a two or three-year period. Also, an income statement and a balance sheet are required to demonstrate profitability and liquidity.

Using the estimates of sales, the venture team can determine the number of units it needs to sell to break even. Furthermore, it can calculate several measures of profitability that demonstrate the return provided by its venture for investors. The best ventures grow sales consistently and provide positive cash flow and profit early in their life.

What are the sources of capital that a new venture can use to finance the start and growth of its company?

Entrepreneurs can estimate the capital required for their new business by reviewing the financial projections they prepare using the methods detailed in Chapter 17. In examining the projections and the cash flow statement, it becomes clear how much capital will be needed and when. The entrepreneurs may provide some of the required capital, and friends and family may help with modest investments. Government grants and bootstrapping can also supply necessary capital to launch a venture. Most high-growth ventures that expect to grow to a significant scale will need outside capital from professional investors. Typically, several stages of investment will be required over the life of the business.

How does the new venture present its vision and story and negotiate a deal with investors?

The creators of a new enterprise need to tell their story about the future of their business. Establishing credibility and trust through presentations of the new venture's plan for a novel solution to an important problem can lead to an investment.

A short presentation of the plan (called an elevator pitch) can help interest investors in seeing a more complete presentation. The presentation, often delivered in an investor's office or at a venture fair, may create the necessary interest from an investor.

The negotiation of a deal with an investor is an important part of the process. One can cement the relationship or destroy it through the negotiation process. Often agreements with terms contingent upon performance may be appropriate. The integrated story and the business plan should show how the business solution would be profitable within a reasonable period. The investors are interested in a favorable return. They also want to sense that they will be partners with trustworthy and capable entrepreneurs.

How do successful entrepreneurs transition from a solid business plan to an operating enterprise?

Creating a business plan for a new enterprise is important, but implementing the plan successfully is essential. Execution of a plan is a discipline for connecting strategy with reality by aligning goals and the firm’s people to achieve the desired results. Execution is about turning a concept into a great business.

New businesses move from start-up to growth to maturity in stages. Managing a new business through these stages requires different skills and organizational arrangements. Start-ups need to plan for having the right people in the right positions as they grow.

Organizations, like people, need to learn and adapt to change. Organizing for recognizing and responding to challenges can build resilience in a start-up firm. The ability to adapt to change may be a firm’s only truly sustainable advantage. Further- more, to achieve long-term success, a firm needs an ethical base for action.