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Advice on putting a business plan in front of investors - Q & A

Christine calls in and gets some real advice from the Sloan Brothers on how to get her business plan out to investors.

Rich Sloan:  We've got Christine out of Sacramento, California.  Welcome to our show, Christine.

Christine:  Thank you.

Rich Sloan:  How are things in the capital of California?

Christine:  Very hot; almost 110.

Rich Sloan:  Wow.  Okay. 

Christine:  So I'm inside today.

Rich Sloan:  It's good to be in the Midwest.

Jeff Sloan:  Yeah.                        

Christine:  I think so.

Rich Sloan:  Yeah.  So how can we help you?

Christine:  Well, my company is Brown Bag Botanicals and I've been around for a few years, mostly dedicating my time to research and development and manufacturing of an upscale skin cream.

Rich Sloan:  I'm sorry.  The skin cream -- say that again.

Christine:  I've developed an upscale skin cream.

Rich Sloan:  And that is under the brand Brown Bag Botanicals?

Christine:  Yes, it is.

Rich Sloan:  Okay.  Great.

Christine:  And what I've done is I've piloted it locally here in Northern California while I've been kind of testing the market and whatnot, and everything's been going really well.  I've built up this impressive media portfolio of endorsements and whatnot, and have received some very favorable feedback.  So, to date, I've pretty much self-funded the venture and have raised a little bit of capital over the last year.  It's just in a warm convertible note round.  I was in a position to go ahead and apply for some business loans or possibly pitch to VCs to further grow my company.  Okay?

Rich Sloan:  What amount of money are you going to seek in this round of capital?

Christine:  Well, technically, I'm still in start-up mode because I haven't raised the revenue to recoup my costs.  So for this round, it would be around 250,000 before we go for the formal round of funding.

Rich Sloan:  Okay.

Christine:  Okay.  So, that being said, as there are a couple different factors here.  One:  I lack team.  I've done a great job of hiring consultants, have my advisors and my coaches, but at the end of the day, it's just me.  So I lack the executive and operational support for the day-to-day.

Rich Sloan:  Okay.

Christine:  And so I'm considering exploring partnership opportunities before I do seek the funding.  And two: I've unfortunately had my personal identity stolen just last month.

Rich Sloan:  Uh-oh.

Christine:  Which has put a huge ringer in things because it --

Rich Sloan:  Are you sure we're talking to you right now?

Christine:  Hello?

Rich Sloan:  Exactly.  No, no.  That was a joke about identity theft.

Christine:  Okay.  I'm sorry.

Rich Sloan:  Stick with us, Christine.

Christine:  Okay.  Sorry.  So, essentially, you know, it's really put my personal credit through a ringer.  And as you know, applying for any funding, I'm the principal and the only officer of my corporation, and I'm afraid that my options are going to be very limited at this point.  And I want to know what kind of advice you can provide to me on what my options might be because repairing that credit is going to take months, at the very least.

Rich Sloan:  Now, can you substantiate that any of the credit problems happened as a result of the identity theft?

Christine:  Yes, I can.  I have quite a paper trail and I've done all of my due diligence.

Jeff Sloan:  Well, that's important.

Rich Sloan:  And what was your credit rating before the identity theft?

Christine:  What was the rating?  It wasn't excellent, but it was good.

Rich Sloan:  Okay.  All right.

Christine:  Partly because I have self-funded and had multiple lines of credit open.

Rich Sloan:  Okay.  All right.  So, first of all, let me take the first part of the challenge in that you don't have the team, in particular the key executive that you spoke about.  The CEO, right?

Christine:  Yes.

Rich Sloan:  Have you thought about raising more money in this round and having part of those proceeds go toward the hiring of a CEO?

Christine:  You know, I did consider that as well, but I just kind of feel that I'm alone at the top.  And I have this great product and brand, and how do I go qualifying those people for the executive level?

Rich Sloan:  Well, when you say "qualifying," I mean, how do I find them?

Christine:  Yes, exactly. 

Rich Sloan:  Yeah.

Christine:  Let me put it this way.  I'm ready to be the face of my company, not necessarily run my company.

Rich Sloan:  Uh-huh.

Christine:  So are there organizations out there, such as there are VCs to fund start-ups and companies, that are looking to partner with companies like mine to actually manage and run them, so I would be the face of the company?

Jeff Sloan:  Yeah, I don't know about partner.  That's a little tricky, I think.  I'm not sure there are companies out there that would partner with you, but there are certainly companies out there who can help you identify a key executive.  There's lots of HR companies out there who will help you identify someone experienced in this field.

Christine:  Okay.

Jeff Sloan:  You know, what I would do, if the key executive is so important, is build a business plan out showing use of part of the proceeds going toward the hiring of that key executive, who you may have identified in advance of seeking the money or you may not have.  But I think to be responsible, if I were an investor, I would want to know that key management, experienced management, is in place.  Now, the other thing is you may be more capable or more experienced yourself than you're giving yourself credit for, and I think it really depends on the tasks at hand.

Christine:  Uh-huh.

Jeff Sloan:  So, the key thing is to lay out that business plan, lay out the key milestones you want to achieve through the proceeds that you're going to raise, the use of proceeds under this round, and if you're the one that's qualified to be able to execute on them, maybe now is not the time to hire that key executive.  Maybe you just show your capability in achieving those milestones, and then at that point, you go out for the next round and hire the key executive, raise more money, etc. 

Christine:  Okay.

Jeff Sloan:    But those are things you need to think through.  You know, not knowing what your capability is or isn't or your needs are, it's a little tough to make that specific call.  But those are things for you to think through.  And in terms of getting the funding, I think if you're going to go to a lending institution, a bank, for example, the identity theft thing may be more of an issue because the credit's going to be more of an issue because you're going to be responsible for paying it back.  If you go to an equity situation, angel investors first of all, credit is not as big a deal.  They don't typically ask to see your credit.  And number two, if they did, you have all that substantiation where you can explain what happened and substantiate what happened.

Christine:  Okay.

Jeff Sloan:  So, if you're concerned about going out and being able to get capital through a traditional lending situation, angel investors might be the key to your source of capital.

Christine:  Okay.  Great.

Rich Sloan:  Jeff, in front of Christine here on our show, I want to probe a little bit with you.  If you have a completely buttoned up business plan, and then you go to try to find a CEO, someone who would be capable of leading a product line in a company that has a product line like the one that Christine has here, don't you think that that CEO would want to manipulate the business plan, take ownership of it, influence the business plan and kind of potentially reshape the business a little bit?

Jeff Sloan:  Yeah, sure.  And I think there should be room for that.  But you've got to remember, the objective here is not to use the business plan to go out and get a CEO.  The objective here is to use the business plan to go out and get the money that can then get the CEO.

Rich Sloan:  But I'm not sure that's the right objective.  That is what her plan is, but I'm wondering if she shouldn't go and try to find the insider from the industry who's got the Rolodex, who has the, perhaps, even financial wherewithal as a result of experience and success in the industry so far.

Jeff Sloan:  That would be the best of all worlds if you could get all that in one package.  I'm just not sure you can.

Rich Sloan:  And give equity to such a person, so that they really are involved.

Jeff Sloan:  If there someone like there out there, that's a great way to go. 

Rich Sloan:  Yeah.

Jeff Sloan:  I mean, there's various paths, as we know, to achieving this.  And I think plan A, get the business plan in place, go out, raise the money, then go hire that CEO.  Having the funds in place, you can go there and actually sit down in front of someone and say, "I have a job to offer you."

Rich Sloan:  Right.

Jeff Sloan:  Or two, go to someone and say, If you're willing to jump on, I can't offer you any money right now, as you're suggesting.  Maybe I'll give you a little equity and you can be part of shaping the business plan.  That's another way to go.  Both are good ways to go.  We've seen them work in both cases.  And I think either way.

Rich Sloan:  Okay.  Right on.  Good luck to Christine out of Sacramento, California with her product.