Evan Carmichael and Stephen Kelly advise a clothing company founder to build a 12- to 18-month growth plan first, then calculate how much capital that requires. They stress knowing exactly where every dollar goes and warn that over-raising often leads to wasteful spending and lost focus.
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Next question comes in from Salvador. He has a clothing company. It's 1 year old. If he's going for an investor, how much money do you think I should ask for? So that's a pretty generic question. But how do you, how do you address how much money you should ask for at any point in time in your business?
Yeah, I think, hey, Salvador, you need to almost turn the question around and say, how much do I need to fuel the growth? So again, you don't need to, you know, go to Harvard or anything. You know your business, you know your customers, you could put a projection around how you could grow your business and then whether you need to take on extra employees or to service them or sales or marketing and the sort of functions you need to keep customers, delight customers and grow a sustainable business model. And then once you do that, it's kind of work backwards about over the next year, what do I need to fund that growth? Look at your cash balance, look at all the obvious things about whether you've got revolving credit. A lot of businesses probably at that stage are still using their credit card to fund some of their growth as well. And then think, you know, have a really rock-solid plan over the next year, 18 months. This is the best case. If I accelerate it to a sort of stretch plan, back to Evan's point, Could I go back and say, have an option with an investor to really kind of ramp it up and grow faster? So I think the key question here is, it's not how much money do I want to raise, it's what is the business plan to grow responsibly and sustainably, but as fast as you can to execute on the opportunity, and then work backwards to look at the funding requirements.
Yeah, I agree. I like looking at, here's where we want to go in the next year, and how do we fund that before worrying about how do we fund the next 10 years? Actually execute your 1-year plan first. And if you do that right, it'll be way easier to raise for what you're gonna be doing ongoing. I would add to that, when you are talking to an investor, you need to have absolute clarity over how much you need and what it's gonna be invested into. Because if there's any hesitation, if there's any doubt, then you're gonna make the investor scared. They're gonna be spooked and they're gonna not want to invest in you. So you have to have absolute clarity. You have to know exactly where you're going to be spending that money. And to Stephen's point, you make your plan. One year, here's what we want to do. Here's where we're going to go. And then in your projections, here's what will often happen. An investor, at least in the VC world, will look at the executive summary of your business plan. Then we'll look at who is part of this deal, like the horse for the course, they call it, right? Who is the jockey? Who's the team? And then we look at the financials. Do the financials make sense? You know, here's where you want to be. And you have to be able to explain every single number in your financial statement, why it's there. And if you can't, then it's going to be really hard to convince an investor to want to come on board with you.
Yeah. The key thing, Evan, is you've got to know where you're going to invest it. So they'll bet on the management team. And the longer you've executed successfully, the more backing you'll get. But you've got to know how you invest it because I've seen companies even when they get to like 15, 20 people, they go and raise a load of money and all this stuff, the bad behavior kicks in, like they design a new logo and a new brand and stuff and start traveling first class and all the kind of nonsense that I would say wastes money rather than focused on the mission of driving value for customers and growing your business.
Yeah, and you know, the other thing to keep in mind there for those of you watching is raising money can become a full-time job. Which means you are not spending time executing on your business. And so you can't often afford that if you're a solo entrepreneur, and no investor wants to put money into a company that isn't gaining traction momentum. And so if you can focus on executing and getting some results over the next 6, 12 months, that'll give you a lot of ammunition to go talk to investors with.
