The Strategic Edge: Why a Business Plan is Essential for Entrepreneurs

Introduction

Sun Tzu, the legendary Chinese military strategist, profoundly noted, “The general who wins a battle makes many calculations in his temple ere the battle is fought. The general who loses a battle makes but few calculations beforehand (pp4, 2014).” This ancient wisdom emphasizes the critical importance of planning and preparation in determining the outcome of any endeavor, whether it be warfare or business.
For entrepreneurs, crafting a robust business plan is not merely a formality but a vital exercise that can spell the difference between success and failure.

The Importance of Calculations and Preparation

A well-thought-out business plan embodies the essence of Sun Tzu’s philosophy. Through extensive calculations and strategic planning, entrepreneurs can navigate the uncertain terrain of the business world. Just as generals must anticipate the moves of their adversaries, entrepreneurs must prepare for various market scenarios and potential challenges. This preparation allows them to seize opportunities and mitigate risks effectively.

Knowledge of the Market and Competitors

In the realm of business, knowledge of the market and competitors is akin to understanding the enemy in warfare. A comprehensive business plan requires in-depth research into market conditions, customer needs, and competitor strategies. This knowledge empowers entrepreneurs to make informed decisions and devise strategies to outmaneuver their competitors. As the text suggests, “Knowing their strength, position, and intent helps you make better calculations.”

Flexibility and Adaptability

The truism that “the main plan never survives the battle” applies equally in business. Entrepreneurs must be prepared to adapt their plans in response to changing circumstances and unforeseen challenges. A business plan is a foundational guide, but its true value lies in the planning process. As Dwight D. Eisenhower famously stated, “Plans are nothing, but planning is everything.” Planning hones an entrepreneur’s ability to think critically, anticipate changes, and remain agile in adversity.

Resilience and Readiness

In today’s fast-paced and dynamic business environment, resilience and readiness are paramount. Entrepreneurs who fail to consider alternative scenarios and build resilience into their plans are at risk of being outmaneuvered by more agile competitors. A robust business plan helps foster this resilience by outlining contingency strategies and risk management approaches. It ensures that entrepreneurs are not caught off guard and can respond swiftly to market shifts and competitive pressures.

Sun Tzu’s ancient wisdom on meticulous planning and preparation holds timeless relevance for modern entrepreneurs. A well-crafted business plan is not just a roadmap for success but a strategic tool that equips entrepreneurs to navigate the complexities of the business landscape. Entrepreneurs can significantly enhance their chances of success by making extensive calculations, gaining market knowledge, remaining adaptable, and building resilience. By following the timeless wisdom of Sun Tzu on meticulous planning and preparation, entrepreneurs can significantly enhance their chances of success.

As the saying goes, “Battles are won or lost before they are started,” and the same principle applies to business.

References

1. Sun Tzu (2014), “The Art of War” Published by World Cloud Classics, San-Diego
2. Score (2023), “How to Write a Business Plan,” Published by https://www.score.org/greenbay/resource/how-write-a-business-plan, August 08, 2023
3. USDC (2024) Minority Business Development Agency, https://www.mbda.gov/business-resources

THE W.H.A.L.E PATTERN—-I.N.N.O.V.A.T.E

The “Wise Hypothesis Actualizes Liberating Experimentation” concept emphasizes generating well-formed hypotheses and conducting experiments to foster innovation. This approach promotes continuous improvement, enabling organizations and individuals to iterate and refine their ideas for more innovative and successful outcomes (Zias, 2014). Experiments are conducted to test these hypotheses, turning ideas into tangible projects for practical evaluation and evidence gathering(Desouza, 2017). The W.H.A.L.E pattern emphasizes the importance of well-formed hypotheses based on research and data analysis. It fits into the CUSTOMER ENGAGEMENT & SERVICE aspect found in the “Offering” and “Experience” parts of the Ten Types of Innovation framework.

The W.H.A.L.E Approach- Its Pattern of Use at TESLA

The electric vehicle manufacturer Tesla continuously embraces wise hypotheses and liberating experimentation by making innovation a core part of the company’s strategy. Tesla consistently tests new technologies and features to improve performance, safety, and efficiency when developing its vehicles. They actively experiment with over-the-air software updates to add new functionalities, which helps them gather real-world data to validate their hypotheses. This approach allows Tesla to stay at the forefront of the electric vehicle industry by continuously innovating and adapting their products based on real-world feedback.

Planned use of W.H.A.L.E at Help Zibah Support Foundation—–INNOVATE

Help Zibah Support Foundation (HZSF) may use the pattern of W.H.A.L.E to foster innovation in its transformative rehabilitation programs through a comprehensive needs assessment, evidence-based intervention design, and actualization of holistic approaches (Lohse et al., 2014). By collaborating with experts from various fields and embracing liberating experimentation, HZSF can ensure continuous improvement and customization of interventions via the following ways:

•  Comprehensive Needs Assessment: HZSF conducts thorough assessments of individuals seeking support, focusing on mental health challenges or survivors of traumatic events. This enables the foundation to understand each client’s specific needs, facilitating the tailoring of rehabilitation programs accordingly.
• Evidence-based Intervention Design: HZSF can formulate hypotheses based on evidence-based practices in rehabilitation. For example, since the foundation deals with former sex workers, one can hypothesize that combining trauma-focused cognitive-behavioral therapy with solutions-based therapy can improve emotional/mental health outcomes.
• Holistic Approach: The foundation designs holistic rehabilitation interventions that address various aspects of well-being, encompassing the physical, emotional, and social needs of the individuals.
• Collaboration with Experts: HZSF can collaborate with experts from diverse fields, such as psychology, social work, and education, to deliver effective rehabilitation. This multidisciplinary approach enhances the quality and innovation of their programs.
• Embracing Technological Innovations: HZSF can explore technological innovations, like virtual reality-based therapies or tele-rehabilitation platforms, to enhance the accessibility and effectiveness of rehabilitation services.
• Feedback-Driven Improvements: Liberating experimentation involves collecting feedback from participants, caregivers, and rehabilitation professionals to refine and optimize programs continually. Regular surveys and focus groups gather input to make iterative changes that meet the evolving needs of the beneficiaries.

References

•  Lohse, K. R., Hilderman, C. G. E., Cheung, K. L., Tatla, S., Van der Loos, H. F. M., & Cramer, S. C. (2014). Virtual reality therapy for adults post-stroke: A systematic review and meta-analysis exploring virtual environments and commercial games in therapy. PLOS ONE, 9(3), e93318. doi:10.1371/journal.pone.0093318
• Cuijpers, P., Karyotaki, E., Weissman, M. M., & Weitz, E. (2021). The effects of psychotherapies for major depression in adults on remission, recovery, and improvement: A meta-analysis. Journal of Affective Disorders, 278, 104–107. doi:10.1016/j.jad.2020.09.042
• Morris C, (2021, March)Elon Musk’s Innovation Engine Is Tesla’s True Advantage & Contribution To Society- https://cleantechnica.com/2021/03/15/elon-musks-innovation-engine-is-teslas-true-advantage-contribution-to-society/
• Desouza, K.C. (2011/2017), “Intrapreneurship: Managing Ideas within your Organization” Published 2011/2017. (p136-137)   
• Zias, J. (2014). The Innovation Animals: Nature’s Framework for Innovation and Entrepreneurship. Intuit Inc. (p99-101)

Over the years, I’ve had the privilege of being part of teams that uncovered the fascinating dynamism of Nigerian consumers. Now, brand equity is the name of the game, and creating a recognizable and valuable brand is the holy grail for companies.

One way to boost brand equity is through Corporate Social Responsibility (CSR) practices. Embracing sustainability and environmental concerns can differentiate businesses from competitors and elevate their brand equity to new heights.

In Nigeria, this rings truer than ever. With recent flooding causing plastic waste to pile up in the streets, it’s evident that brands need to take a more environmentally conscious approach to survive in the long term. One shining example is Sterling Bank PLC, actively involved in beautifying streets and engaging staff in community cleaning. That’s what we call sterling behavior!

But not all brands are on board. Some are contributing to pollution with non-degradable packaging, harming their own equity in the process. Fake products are also on the rise, using poor packaging to deceive consumers and tarnishing brands’ reputations. The time has come for Quick Service Restaurants (QSRs) to explore alternatives to plastic take-away packs and educate customers on the environmental benefits.

And let’s not forget about plastic bottle packaging – the PET bottles. Brands can support research on sustainable uses for used bottles, like building homes or creating household energy solutions. Encouraging local recycling companies and introducing refill stations are other great ways to make a difference.

Retailers can also play a part by promoting reusable shopping bags instead of polyethylene ones. Brands must conduct surveys to understand consumers’ motivations for sustainable disposal and reward their efforts. This isn’t just a short-term cause; it’s a lifetime commitment for the environment and the brand’s future.

In today’s economic climate, brands that prioritize sustainability will earn the affection of consumers. Environmental thoughtfulness not only boosts brand equity but also complements other sponsorship activities in music, movies, and beauty shows.

So, brands in Nigeria, take a moment to reflect on your environmental footprint – from production to end usage.

Show consumers that you care, and your brand equity will flourish in the long run.

Research, Action, and Measurement (RAM) – it’s the profitable path to follow!

Have questions? Shoot us an email at inquiry@mmonitorconsulting.com. Let’s make a positive impact together! 🌍💚

In the fascinating first chapter of DeSouza’s book, I stumbled upon a treasure trove of insights into how intrapreneurs can work their magic within organizations to drive innovation like never before! 🌟 It seems like the norm these days for companies to look outside their own walls for innovation. Blame it on those pesky organizational structures, risk aversion, and that stubborn resistance to change!

But guess what? Dr. Black’s got a game-changing perspective, and I’m totally on board! She is like, “Hold up, innovation ain’t just confined to one department, folks!” It’s like a revelation that hits you like a bolt of lightning ⚡️ – employees aren’t just cogs in the machine; they’re potential innovators waiting to shine!

Now, let’s talk about the difference between intrapreneurship and corporate entrepreneurship – it’s like distinguishing between two superstar athletes with unique playing styles. 🏀🏈 Intrapreneurship is all about tapping into those internal gems of ideas to spark innovation and stay relevant in the market. Intrapreneurs take the reins, proposing and managing projects while bravely taking on moral risks, while the company has their back with the necessary resources.

On the flip side, corporate entrepreneurs are like those go-getters, always on the lookout for fresh ideas and ready to take a leap of faith, even if it means playing the financial risk game. They’re like the entrepreneurs of the corporate world, hustling to achieve growth and success! 💼💸

Now, I’ve got some burning questions – can intrapreneurs level up and become corporate entrepreneurs when the time is right? 🤔 Can they seamlessly transition from one role to the other, depending on the scale of innovation they’re chasing?

But hold on, there’s more excitement ahead! Let’s talk about the role of innovation in strategic renewal – it’s like the secret sauce that takes innovation to the next level! 🍔🍟 Dr. Black’s video spills the beans on how strategic renewal becomes super effective with an “outward-in” approach. It’s like putting the customers at the center of it all – their needs and desires fuel product innovation!

Safaricom of Kenya is a shining example of how this approach works like a charm! 🇰🇪 By involving both their internal and external customers, they whipped up some seriously innovative concepts and nurtured a whole intrapreneurial culture. Their groundbreaking M-PESA innovation shook the financial transactions world in Africa! 💥 Offering mobile-based services to millions was a game-changer, and the whole East-African telecom sector went, “Whoa, what just happened?”

So, there you have it, folks! DeSouza’s book is a treasure map for unleashing innovation, and Dr. Black’s insights are like a compass that guides us through this thrilling journey. It’s time to empower our intrapreneurs, spice things up with strategic renewal, and have our corporate entrepreneurs rocking the business world with their calculated risks and bold ideas! 🚀

REFERENCES

• John O. Whitney (1996, July – August), Strategic Planning, Strategic Renewal for Business Units, Harvard Business Review, July 1996, Extracted 3.03 pm July 05, 2023.
• Razaq Juwon Lawal (2020, Aug12), Intrapreneurship As A Tool For Business Growth In Africa, Forbes Business Council, https://www.forbes.com/sites/forbesbusinesscouncil/2020/08/12/intrapreneurship-as-a-tool-for-business-growth-in-africa/
• Links to an external site., Extracted at 2.37pm July 5, 2023
• Intrapreneurship vs Corporate Entrepreneurship: What’s Best for Your Company’s Innovation Goals? https://www.rready.com/blog/intrapraneurship-vs-corporate-entrepreneurship-rd, Links to an external site. Extracted 6.05 pm July 05,2023

For various reasons, a chart of estimates is essential when generating a suggested budget for a start-up company in SME business consulting services. For starters, it assists the organization in understanding the anticipated expenditures of launching and operating the business. The chart of estimates provides a thorough perspective of the financial resources required by categorizing expenses such as office space, equipment, marketing, employees, technology, and professional services.

A chart of estimates also makes budgeting and financial planning more successful. It enables the business to manage resources effectively, set expenditure priorities, and find possible areas for cost optimization or reduction. The business can decide on pricing strategies, set realistic financial targets, and allocate resources wisely if it has a thorough breakdown of expected expenses.

A chart of estimations also offers openness and accountability. It serves as a benchmark for comparing actual costs against anticipated ones, assisting the business in keeping track of its financial performance and locating any outliers or anomalies. This information is essential for making immediate modifications, detecting resource overuse or under-use areas, and ensuring the company maintains its financial viability.

Additionally, a chart of estimations is frequently needed while looking for capital or presenting the company plan to possible investors or lenders. A thorough awareness of the expenses related to starting and running the firm reflects the company’s diligence in financial planning and gives credibility to stakeholders.

In conclusion, creating a recommended budget for a start-up business in SME business consulting services requires using a chart of estimations. It thoroughly explains expected costs, enabling efficient resource allocation and financial planning, ensures accountability and transparency, and raises the business’s credibility when applying for funding or interacting with stakeholders.

HARVESTING: The 7^th Fundamental

When used broadly, harvesting is an agriculturally related word that describes collecting or extracting resources or benefits from a particular source or situation. In investing, harvesting refers to realizing returns on an investment by exiting or converting it into cash or other forms of value.

In this extract, the seventh fundamental, harvesting, seeks to relate what angel investors ultimately take away from their investments and how they can strategically ensure that the final returns are worth the ‘investment trouble’ embarked upon.  In addition, the biblical perspective of harvesting readily comes to mind, which likens the entrepreneur to a steward called to manage resources. These resources need to be managed wisely and responsibly. In other words, investors need to ensure that the start-up they are committing their resources to has a predefined exit plan by the entrepreneur.

The authors expound on the methods of harvesting both from a positive and negative point of view. Good harvesting includes the walking harvest, partial sale, initial public offering, financial sale, and strategic sale. 

The text highlights that an angel investor may choose to hold their stake in a company without selling it and continue to receive steady returns (referred to as walking harvest) in the form of distributions as the company generates profits. In contrast, a partial sale allows an investor to sell a portion of their stake in a start-up while retaining some ownership. That way, the angel investor can still realize further returns on remaining interest within the business. On the other hand, some investors wait until the start-up gets to the IPO stage (Initial Public Offer), by which a private company offers its shares to the public. Financial sales and strategic sales involve the sale of the investor’s stake. While the former seeks to improve returns by focusing on efficiency and growth through operational or strategic restructuring, the latter focuses on gaining a competitive advantage through acquisition.

Despite the harvest options available to the investor, choosing which investment harvest option is difficult. This decision is also something that the entrepreneur must make once he decides to seek out angel investors. Shava, in a peer review chapter, highlights this by stating, “Choosing between available business harvesting options may not be easy for the entrepreneur. Each harvesting option has its advantages and disadvantages. Therefore, the entrepreneur must diligently make the difficult decision to pick the one that would yield maximum returns in line with the sacrifices made in building the entity”. 

Negative harvests are bound to occur like many other things in life. The text underlies many reasons, including lousy market fit, insufficient funding, mismanagement, uncontrollable market conditions cause by fluctuations, bad strategy execution, bad scaling, financial mismanagement, low cash flow, outdated technology, or product, legal or regulatory issues, and unforeseen external factors are some of many reasons why a start-up may experience negative harvests. 

As an entrepreneur without experience in harvesting, one thing that comes to mind is that avoiding an exit strategy can affect good harvesting even when the entrepreneur realizes the need and decides to include a harvesting strategy sometime midway.

However, many investors and entrepreneurs often fear acknowledging the subject of harvesting, which may contribute to why negative harvests may occur within a start-up. Touraj Parang, in an article for Harvard Business Review, shares his experience as a founder; in the article, he states that “lack of advance exit planning led to the demise and fire sale of my first start-up Jaxtr, a promising communications solution founded in 2005 with top-tier VC backing and a large user base”. His beginning analysis states, “Several myths and biases about selling a business have rendered exit planning discussions taboo in the start-up community. And since creating and executing an exit plan is not a solitary endeavor and requires close collaboration with key stakeholders — senior leadership, board members, and significant investors — this taboo effectively shuts down any exit planning initiative before it gets started”. 

While the sixth fundamental of supporting introduces the concept of value events in the start-up’s success, the fundamental of harvesting shows the immense benefit it can help trigger harvesting opportunities, including achieving a certain level of revenue, gaining a strategic relationship, or launching a new product that increases the company’s worth with the ability to enhance the company’s value.

The fundamental of harvesting is vital for investing and entrepreneurs alike. However, for the investor, determining whether the entrepreneur has already developed exit strategies by conducting extensive study and due diligence, including looking into their background, prior endeavors, and reputation in the market to find any signs of a successful exit strategy should be prioritized. Connecting and networking is another way to find valuable insights about the start-up, or the investor can discuss directly with the entrepreneur to know more about their long-term goals.

Furthermore, according to Kirsty MacSween and Jonny Seaman, an outline of an exit strategy includes the following pointers for entrepreneurs:

• Investors expect an exit. Hence when calculating risks or rewards, investors will think about exit possibilities, and the entrepreneur should do so.
• An exit strategy gives a roadmap. Having one helps to assure investors that the entrepreneur has goals backed by plans to achieve them.
• An entrepreneur can establish their final exit once they can prove a realistic outcome of the exit strategy. This way, the investor too can adjust their expectations to suit such. 
• An exit strategy also makes the entrepreneur attractive to investors ready to buy into their exit plans as quickly as possible. 
• An exit assures that investors will cash out of the business. The opportunity to sell shares gives the entrepreneur and the investors returns on their investments.
• An exit strategy is also an escape if the start-up isn’t going as initially planned and proposed. 

Finally, harvesting results in both the investor and the entrepreneur recognizing the value and attaining their objectives. It entails generating a high return on investment for the investor, either through the sale of their ownership stake or the distribution of earnings. It enables them to profit from their investment and reinvest in new prospects. A successful harvest is the fruition of the entrepreneur’s hard work and ambition. It allows them to benefit financially, confirm their company strategy, and pursue other businesses or contribute to society in many ways.

In the end, a successful harvest provides a win-win situation in which both the investor and the entrepreneur profit from the value created during the startup journey.

References

•  Amis David, Stevenson Howard. 2001, “Winning Angels The 7 Fundamentals of Early-Stage Investing”, pgs. 287- 312, Published 2001, Pearson Education
• Herring Shava, 2020, ‘Business Harvesting Strategies for Entrepreneurs,’ Submitted: June 1st, 2020, reviewed: July 21st, 2020 Published: October 28th, 2020, DOI: 10.5772/intechopen.93442- https://www.intechopen.com/chapters/73000
•   Touraj Parang, 2022, Why Founders Are Afraid to Talk About Exit Strategies, Published in Harvard Business Review August 18, 2022, Extracted June 23, 2023 at 11:02 pm- https://hbr.org/2022/08/why-founders-are-afraid-to-talk-about-exit-strategies
• Kirsty MacSween & Jonny Seaman 2023, ‘Exit strategy: What it is and why you need one’, Published Mar 23, 2023;Updated: Apr 03, 2023, Extracted June 24,2023 at 2.22am

Supporting: The 6^th Fundamental

The sixth fundamental of giving support as an angel investor lies in helping to guide the entrepreneur to increase the chance of success for the startup. 

While the benefits investors bring on board can enable the startup to progress, the text highlights the different types of investors and their roles by highlighting the uniqueness of each role and its benefits to the entrepreneur. 

The silent investor– who only desires to see his returns on investments, tends to portray a lack of interest, while the reserve force investor positions as a strategic advisor offering practical expertise on raising capital from high-impact investors. The team member investor provides functional knowledge in helping to run the startup until a proper manager is hired. In contrast, the coach investor provides valuable advisory and strategic guidance due to their experience and high level of impact. The controlling and lead investor tends to take the organization’s reins from the board level or oversee organizational operations. Regardless of the investor’s typology, the authors constructed angel investor participation into five variants: advisor, mentor, investor, board member, and networker.

The role of each investor type relatively ends up fitting into that of an advisor who can provide a wealth of value to entrepreneurs in such a way that it can help startup companies provide the entrepreneur with access to existing networks, resources, and expertise, assisting the startup in identify and address challenges, building relationships, and accessing resources. 

As a mentor, an angel investor can support and guide on what and what not to do while providing necessary oversight that the entrepreneur can use effectively to improve the startup’s strategic advantage. 

The board member angel investor tends to provide strategic assistance to startups, helping them make decisions that will lead to long-term success because this can be invaluable for startups trying to navigate the complex world of business. 

The investor typically provides financial capital to a startup that can help grow and scale, giving it a massive advantage of reaching its full potential. 

At the same time, the networker is powerful in helping the startup or its entrepreneur connect with a community of potential investors, customers, partners, and groups that can contribute to building visibility and connection for the startup company. 

The angel investor wields much influence concerning improving a startup’s chances of success by assisting with identifying and addressing issues, developing partnerships, and gaining access to resources. 

The text further discusses the attributes, benefits, and considerations associated with each role which serve as milestones in the development of any new startup able to create value for investors. 

Referred to as value events, these include product launches, sales milestones, and the acquisition of other companies. 

A value event can boost the startup’s position by helping to create visibility to intending investors and the public, which can lead to an increased interest in the startup’s product or service. Developing visibility via a value event is influential in establishing or enhancing credibility for the startup by demonstrating progress to potential investors while simultaneously improving the morale of the startup team, thus providing them with a sense of accomplishment. Value events happen in different forms, including board meetings, advisory boards, one-on-one meetings, and social events. Regardless of how the value events occur, the aim is for the entrepreneur to have access to support opportunities (funding) for the startup company, including access to a community of assistance and help via connecting with potential investors and customers. Value events also open the startup team’s access to strategic advice, direction, counsel, and support.

Furthermore, different types of businesses showcased at value events were expounded on, including product business, service business, retail business, and e-business. 

These types of businesses come with their peculiarities and structures. Regardless of the type of business, entrepreneurs need angel investors’ support to succeed, and there are many examples, like Airbnb (founded in 2008) and Uber (founded in 2009). These companies were collaborations that received support from a group of investors, allowing them to grow their businesses to become successful startups. 

In Africa, companies like Flutterwave, Opay, Interswitch, and Kuda are examples of startup fintech companies that rose early to disrupt the fintech space with solutions.

These African startups were born out of investor support systems such as the Tony Elumelu Foundation and Goldman Sachs, examples of groups that discovered entrepreneurs via value events showcasing the concepts they presented.  

While winning angels are known to bring a deep wealth of expertise in understanding the startup market. Angel investment offers a unique way to raise funds for entrepreneurs. Yet, an entrepreneur needs to conduct necessary due diligence and research while having the startup goals in sight, determining the type of support the business needs, and the risk involved with having an angel investor, including knowing how to evaluate investors. 

Ultimately, having investors support the entrepreneur often provides the needed capital and strategic input for building products that are minimally viable, scalable, and embraced by customers. 

Regardless of the level of involvement of an angel investor, the end point is for the ‘supporting’ process to culminate in startup growth and success.

 

Resources

Amis David, Stevenson Howard. 2001, “Winning Angels The 7 Fundamentals of Early Stage Investing”, Published 2001, Pitman Publishing

Part II: NEGOTIATING: 5TH Fundamental of Early-Stage Investing

Negotiation is a daily thing that many businesses engage in, including investing. The book “Winning Angels, The Seven Fundamentals of Early stage Investing highlights this common fundamental as key when looking for deals as an angel investor.

As a succeeding fundamental to Structuring, the text highlights different types of investors and the traits needed for negotiating. While some angels do not negotiate because they believe it gives an impression of being weak (which is not a good enough reason to give what is requested without understanding more about the deal), many angel investors prefer to negotiate to get the best deal possible because, as the author highlights, negotiating is a ‘two-way’ street.

However, the text notes that angel investors stand a better chance of getting a good deal if they add on an attitude of compromise which also helps build the type of relationship needed to win with the entrepreneur. While angel investors may choose to come in at different start-up stages, having substantial experience with early-stage companies is beneficial, often at the building level. This way, the investor can add value to the entrepreneur- who needs to have done enough due diligence, ensuring that the offer being put on the table by investors matches what obtains within the industry.

Furthermore, the entrepreneur must understand in-depth what the deal on offer entails to avoid seeming desperate, including considering ethical issues that may cause complexities in the future. For example, an early-stage African-based fintech company recently raised some seed capital and needed investors to give them powerful leverage into the US market. When the initial deal conversations happened with the potential VC, they were looking to partner with; some ethical issues were not divulged. When the deal was to be finalized, the early stage fintech noted critical ethical issues within the potential contract deal they were about to sign off on, which they were not comfortable with and had to back out of the deal completely.

Like many other things, deal clauses should be transparently stated at the beginning of every investment negotiation without any hidden ambiguities. In other words, the entrepreneur and angel investor must align with each other’s goals, funds needed, control mechanisms, terms of the investment sought, and exit options. The entrepreneur and the investor need ethical consideration that ensures a fair deal based on fairness, trust, transparency, and long-term viability.

Ultimately, it’s about finding the best middle point where all considerations are met in alignment with every stakeholder’s set objective thus birthing a win for everyone involved.

Resources

• Amis, D., & Stevenson, H. (2001). Winning Angels, “The Seven Fundamentals of Early stage investing. Pearson Education Limited. Print.

#Structuring: 4th  Fundamental of Early-Stage Investing 

When it comes to structuring, angel investors need to be very strategic in how they use this fundamental in choosing which investment to follow through with because structuring deals with the critical aspects of how the early start-up optimizes the delivery of operations, ownership, control, and risk. 

This fundamental, as highlighted in “Winning Angels, the 7 Fundamentals of Early Stage Investing,” helps in dealing effectively with the interest of the start-up and the investor simultaneously because it has a way of highlighting how wisely the investor’s objectives are achieved.

While the preceding fundamental of valuing helps an angel investor determine the worth of the start-up in a way that supports the structuring decision regarding the terms of the deal, level of risk, and potential returns on investments. Structuring takes care of the interests of the angel investor by showing that the entrepreneur has built a robust and stable business with a high potential for success. 

As identified by the authors, there are two broad concepts concerning early-stage transaction structuring: 

The one emphasizing maximizing the investment’s upside and the one favoring protecting the investors’ downside. These two schools of thought are described as ‘the simple’ and ‘the complicated.’ 

With the simple deal format, everything is straightforward. It is a simple equity investment, with the angel receiving a specific number of firm shares in return for their contribution. This is the format I recently engaged in with a couple of co-investors (this approach gives the flexibility of having a token of the investment regardless of how small the investment is). The complicated structure offers angel investors more power over the business, including more significant returns on investments that may include convertible notes, warrants, or other features.

Further highlights include the need for investors to understand key contract clauses while reviewing investment decisions, including valuation, ownership proportion, liquidation preferences, anti-dilution safeguards, governance rights, vesting, and exit rights.

The authors touched on the possibility that an investment may need more financing, such that it can create opportunities for future investment rounds. Recently, an investment group (of which I am a member) held a second round for a high-potential early-stage start-up. The start-up had come to update investors on progress and decided to open up more equity for investment because they wanted to allow investors to exit (If they so desired). When this start-up first came to the ‘investment table,’ many investors were skeptical about investing due to the volatility and risk associated with the industry. However, a 250% increase in returns and potential growth indices had many who did not make the initial round ‘jump on board.’ 

The author also takes time to point out the critical role of venture capitalists (VC). The VC is meant to serve as an expert investor with the financial capacity to invest more money for more extended periods while also holding the professional prowess of being able to advise those who have little knowledge about the dynamics of angel investing. Today, many venture capitalists have been known to start groups that support entrepreneurs and investors alike.

While the authors present the benefits structuring can give when investing in a start-up, it helps in providing a partial overview of the potential success a start-up may have; it can also be limited when it comes to making changes later, especially if there is a need to alter existing structure. While every angel investor is focused on picking out the best deals to deliver significant investment returns, it can be challenging! 

However, the authors iterate on what it takes for an investor to win by focusing on value creation, supporting entrepreneurs, and seeking to make a difference in the lives of each start-up. Winning may be a short-lived concept because it is ultimately about the long-term perspective, which often involves considering every single stake involved.

Despite the good that structuring provides when finalizing the deal to invest in, a divergent perspective is that structuring needs to consider other critical aspects, including the flexibility and dynamism of the adopted structuring model or strategy, which may view, market conditions- including the volatility of the industry and its competitive landscape. These can be considered essential because complications arise that are never within the control of the start-up, e.g., political instability, socio-economic conditions (as it exists with emerging economies within Africa where potentials are high but uncertainty is also very high), including epidemics/pandemics such as the one experienced during COVID-19, as well as other external unseen change factors with the capability to impact the viability and success of the start-up despite well-structured agreements.

Every investor is in the game to win, and it takes patience, a consistent learning attitude, and a growth mindset to harness the benefits of having a promising and well-structured start-up.

Winning as an angel investor comes with challenges that are surmountable over time. However, as highlighted in the text, having a long-term perspective holds benefits for an angel investor, including giving an angel investor time to exit strategically, maximizing returns on investment by selling equity stake when the start-up reaches a favorable valuation, or achieving a significant milestone.

Though structuring indicates carefully considering how the start-up company will work, it still has drawbacks. As such, it is critical to have a holistic approach to finalizing any investment decision.

Resources

Amis, D., & Stevenson, H. (2001). Winning Angels, “The Seven fundamentals of Early stage investing. Pearson Education Limited. Print.