Page 130 - 6 Secrets to Startup Success

Your Math Story 109

In the summer of 2006, Mark’s attorneys developed a private
placement memorandum (PPM), a standard fund-raising document
outlining for prospective investors what Modality was all about. It in-
cluded high-level information about the product idea, the assumed
market need, existing licensing agreements, points of risk, and so forth.
Only a single page in the eighty-page document dealt with financial
forecasts, using a very simple chart with assumed prices, sales, costs,
margins and some projected earnings per title figures. According to
these projections, the company would produce and release 400 titles
by the end of 2007, earning an annual average of $8,260 for each title.
Total company profits were not included, but an investor could easily
calculate Modality’s rough projected earnings to exceed $3 million
for 2007. Mark and his team knew that these projections were indeed
rough. In fact they were guesses, based on little factual data and a raft
of assumptions. As the PPM affirmed in understated fashion, “the for-
ward-looking information provided in this Memorandum may prove
inaccurate.”

Because of the high levels of uncertainty at the time, Mark’s plan-
ning approach was to continually sharpen priorities, in order to stay
focused on a small set of mission-critical tasks. No formal business
plan here. Just all hands on deck, pinching pennies, 24-7, with each
month bringing a new make-or-break challenge. Everyone’s effort and
attention was on the very next task that would take Modality toward
that landmark day when revenue would begin to flow.

THE IVEY – In Lynn Ivey’s case, she and her financial modelers applied
later-stage planning approaches and financial assumptions to an un-
proven, early-stage concept. Based on her first business plan, devel-
oped for investors in the spring of 2006, The Ivey seemed like a
mature concept ready to go to market with a high degree of certainty.
Lynn had a compelling and clear vision of her product, business
model, and client base. She was confident that she could quickly fill
up the facility with members. Her information packet for investors
contained ten years of financial projections with annual revenues,
cash flows, earnings, and rates of return.

American Management Association • www.amanet.org