When my initial angel investor, Stan, and I decided to start a company, we opted to go into the childcare business, an industry we knew nothing about. I had two kids in an expensive daycare facility with a long waiting list, so we figured there was money to be made.
The day after we made this momentous decision, Stan handed me a spiral-bound document, about a half-inch thick. “You need to write a business plan.”
Stan had already figured out that I was better at new things when I had an example to follow. The document he handed me was the business plan for his second successful company. Still, I was surprised at the request. He was the business guy, right? I was the technical one. I was the person who would execute the vision. What the heck did I know about executive summaries and market analysis?
Still, he insisted. Writing a business plan would force me to think through everything I needed to know about starting and running a daycare. As my investor, Stan needed confidence that I’d done my homework.
Researching and writing the business plan took me six months.
In 2005, searching for “daycare business” on Google yielded little more than journaled articles, so I made multiple trips to the library. I checked out every daycare in the area, visiting them on the premise that I was thinking of moving my kids to a new facility. There were days spent scouting locations. I spent four hours on the phone with someone in the licensing board trying to figure out how many toilets needed to be installed (one for each 15 children). I researched staff salaries by responding to ads on Monster.com with a fake resume. I had to estimate the cost of everything from the monthly utility bill to advertising. The research alone was exhausting.
Even with all my research handy, the writing of this crucial document was a daunting task. There was the recruiting and staffing plan, the sales and marketing plan, the training plan. There was a detailed plan for implementation (thirty-two days total from the day I would sign a lease on a building). There were daily operations processes and a sketch of the proposed layout of the facility.
For a software geek like myself, the financial aspects of the plan overwhelmed me. I had multi-page spreadsheets detailing startup costs and operating expenses for the first thirty-six months. I had to construct pro-forma financials for the first two quarters, never having seen a balance sheet before in my life.
Getting tripped up by a low investment multiplier.
At the end of six months, I handed Stan my masterpiece. He turned to the executive summary and looked straight at the end, where I discussed the investment multiplier of 3%.
“Where’d you get this number?” he asked.
I explained the spreadsheet I reconstructed from his sample document. “But,” I continued, “it matches the industry norm.” I produced one of the journal articles I’d found on the first trip to the library, an article about profitability in the daycare industry.
“We can’t do this,” he said. “Can’t make enough money on 3%.”
And that was it. Six months of research and writing wasted on a business we weren’t going to implement. But was it really wasted? I did learn how to take a concept from a cocktail napkin to a full-fledged business proposal. I learned the basics of financial statements, operating costs, and the crucial necessity of cash-flow. Writing the business plan for the daycare business prepared me for starting Trident Technologies. In the end, it wasn’t a waste of time at all.
Do you have a business plan folly to share?