How Much Skin do You Have in the Game?

I recently completed an engagement with a client interested in starting a new web-based portal to serve the music industry. As part of writing his business plan, the discussion came up on what level of funding was sought, and at what point in the process would it be reasonable to pursue. I thought this was a good question, so am writing this post to talk about the timing component of when to fund a business, as part of your writing the business plan.

Clearly, one of the reasons to write a business plan is that you seek funding. This means you need a document that can clearly and quickly articulate how your plan and business vision can become a actual company generating revenues. (Before you decide to actually start writing your plan, here are 5 questions to ask.)

Here is where we have a bit of a paradox … if you are writing the plan to secure funding, then how much can be expected of you to get the business started to demonstrate viability? My client had a real challenge on his hands, in that he really didn’t have any money to invest in the venture now – his expectation was to find an Angel investor to pay for everything. I challenged this assumption, suggestion that he was going to need to put some of his own “skin” into the game, be it either from pre-negotiating some of the necessary partnership agreements, to finding a web developer that could start programming the portal. I suggested he find someone willing to do the work for experience and future equity, so cash outflow was not necessary required. One way or another, my advice to him was that he was going to need to make some sort of investment to show his commitment and devotion to the business.

As you are writing your business plan, either on your own or with a business plan writer, you too will need to think about how to bridge this important gap. My experience has taught me that few investors are simply going to give you a check to pay for everything, and then wish you well … unless you have had a terrific history and have earned that privilege. For the rest of us, we will need to prove our way forward to demonstrate that we have the wherewithal, perseverance and ingenuity to make something out of nothing, so to speak. This concept is critical as part of your selling that your business plan is worthy of being funded.

The best written plan in the world won’t get you funding if you can’t answer the question of “What skin do you have in the game?” Do time and effort count? Absolutely. But, most likely you will also need to have made some sort of financial investment too if you really want to “close” your investor.  After all, if you are trying to pitch your business plan to an investor and haven’t invested any of your own hard-earned money, how can you reasonably expect an investor to?

Gordon Benzie is a marketing adviser and business plan writer that specializes in preparing and executing upon business plans and marketing strategies. Gordon can be found on Google+.