- Business plans with an excellent assessment of their market are three times as likely to be in the highest revenue group.
- The ability to define risk (including an overview of competition) is less related to eventual success that an the other categories, although a low score on risk is the strongest correlate to a company’s failure.
- Business plans that received high marks for their financials were three times as like to be in the group with the most funds raised, but only twice as likely to be in the group with the most revenue.
- The success measure least correlated to a strong business plan was years in business.
The Mentor Capital Network looked at 776 Companies that were part of our programs between 2008 and 2018. We tracked four distinct success measures (years in business, annual revenue, funds raised, and non-founding hires) and then looked their correlation with those companies being in the top 10% of the categories we track in our business plan review program (Product, Market, Team, Risk, Finance, Overall Viability.)
The top performers in each category were given percentages compared to the average success achievements of all 776 companies in that area. So, for example, the average company lasted 3.6 years (this includes some companies that didn’t make it past year one, and many companies that are still active a decade later). So, companies that received top marks in the “Team” section of our reviews (top 10% of all 776 firms reviewed) are listed as 150% because they had an average years in business of 5.4 years (so far.)
Revenue: The average (unadjusted) annual revenue for these companies is $5,462,722.
What we learned: Companies with greater annual revenue tended to still be run by their original founders, at least in the short term. So companies with great teams and good understanding of their market did very well here. We are intrigued by the poor showing of companies with clear finances, and are investigating further.
External Funds Raised: The average external funding raised for these companies is $3,370,116. What we learned: That having a great product is the key to raising outside funds. Having a clear set of finances and understanding of your market are less relevant. Our (non-scientific) assumption is that the companies who had a great product attracting the interest of investors who would take over the company, making the other factors less important. We are doing more research to validate that theory.
Longevity: This section had the least variance, but it would appear that having a solid grasp of a company’s potential market (where are your customers, and how do you plan to reach them) is more important to being in business longer than solid financial assumptions. What we learned: Companies with greater annual revenue tended to still be run by their original founders, at least in the short term. So companies with great teams and good understanding of their market did very well here.
Hires: The average number of employees for all companies surveyed is 28.
We are not sure if the significant difference among well reviewed plans to average-review plans in terms of numbers of non-founding employees is relevant to the ability to track funders, or the ability to write well correlating to the ability to attract talented staff, but we are looking into that further.
What we mean by “Adjusted Revenue” The Mentor Capital Network is a global program. So if company A that is based in, and selling to customers in, the USA has an annual revenue of $100,000, that means less than company B with the same equivalent revenue that is based in, and selling to customers in, Bangladesh. We accounted for average incomes by country, and adjusted the annual revenue accordingly.
(One item that we have discussed in one of our peer-to-peer calls is the difference between available marketing data in different countries. )
We did not do this for outside funds raised because, the quantity of locally-based investment in low-income countries is low. As above, people who were well reviewed for their business plans in the areas of Finance and Risk did not show a significant advantage compared to other categories. (Although, it should be noted that doing poorly in the Risk category is a significant marker for companies that do poorly.)