Help with financials of a business plan

[brohar]

I'm working on a business plan for a new website idea and need help with the financials.
About the site:
* Streaming music site with other content
* Demographic 16-36 male & female music fans
* Ad revenue based, commission from songs purchases, viral gear sales

Here are the thing i cant seem to figure out:
- How and where to find the data needed to approximate the average CPM for my market segment?
- How to estimate commissions without pulling numbers out of the air?
- I know investors are interested in making quick ROI, so how can i make them feel like with the proper investment and the right success the site could be sold for big money in the short future?

Any resources, advice, calculations, examples, would be or great help and id be very thankful.

[Jeremy W.]

brohar, normally you'd pay someone 10-100K to help you with this, as these aren't "simple" questions. They're doable and I'll give you some direction on them, but just want to raise the flag on this.

Ultimately, though, remember that the financials are really for 3 things:

1. Show that you know your space (not knowing this info is, erm, not a good sign)
2. Give the investors confidence that the business will grow and is "fundable" (ie: will not just return X+prime+1%, but will return a significant multiple of the amount invested)
3. Show that the core assumptions around the business's growth are reasonable and doable

Now #3 is really hard to give any insight on without seeing the financials, and #2 is a factor of who'd buy it and for how much (unless you're doing it on a dividend basis, in which case you need to be able to ramp up cashflow very quickly to actually pay out a decent dividend over a good period of time.

Remember that any significant investor will have a "cost of capital" (somewhere in the 10% range), so you need to beat that on an annualized basis AFTER their fees, carry and opportunity cost... basically, you need to beat roughly 15% annualized returns for this to make sense, or, in other words you need to double their money in 5 years.

So ALL of that said, average CPMs for your industry aren't easy to come by, but will sit between PubSub's industry average and 2-5$. Realistically it's best to assume 100% fill rate at a 10% discount to PubSub's figures, and then a starting 10% fill rate at your premium rate, growing by 10% a month (ie: 1%) or something reasonable like that. This is all back of the napkin, and you need to be able to tell them WHY and HOW it will grow, but no investor will balk at 1% monthly growth in net CPMs.

So if you had 1MM pageviews, and the PubSub index was at 50c, and you had 4 ad units on a page, you'd have total inventory of 4MM impressions, or 2K in remnant rates. 10% of your traffic @, say, 4$ gives you 400K impressions at a net lift of 3.50$, for 1400$. And then you'll want to have affiliate revenue, text links, sponsored stuff, etc, on top of that for, say, another 600$/month, giving you initial revenue of 4K/month.

You then GROW those assumptions over time, (being able to answer HOW and WHY), giving you VERY, VERY, VERY basic financial projections.

If the growth makes sense (ie: if you've gone from 4K/month to 400K/month in a year, you've done something wrong), you can then start to break out each of the specific growth triggers. SEO traffic. Traffic per article. Traffic per user. Users per unique. Then track those in parallel (and revenue per for many other metrics) to make sure that no single core metric grows by more than 30% ish per year kinda of thing. What you're looking for is an accretive business that grows organically (or through acquisition), where you know how traffic's growing, why traffic's growing, how and why community is growing and how/why revenue is growing. Each of those triggers combined should give you no more than 200% annualized growth, as most investors won't believe any more than that except in the early days (last company had 1500% growth in its first 2 years, but that was due to very slow first year).

Take a look at the MaRS center in Toronto, they provide a wealth of info for entrepreneurs aroudn this. In addition, the Business Development Bank of Canada has a fantastic business plan builder that'll help you know what questions you need to answere to help gain investor confidence.

Ultimately you shold walk away from this with a solid set of financial projections, a 10-12 slide powerpoint deck, and a 7-10 page business plan. Anything more than that is just fluff and you talking out of your ***, which no investor will appreciate.

End of the day, this is about your knowledge, your passion, your team and your ability to execute. If you can't give comfort on EACH of these, no investor will invest no matter how good the business plan.

[brohar]

Jeremy thank you for the great information, even though i do not understand it 100% (maybe about 80%), it helps me understand in what areas i need to focus. The other resources you provided are very helpful, I finally feel more comfortable in my business direction after reading through much of the information they provided.

A little back info, I'm a talented web developer with 9 years experience in not only programming but networking, database, UI design, and many other areas. I'm suffering from some burnout in my current employment and have always dreamed of following my passion and starting my own company. With that said it is pretty apperent that with all the info and research i've done so far it would make sense to partner up with someone that is more familiar with the finacial, business, legal side of things which will allow me to focus on what i do best. In your experiences does that sound like a good approach? Also is there any investment money out there currently if we are able to forecast good business growth, quick to break even point, and potential for doubling investment in 5 years?

Thanks

[Jeremy W.]

brohar, glad I could help. And, yeah, partnering is something I'm a huge fan of (with caveats, they never work out as you hope, so plan for the partnership to fail WHILE the business succeeds... weird, but it's true).

As far as money, there is, yeah, even in Cinci You'll likely be looking to angel money, for anything less than 500K, and some angels have a greater risk tolerance anyways. Get out into the community, network, talk about your idea, listen to feedback and criticism, and see what happens. A good local person is @kristaneher on twitter, she's a good friend

[brohar]

Jeremy, since you have "been there and done it" would you mind reading my idea and telling me your honest opinion of it? I could PM you a synopsis. This early in the game, im not very scared about someone stealing my idea, not that you would.

[Jeremy W.]

Jeremy, since you have "been there and done it" would you mind reading my idea and telling me your honest opinion of it? I could PM you a synopsis. This early in the game, im not very scared about someone stealing my idea, not that you would.

Email it to me: jeremy@netmobs.com. And, no, I don't steal ideas I have too many of my own to worry about yours