Many entrepreneurs start their business or expansion prematurely. They consider themselves in business after formation rather than after customer and product development. As a result their burn rates are often very high. One reason for this deficiency is that they are in operation as they are building their business plan. This jump from idea to business plan creates extremely high burn rates and usage of equity and borrowed capital at a time when the firms needs to maintain cash on hand.
As a result, entrepreneurs must adopt the new paradigm of "Idea to Business Model" rather diving directly into a business plan. This principle can be adopted for new businesses or expansion. Throughout our JAX Bridges simulation we refer to the $100k Principle (Model it before you plan, execute, & burn).
For example, if you have an idea for a new business or expansion and it warrants a burn rate of $100,000.00 over the first six months ($16,666.67/mo). This dollar amount represents the cash you will spend on business activities. Going from from "Idea to Business Model" allows the entrepreneur to simulate some activities without incurring some of the costs associated with implementing. In many cases we may find that while the idea was great, execution, implementation, and/or value creation could require more work than first realized. If we abandon or pivot after realizing this in month one ($16,666.67/mo) we have the potential to slow the burn rate and redirect those funds ($83,333.33). This demonstrates how the cost of planning without modeling can be expensive.