Here is a question I ask daily, and more often than not, multiple times per day: “How much money do you need to raise?”

Here are the most frequent answers I get, and some commentary on each.

Answer 1: “(pause) Probably somewhere between $2 and $3 million. If that isn’t possible, we would probably take $1 million.”

Commentary: You don’t really know what you want.  The difference between $2 million and $3 million is ONE MILLION DOLLARS (aka ‘A Shitload of Money’). Somewhere along the line, you saw a movie or read a Pando Daily/TechCrunch success story and somehow convinced yourself that you loved the idea of raising millions of dollars. Professionals know how much they need to raise and why they need to raise it. (More on that in a second). Also, the ‘would probably take $1 million’ may sound cool as you rehearse it in the mirror, but what it tells me is that you are testing the waters to see how much you can get away with funding-wise, which means you don’t have a clue and you aren’t the type of person in whom I’d suggest investing.

Answer 2: “I was told that I could raise $500,000, so that’s what I’m going out to raise.”

Commentary: Again, you have had someone else pulling the string in your back and telling you what you can and cannot do. Ultimately, you are going to build a product or service that is going into battle in the market against multiple other competitors. (If you don’t think you have competitors, you haven’t looked hard enough.) These competitors, you must assume, all have multiple seasoned, veteran entrepeneurs on board who know lots of venture capital firms that have given them a virtually unlimited amount of capital. Just because you can only raise $500,000 from people you’ve spoken with doesn’t make reality any different when you step out on the battlefield and find yourself outnumbered and outspent.

Answer 3: “I need $1.25 million for the conservative go-to-market strategy, and $1.75 million for the aggressive strategy.”

Commentary: You (most likely) have thought through all of the moving parts of what you need to build, how you need to staff, and what are your go-to-market plans. You’ve put those in a spreadsheet, affixed numbers to each, and hit the sum button. Then you went back again and changed a bunch of assumptions and numbers and summed again.

The one thing that the first two answers have in common, and where the third differs, is the lack of a Plan.

The Plan is not the ‘Business Plan’, with a capital ‘B’.  The Plan is the amalgam of your original business plan, your aggregate learnings in developing the product and speaking with prospective or current customers, and the grand unified synthesis of all your market expertise in the development of an air/naval/ground battle strategy for your company’s world domination.

This is a sample snippet from a hypothetical Plan: “We are scheduled to ship our business-to-business software-as-a-service product by late August, in order to qualify for end-of-year funding deadlines at our five target initial customers.  We have been high-touch with them during development, incorporating their feedback into product development, so we’d handicap the odds-to-close of those five early-adopters higher than average prospects. Our sales strategy is to focus on large enterprise customers in the manufacturing sector, which typically have longer-than-average sales cycles and purchase through the value-added-reseller channel. In order to succeed, we are partnering with three local value-added resellers to walk into these five target accounts, to begin to develop relationships with them early, and have forecasted one technical channel sales representative in our operating projections beginning in month three.”

This is a sample snippet from the lack-of-a-Plan camp: “We are going to ship this year and we’re selling to big companies. We’re going to do all of our sales and marketing over the phone and via social media. All of us are going to take turns calling customers.”

Where the first snippet differs from the second is that you aren’t just praying that someone will somehow see the brilliance of your product in these busy times and shower money upon you. You demonstrated that you know that large manufacturing companies are comfortable with software-as-a-service business-to-business solutions, that they buy through one-/two-tier distribution channels, that you are savvy enough to enlist real customers in the product development process so you aren’t spending time and money on something that no one wants or needs, that you are thinking long-term by enlisting potential future resellers (by handing them these deals that you’ve already started), and that you aren’t grossly oversimplifying sales as a standalone discipline that people spend their entire life mastering and, by extension, assuming that the founders/developers/etc. can just do it because they picked up the Kindle version of ‘Selling for Dummies’.

A Plan is something that, with a couple of hours, you can input into StartupModels and it will quickly build you your primary financial projections. You’ll know real quickly how much money you need. It’s at this point that “art” enters the equation as  you determine for how many scenarios you should plan, and how much you should pad your cash needs for contingencies.

If you have this Plan, all of the negotiating with investors becomes much easier as you aren’t spit-balling guesses. You are looking for partners on the Plan. When the wrong type of investor comes, and starts saying things like, “I see that you are asking for $1.25 million but I think it should be $750k. What do you think?”, the answer is easy…”well, which part of the strategy would you take out? The salespeople? The rent? The advertising spend?” They are praying and guessing, which means they don’t have a clue and aren’t people from whom I’d suggest taking money.

Develop your Plan. Socialize it with smart people that can help you improve and refine it. Then, if you find that you need to raise money to make it happen, search for people that agree that the Plan is the right one, and will understand that you need a certain amount of money to fund it. That’s how much money you need, and the right money at that.