Setting milestones within a company means that, despite the best intentions, you may miss one from time to time. The way an entrepreneur responds to missing a milestone not only shapes the company’s rebound but guides its long-term success.

When a company is building out its business plan, it’s imperative to plot the milestones it expects to achieve within a given time. These milestones or accomplishments not only keep the entrepreneur on track to fulfill his or her business plan and improve the value of the company, but also provide a way for an investor to keep tabs on a company’s progress.

“A milestone is something that increases the valuation of your company,” explains Guy Kawasaki, founding partner of Garage Technology Ventures, during a video presentation at Stanford University. Hitting a milestone for “shipping your product increases the valuation of your company. Filing for a patent or trademark does not increase the valuation of your company.”

In the beginning, milestones may take the form of finishing the product design, completing a prototype and shipping the product to the first customer, Kawasaki says. The milestones do not fall under the category of ordering a company logo or equipping the office with furniture.

Breaking news of missed milestones to investors

For companies that secured funding through an angel investor or venture capitalist, the thought of informing their investors of missed milestones may seem daunting. But it doesn’t have to be.

“Most entrepreneurs miss their guidelines or milestones,” says Manny Fernandez, co-founder of equity crowdfunding firm DreamFunded and founder of the SF Angels Group, both based in San Francisco. “Entrepreneurs have wildly optimistic goals and the investor likes hearing about those milestones and goals. Although the entrepreneur tries their best effort to reach those goals, sometimes they don’t but they end up with a better or different solution.”

Venky Ganesan, managing director of Menlo Ventures, stresses the importance of informing your investors as soon as you suspect the milestone will be missed.

“The best time to tell your VC you are going to miss your milestone is as soon as you know. Bad news, unlike wine, does not get better with time,” Ganesan says. “By telling a VC as soon as you know that you are going to miss a milestone, you build credibility instead of losing it; you can get help on how to manage this setback and (the VC can be) part of the solution instead of just hearing the news.”

If the milestone has already been missed, Ganesan advises entrepreneurs to jump on the phone and inform the investor immediately without beating around the bush. A face-to-face meeting should be scheduled within a day or two so the entrepreneur and the investor can focus on how to move the operations of the business forward.

When informing the angel investor or venture capitalist about missed milestones, Fernandez says it is important to tell a compelling story about what the business plan was and why it will be better reconstructed in a new way.

“Entrepreneurs have unique insights into their companies and can explain to investors what they don’t see,” Fernandez says. “So, if you accomplished three of your 10 milestones, then talk about what happened with the three.”

He says angel investors tend to invest based more on their emotions and connection with the entrepreneur, whereas venture capitalists typically fund companies based on various metrics and numbers. For entrepreneurs who missed their milestone and plan to approach a VC for further funding, it may be helpful to see where the VC is coming from.

Getting back on track

pexels-photo-66100With the milestone or milestones missed, entrepreneurs may wish to try any one of 10 tips offered by Doug Yakola, a senior partner with McKinsey & Co.’s recovery and transformation services arm.

Yakola offers tips for moving companies out of a crisis. For some companies, missing a milestone or milestones can be a precursor to a crisis.

Executives rarely review their own plans and ask themselves, “‘Is this what I thought would happen when I first started going down this road?’ That’s a problem because acknowledging that your plan isn’t working is a necessary first step,” Yakola says in the McKinsey report.

One of the biggest ways companies can avoid falling into a crisis is to periodically review their business plans and change course if needed. But if they find their company does land in a crisis, one strategy to get back on track is to build traction for a recovery with several quick wins.

“The tendency of most managers is to put all of their focus and resources into three or four big bets to turn a company around,” Yakola says. “That can be a high-risk approach.”

Instead, a series of quick wins will rally fence-sitters within the company to get on board with the plans to hit the next set of milestones.

“Everybody misses a milestone or misses (their business) plan. That’s the reality,” Ganesan says. “You can build credibility by being direct, upfront and thinking about a plan on how to fix it going forward. The most important thing for the entrepreneur to do is take responsibility for the miss, focus…all energies on what to do next and try to make the VC part of the solution.”