Today many entrepreneurs complain that their potential investors do not read their business plans. With an average of over 300 hours of effort required to develop a complete business plan, do they have a point? I say no! The real purpose of a business plan is to properly prepare the entrepreneur, with the appropriate background information to raise money for their start-up and not to educate the investors about their company. This article outlines my reasoning behind this argument.
Until it is Written on Paper a Business Plan is not Real
To develop a complete business plan an entrepreneur has to take their business “concept” from the depths of their mind to the reality of paper. For many entrepreneurs this is a daunting task. Most of these same entrepreneurs have never written a business plan before in their lives and really do not understand the amount of research, planning, and diligence effort required to complete this task. Don’t fool yourself, writing a proper business plan that stands up to the rigors of sophisticated investors (e.g., venture capitalists), is a big effort. As is often the case, in the end, the result is that most of the original concepts or ideas you as an entrepreneur envisioned in your mind regarding your start-up business, and ultimate business plan, will be much different once it is put on paper. I have found this to be the case for every business plan I have written. Although, through the required research, planning, and diligence, the resulting business plan, once written, should reflect the realities of the market and not the original business “concepts” in your mind. This is an invaluable educational process that will result in you being a much more informed entrepreneur and an “expert” in your business. As a result of this process, when you get in front of investors, this effort of developing a complete business plan will allow to answer the “tough” questions that will inevitably arise from potential investors.
A Business Plan Substantiates Your Business Vision and Objectives
As an entrepreneur, the exercise of developing a complete business plan allows you to substantiate the vision for your start-up company and at the same time develop market driven objectives that reflect the realities of the market. This again is an invaluable exercise, as it provides you with a level of confidence that is based on reality and not hyperbole. Often, once an entrepreneur completes their business plan they realize that their original thoughts regarding the vision and objectives of their start-up company have changed substantially from their original “concepts” or intent. This is a good thing, as it now provides this same entrepreneur with a market driven vision that has associated business objectives that are now both relevant and achievable. Where before the entrepreneur completed their business plan, their start-up company’s vision and objectives are often unreasonable and would not pass the “smell” test with potential investors.
Remember, often when you present to investors, they will ask tough questions regarding the vision for your company and its overall market objectives. By developing a business plan you will be able to substantiate your response to these questions based on real market data, and a well thought through thorough analysis. This will provide your start-up company leg up with your potential investors.
A Business Plan Provides Credibility with Your Investors
Completing the task of developing a business plan provides you as an entrepreneur and your start-up company with credibility. With the completion of your business plan, now you have reference material to substantiate you claims and something to refer to when being questioned by potential investors. It also shows these same investors that you have the diligence and perseverance to complete such a document and are willing to do the hard work to develop your start-up company. This is very important to investors as they need to believe that you have the perseverance and drive to get though the tough times.
I have met many entrepreneurs that talk a good game, but when it comes down to it, they are not willing to put in the required effort to educate themselves, and at the same time bring themselves to the next level by developing a complete business plan for their own start-up company. This will ultimately not sit well with your investors, because they also know that part of the reason for developing a business plan is to address all of the issues facing your start-up company in the market, and by not doing so, you will more than likely have over looked something. Finally, if you do not develop a business plan, then those issues that have not been properly addressed through your start-up company’s research and planning process will eventually come out during the investor due diligence process, and may ultimately result in you not securing funding from these same investors.
A Business Plan is a Check Point that is Required by Investors
All investors, when they get to a certain point of interest, will want to see your company’s business plan. This is generally a “check point” on their due diligence list and is required by all types of private equity investors (e.g., angel investors, venture capitalists, etc.). More often than not, for the larger more established venture capital firms, they will have their junior partners provide a thorough review your start-up company’s business plan, and develop a report that is then provided to the senior partners. This report is generally the basis that is used to get to the next level of discussions regarding potential funding. If you do not have a business plan, or your business plan does not meet the requirements of these sophisticated investors, you will not get to the next level of due diligence and ultimately not secure funding. So as an entrepreneur, you need to understand that as some point during the due diligence process, your business plan will be required to be seriously considered as an investment opportunity by your potential investors.
A Business Plan Provides a Basis of Performance Measurement
Your company’s business plan puts a stake in the ground regarding projections of your start-up company’s future performance. As a pro forma based document, your start-up company’s business plan is often used by your investors a measurement stick to determine if your company is performing at the level you anticipated in your start-up company’s planning process. Therefore, as an entrepreneur, you need to put the proper diligence into the development of your financial pro forma statements. This will allow you to develop and present achievable market objectives and associated time frames in your business plan.
From your investor’s point of view, your start-up company’s business plan is used to “set the bar” in which measure your start-up company and its overall performance. These performance objectives can include, but are not limited to:
· Revenue growth objectives,
· Market share gains,
· Gross margin targets,
· Sales and marketing objectives,
· Customer traction goals,
· Operational margin goals,
· Earnings growth objectives, and
· Return on investment targets.
These performance objectives are often reflected in the terms and conditions of your term sheet and final stock purchase agreement. Therefore, it is important to develop a business plan that is credible and achievable.
A Business Plan Provides a “Jumping Off Point” for the Future
One of the key benefits of developing a business plan is that you always have a single reference point in which to refer to when looking forward in the constantly evolving market. This does not require that you change your business plan every time you recognize a change in the market. On the other hand, it is important to realize that your company’s business plan is a “living document” and it can be used in the future as a “jumping off point” to reflect changes in the market. This means that changes in the market need to be reflected in your business plan as time moves forward. Accordingly, not all changes really will affect your day-to-day business plan. Generally, most changes in the market are evolutionary and if you did your homework from the beginning, your business plan has taken care of this, as it is already necessarily a forward-looking document. It is the major changes in the market that may affect your company’s business plan. These things can include a new competitor with disruptive technology, significant changes in the project market growth, substantial changes in the average selling price in the market, etc. These items may cause you to reconsider your business plan. Therefore, as an entrepreneur, your business plan is an important and beneficial document to refer back to when there are significant changes in the market.
As outlined, the business plan is really a tool that is to be used by the entrepreneur to prepare themselves and their start-up company for their meetings with potential investors. There are lots of benefits to developing a complete business plan, many of which focus on the entrepreneur and their potential success with the investor community. So, when developing your start-up company’s business plan, remember it is you as an entrepreneur that benefits the most from this exercise, and it is not intended to be a end all for your potential investors. By developing a complete business plan, the entrepreneur will ensure that their start-up will have the proper focus and at the same time be better prepared when presenting to potential investors.
April 27, 2009 Posted by rochtel | Venture Capital, venture finance | | No Comments
To Become an Expert in Your Field – You Must Become an Externally Focused Entrepreneur
Throughout history some of the most successful companies ended up in failure. There are many reasons for this, but many times the most telling one is that many of these same companies, as a result of their success in the market, became internally focused and not externally focused companies. As an entrepreneur, to develop a successful company you need to focus on the external factors that drive your business. This external focus will ensure that you know the key drivers in the market, understand the general trends, and develop a long term sustainable competitive position in your targeted markets of interest. This article focuses on the external market factors that all entrepreneurs should focus on to become an expert in their field on their way to developing a successful company.
Know the General Market Trends
To become an informed, externally focused entrepreneur you need to understand the general, long term market trends. This is accomplished by studying the markets, analyzing growth opportunities, and determining the consumers’ needs as well as the technology and service trends in the market. Understanding these long-term macroeconomic indicators will provide you as an entrepreneur a basis to determine the strategic opportunistic market needs that are not being met in the market today. This will allow you to position your start-up company’s technology, product or service offering to address the unmet needs in the market. By doing this high-level analysis, an entrepreneur will be better equipped to provide their company with a long-term vision and associated product roadmap that will ultimately provide their start-up company focus to drive their success in the market.
Target Your Markets
As an entrepreneur, determining your start-up company’s target markets of interest is one of your most important externally focused activities. The task of targeting specific markets of interest is usually easier said than done. There are many market opportunities out there, and as an entrepreneur you need to determine which markets or market segments best fit your start-up company’s technology, product or service offering and at the same time will provide the highest return on investment for your start-up company. To do this properly, as an externally focused entrepreneur you need to take into consideration the market size, maturity, and growth of all of your potential target markets. All of these factors will have a tremendous affect on the long term viability of your start-up company.
Market risk is also a key factor to consider when choosing to target smaller, burgeoning markets for your start-up company. Market risk, is defined here as the ability of a targeted market to grow at a rate necessary to create the appropriate amount of opportunity to sustain your start-up company, and a number of competitors. This is a key consideration when targeting smaller markets.
Finally, as an early stage company, it is often important to identify multiple target markets that are applicable to your technology, product or service offering. By doing this, you provide the opportunity to support multiple revenue sources, higher return on investment, and at the same time mitigate individual targeted market risk for your start-up company.
Analyze the Competition
As a start-up company another external factor to consider is the competition in your target markets of interest. Competition may come from large, medium or other small start-up companies. Competition may also come from other existing companies that have complementary products or that have the capabilities to compete in related markets. So, as an entrepreneur you need to analyze all possible competitive threats in your target markets to determine the competitive advantages of your technology, product or service offering in the market. A complete competitive analysis is time consuming, but it often provides the entrepreneur with significant insights to the competitive positioning, and the ultimate competitive advantages of their own technology, product or service offering within their target markets of interest.
An excellent way to develop a complete competitive analysis is to list all of the product features, functions and capabilities that are important to your customer base. At the same time, develop a complete list of competitors in your targeted markets. This information can then be easily presented in a table format to show how the competitors stack up with regard to these required product features, functions and capabilities. If done properly, this table will show how your start-up company’s product offers compelling advantages over the competitions’ products. For an explanation on how to develop a complete competitive analysis and examples for various real world applications, refer to my book, “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies.”
Develop a Successful Business Model
All start-up companies must offer a business model that is financially viable and ultimately profitable in the market. More often than not, your start-up company’s business model will primarily be developed and then driven by other successful competitors in the targeted market of interest and their existing business models. A successful business model, along with the market size, will drive the potential revenue generation capabilities of your technology, product, or service offering. Therefore, to compete effectively, as a start-up company you must analyze the other competitors’ successful business models and determine where you may have targeted cost advantages. These cost advantages can be based on the underlying technology or by lowering the costs associated product itself, its development, or the distribution channel, etc. The key here is to clearly delineate where and how your start-up company’s business model differs from other successful competitors and results in a significant and disruptive competitive advantage for your start-up company and its targeted customer base.
Call Your Customers
The final component of becoming an externally focused entrepreneur is to know your target customers. This is only accomplished by calling and then meeting with your customers and discussing your technology, product or service offing with them. This is where many entrepreneurs fall short and is often what differentiates a successful entrepreneur and their start-up company from its competitors. Only by calling on your customers can you determine what is really important to them in terms of your product’s features, functions and capabilities. All of the analysis in the world is not a substitute for “real” customer feedback. Remember, by definition, your customers will know the end market application better than you do. In addition, as is often the case, what you as an entrepreneur believe are important features, functions or capabilities of your product offering, are many times not really that important to the customer. Therefore, real customer feedback will provide you with significant insight and at the same time make start-up company a stronger competitor in the market.
To become an expert in your field, as an entrepreneur, you need to be externally focused. Only then will you have the insight, background, and ability to develop a vision for your company and at the same time determine a long-term sustainable competitive advantage in the market for your start-up company’s technology, product or service offering. By addressing the items outlined in this article, the entrepreneur will ensure that their start-up will have the proper focus and at the same time be better prepared when presenting to investors.
April 20, 2009 Posted by rochtel | Finance, Venture Capital | | No Comments
Attractive Financial Statements – The First Step to Getting the Attention of the Venture Capitalists
Many first time entrepreneurs have given expertise in a certain area, be it engineering, marketing, business development, operations, etc. When developing their start-up company’s business plan these same entrepreneurs generally leave the development of their financial statements to last. There are several reasons for this, the most compelling of which is they do not understand finance or how to generate the required financial pro forma statements for their start-up company. This can be a big issue for many start-up companies, and one that needs to be addressed appropriately to get the attention of the venture capitalists. This article discusses several general issues facing first time entrepreneurs regarding the generation of financial pro forma statements that are attractive to the venture capitalists.
Venture Capitalists Are “Glorified” Financial Managers
It has been my experience that many of today’s venture capitalists are the products of top tier business schools with no personal experience in being an entrepreneur or starting a company on their own. On the other hand, what they do know is how to analyze financial statements. So, this is what they focus on first when considering a new start-up investment opportunity. This financial statement focus is necessary, since these “glorified” financial managers need to first justify any start-up investment opportunity from pure financial objectives, as defined by the financial return requirements set by their investment fund. Therefore, up front, to determine their initial interest in a new investment opportunity, this is what venture capitalists focus on. If the opportunity does not fit their pre-defined investment criteria, they quickly move on the next potential investment opportunity. This is not an emotional decision; venture capitalists have a board of directors to report to and predetermined investment criteria that are defined in the bylaws of their investment fund, usually an LLC. To these same venture capitalists, it is a numbers game, if a particular start-up investment opportunity does not fit their defined criteria they move on. This is why venture capitalists are generally very short with entrepreneurs and do not see it as their role to provide advice to these same entrepreneurs. A simple “not interested” or “no” is sufficient to them. This often leaves the entrepreneur confused and perplexed.
Return On Investment – Necessary, But Not Sufficient
The return on investment for your start-up company is a necessary, but often not sufficient criterion for consideration by venture capitalists and other professional third party private equity investors. Remember the rule the general of thumb for the venture capital community is 5 to 10 times return on their initial invested monies in three to five years, respectively. This is a goal and not necessarily a reality.
As an entrepreneur if your financial pro forma statements are projecting $50M to $100M in revenue in your fifth year of operations, these numbers, along with those projections for years one through four are discounted substantially by the venture capitalists according to perceived risk. This can be market risk, margin risk, technology development risk, competitor risk, etc. The key point here is that venture capitalists then take your start-up company’s financial projections and run them in their own financial models. This is done for a multitude of scenarios to see if your company’s financial projections hold up to their investment criteria under “worst case” condition assumptions. Therefore, your start-up company’s return on investment projections is only a single data point in considering your start-up company as an investment opportunity. It is only through their own thorough financial analysis that the venture capitalist determines if your company is a worthy investment opportunity and will consider moving forward to the next level of discussions.
Industry Standard Financial Pro Forma Statements
One of the most important factors venture capitalists consider for new investment opportunities is whether a start-up company’s business model is reflected in the market. That is, does your start-up company have a proven business model that is represented by successful companies in your industry segment in the market today. Or is your company’s business model new and unproven in the market. This is an important factor for venture capitalists to understand when considering investing in any start-up company.
Today, almost every venture capitalist I have talked to claims they would have invested in Google. In reality, this 20-20 hindsight does not consider that fact that at the time, Google’s business model was unproven in the market, and as such there were no reference companies that the venture capitalists could refer to that would indicate that there was little risk in their business model and projected financial returns. Hence, I believe that many of these same “Monday morning quarterbacks”, are most likely not telling the truth when they claim that they would have invested in Google, as one of the original venture capital investors.
The key to developing acceptable financial pro forma statements for the investment community, is to develop industry standard pro forma projections, for your start-up, based on similar companies in your SIC code. This can be accomplished using information available on the internet or at your local public library, and is completely explained in my book “Business Planning, Business Plans and Venture Funding – A Complete Reference Guide for Start-up Companies.”
Understand Your Financial Statements and Their Assumptions
When presenting to venture capitalists, the CEO of your start-up company needs to be an expert in all aspects of your company, including its financial statements. It is not a good idea, as the CEO of your start-up, to defer the financial statement related questions to your CFO or another third party. As the CEO, you are the one where the “buck stops”, so venture capitalists expect you to be able answer any and all questions regarding your start-up company’s financial statements. Therefore, as an entrepreneur you need to study your company’s financial statements from an investor’s point of view, including being able to recite the underlying assumptions of your financial statements. If you cannot do this, you will not get far with the venture capitalists and your ultimate goal of securing funding.
If Necessary, Get Help
Developing complete financial pro forma statements for your start-up company is difficult and a daunting task for first time entrepreneurs. This is especially true if this same entrepreneur does not have a financial background. So, given this, the important thing to do is to seek help to generate the required financial projections. By securing a qualified financial consultant, you, as an entrepreneur and the CEO of your start-up company, will be much more confident in your company’s financial projections, and this will show when you present your company to your potential investors. Remember, as a minimum, you need to generate five year financial projections for your start-up company’s income statements, balance sheets and cash flow statements. Typically, for years one and two this is broken down by month and/or by quarter. For the out years, yearly financial statements are fine for venture capital investors.
As discussed, financial projections can make or break your start-up company with the venture capital community. Your start-up company’s financial projections are the first step to getting into the door of the investment community. Therefore, to be considered, your start-up company’s financial statements must provide an attractive return on investment to the venture capital community, while at the same time reflect generally acceptable industry standards. Also, it is important for you as a first time entrepreneur and the CEO of your company, to become the expert on your start-up company’s financial pro forma statements. This will set the appropriate tone and earn you respect with your potential investors.
April 13, 2009 Posted by rochtel | Finance, Venture Capital, venture finance | | No Comments
The “Blind” Entrepreneur – A Recipe for Failure in Securing Venture Funding
First time entrepreneurs often believe they can be successful in raising capital for their start-up company by just diving in and “hoping” for success. This is a “blind” approach to securing venture funding. The reality is that nothing in life is free. It takes hard work, study, and due diligence to be a success at anything you want to achieve. The same is true for raising venture capital or any other type of third party private equity. By not doing this work up front, first time entrepreneurs put themselves at a disadvantage, and often is a recipe for failure in their venture fund raising efforts.
Understand That You Don’t Know Everything
It has been my experience in life that the most intelligent people I have met are those individuals that know they don’t know everything. These individuals are generally very well educated, and often this realization comes with age and experience. On the other hand, those individuals that believe they know everything about everything are usually not that smart. This “I know everything” mentality is often present with first time entrepreneurs. Many of these same individuals believe they know everything about venture funding, even without having done it before. I can assure first time entrepreneurs that this is not the case. My first time in raising venture capital was truly a learning experience, and I made several significant mistakes along the way. So, based on experience, I can tell you that it is very difficult to secure venture capital without know anything about it. In a limited number of cases, a few first time entrepreneurs may be successful in securing venture funding without much work or effort on their part. This is definitely more the exception than the rule. More often than not, it is those entrepreneurs that do their homework, and become informed about venture capital funding process that are successful in securing venture funding.
Do Not Begin By Writing a Business Plan
Do not begin day one by writing your start-up company’s business plan. This is a sure recipe for disaster, or as a minimum, will require you to have to rewrite your business plan many times. Not only will this experience create frustration in the venture funding process, for the first time entrepreneur, it is truly a waste of your valuable time and effort. Instead, begin by researching and then planning your start-up company’s business. This may take you one to several months. Believe me, this is time well spent, and effort is worth it. To do this business planning for your start-up company, as a first time entrepreneur you must do the following:
· Understand the propriety nature of your technology, product or service offering,
· Determine the general market trends and strategic opportunistic market needs,
· Determine your target market segments served and associated growth projections,
· Understand the competition in you targeted markets,
· Determine your company’s market entry strategy and tactics,
· Outline your market entry assumptions and risks, and
· Create basic financial pro forma projections.
When you get done accomplishing the above business planning tasks, you will be ready to begin writing your start-up company’s business plan. As stated, this research and planning takes time, but it will save you more time in the long run, and will provide you with the proper roadmap for moving forward with your start-up company and its technology, product or service offering.
Understand the Venture Funding Process
Understanding the funding process means getting a clear picture on what it takes to secure venture capital funding. This includes answering the following questions.
· How do I approach venture capitalists for the first time?
· What are the most efficient ways to approach venture capitalists?
· What are venture capitalists looking for in an executive summary?
· When do I provide venture capitalists my business plan?
· How do I set up meetings with a venture capitalist?
· What goes into my road show PowerPoint presentation?
· How should I prioritize my meetings with venture capitalists?
· What is the protocol of a typical road show presentation?
· When and how do I follow up with venture capitalists?
Knowing the above items is critically important to your success in securing venture capital or any other private equity from third party investors. Only by researching and reading up on the venture funding process will you get a good understanding of what it takes to secure venture funding, and subsequently be able to navigate this process successfully as a first time entrepreneur.
Do Your Investor Due Diligence
All entrepreneurs, first time or not, must do their due diligence on their potential investors before they approach them with an investment opportunity. This is usually where most first time entrepreneurs fall short. As an entrepreneur, it is just as important for you to understand all you can about your potential investors as they do about you and your start-up company. Approaching the wrong venture capitalist with the inappropriate investment opportunity is a complete waste of your time and their time. There are at least five areas you need to focus on when approaching venture capitalist for the first time. These include the following:
· Geographic Focus – Determine the geographic focus of your targeted venture capitalists. Most venture capital groups primarily focus on a limited geographic region. If you are outside that geographic region, most likely they will not consider your investment opportunity.
· Stage of Development – Most venture capitalists have a primary stage of development focus. That is, some venture capitalists prefer to invest in seed capital or early stage companies, while others prefer to invest in later state companies. This is an important factor when scoping out your potential venture capital investor base.
· Capital Required – Many venture capital firms have both lower and upper investment limits to the size of their target investments. This is generally dictated by the size of their venture capital fund. Therefore, it is important to determine if your capital requirements meet the criteria of your targeted venture capital firms.
· Industry Specialization – Today, most venture capitalists specialize in a given technology or area of expertise. This level of specialty is mutually beneficial to the start-up as it is to the venture capitalists, as the venture capitalist will generally have a deep level understanding of your industry and as such can add significant value to your start-up. As always, research the specialties of the venture capital firms you are interested in approaching.
· Venture Capital Leadership – This refers to a venture capitalists willingness to take the lead position regarding an investment. Generally, there exist both active and passive venture capitalists. In order to complete your venture capital syndication, you will need to identify a lead, active venture capital investor.
If You Do Not Know Something – Seek The Proper Consulting Advice
Many entrepreneurs that do not know or understand something regarding the venture funding process often do not take the time to seek out the proper consulting advice. Instead they ask their friends or other individuals that have never been through the venture funding process before. Doing this will ultimately limit the potential for success of your start-up company. Instead, you, as an entrepreneur and the CEO of your company, have a fiduciary responsibility to your start-up company to seek out the best advice you can find. This in many cases will require you to spend a bit of money to hire a consultant to review your business plan and provide you with expert advice on how to move forward. By investing in competent consulting advice early, this will save you from “big” headaches and problems down the road.
Entrepreneurs often look to secure “free” advice from individuals without the proper track records in venture funding. This “pro bono” advice, like anything “free” in life, will usually not end up being worth much to you as a first time entrepreneur. Often these same individuals have not taken the time or effort to properly review your company’s business plan, have not ever started a company, or have never even raised venture capital. This same “pro bono” advice can ultimately hurt your start-up company in the long term. Remember it is better to invest in your own start-up early, by securing the appropriate consulting advice, to ensure you are on the right path forward. By not doing so will cost you more time and money down the road. Remember making a mistake, early in the development of your start-up can ultimately cause your company to fail.
Invest in Yourself and Your Company
Invest in your own start-up company early. Venture capitalists do not want to fund your start-up company only with their own money. This may be appropriate for “friends and family” funding, but is it definitely not appropriate for third party professional investors. Hence, venture capitalists or other third party investors want to see that you, as a first time entrepreneur, believe in your start-up company and its vision. To do this, as an entrepreneur, you have some “skin in the game”. In this case, venture capitalists are looking to see that you have invested your own “hard cash” in your start-up, and not just your time and effort. So, if you believe in your start-up company, there is precedence to having invested your own money in your company. If you do not, third party investors will most likely not want invest in your start-up company either.
As outlined, by doing the hard work, study and due diligence to be a successful entrepreneur, you will avoid the “blind” entrepreneur path. This, along with seeking the appropriate consulting advice and investing in yourself and your start-up company will more likely provide you, as a first time entrepreneur, with a successful path forward in your venture capital fund raising efforts.
April 6, 2009 Posted by rochtel | Venture Capital | | 1 Comment
Some “Truths” About Networking for First Time Entrepreneurs
The term networking itself and networking as an activity can be very intimidating to first time entrepreneurs. Many of these same individuals have never have had to network or believed that they needed to network to enhance their career, and as such, are unfamiliar with networking and its benefits. In fact, many first time entrepreneurs, not only need to learn what “networking is and is not”, but they need to learn “how to network” to benefit of both themselves and their start-up companies. This article outlines some basic “truths” regarding networking and how it can benefit entrepreneurs and their start-up companies.
Networking is Really Focused “Socializing”
Networking is really no different than any other socializing activity. In fact, if it were referred to as “socializing”, instead of networking, I believe it would be less intimidating to first time entrepreneurs. The word “networking” seems to have an underlying performance-based stigma associated with it. That is, to be a success at each networking event they attend, one needs to come away with something that they value for themselves or their start-up company. This, “what can I walk away with mentality”, with virtually no effort on their part, is not really productive for the first time entrepreneur, as promotes undue pressure that requires this same entrepreneur to actively seek a “quality” connection each and every time they attend a networking event. This is a non-realistic expectation and definitely not a “good” networking mentality. A better approach is to attend each networking event with a positive attitude and hope to meet one to two individuals you can possibly create a personal connection with. This is really what should be the expected “positive” result of a successful networking event. Therefore, if you look at networking as focused “socializing” you will be more relaxed and ultimately more successful at each networking event you attend.
Not all Networking Organizations offer the Same Level of Benefit to the Entrepreneur
First time entrepreneurs need to be very particular regarding which networking events they decide to attend. The reason for this is that all networking organizations have a particular focus. In addition, each networking organization also has unique presentations and participation formats. Therefore, out of the gate, first time entrepreneurs should first identify the various networking organizations in your area. After this, one should ask their friends if they have attended any of these networking events and get their overall opinion on the networking organization and its utility, effectiveness and friendliness. Also, as a new participant, one should take time to attend at least one to two events, for each targeted group, before they decide to join any one networking organization. This will give you a true feeling for the networking organization and how it operates. Finally, one should make an effort to meet the individuals that run each networking organization. To do this, just introduce yourself and tell them that this is the first time that you are attending. This is important, as each group has their own “personality” and that personality always comes from the individuals who run the network organization. As you will learn through this process, one networking organization will most likely “fit” you and your personality better than the others. This comfort level will allow you to be more effective and enjoy the events you attend.
In Business, People Like to “Work” with People They “Know”
Have you ever noticed that entrepreneurs that start companies surround themselves with people they know? In fact, many start-up company’s founders have worked together, in the past, at one or more companies. This collegial bond and common experience base allows these same individuals to “know” each other, their personalities and most importantly their skill sets.
To take this “known entity bond” a bit further, there have been whole industries that have developed based on personnel from a single company. In fact, the wireless industry in San Diego, Ca was founded, developed, and expanded by insiders that originally worked together at a single company, Linkabit. Since the early 1980’s there have been hundreds of wireless start-ups, in San Diego, that come from this lineage, most notably including: Qualcomm, Hughes Network Systems, ViaSat and many others. This provides you with an understanding of the “basic” desire and “need” for people to “work” with individuals they “know”. As such, this is what networking is all about — it provides a forum for you, as a first time entrepreneur, to present yourself and your start-up companies, so that others can get to “know” you and your start-up company.
Networking is Not a “One Time” Activity
Many first time entrepreneurs mistakenly believe that they can attend a “single” networking event and will walk out with funding and many “great” contacts. This is far from the case. In fact, only by attending targeted networking events multiple times, do the individuals at these socializing functions get to “know” you and your company, its technologies, products or services, and your needs. Realistically, it usually takes three to six months or more, of continually attendance, for people begin to “know” you, and recognize you as a quality, reputable individual. Only after this amount of time, individual effort, and interaction will other fellow networkers be willing to open up their networks and contacts with you. This may seem like a long time for first time entrepreneurs, but look at it this way — you would not introduce someone you don’t know to your best friend unless you “know” them and can be assured it is a “quality” introduction.
Getting Involved is the Best Way to Start
The best way to become quickly recognized and known among a networking organization you are interested participating in, is to become involved in their “executive committee”. As most networking groups are volunteer networks, they are always looking for individuals to: organize events, recruit new members, run committees, etc. This is done by the executive committee members. This type of volunteer work generally only takes a few hours a month and you then have access to all of the “key” individuals within the organization and their networks, which are generally extensive.
The Long Term “Benefits” from Networking are Many
The long term benefits of active networking are many for you and your start-up company. Remember, no entrepreneur can successfully develop and expand their start-up company in a vacuum. All start-up companies require “key” individuals with broad and deep skill sets, industry connections, and a continually expanding network to ultimately be successful in the market. As a minimum, some of the long term benefits of successful networking to entrepreneurs include:
Meeting new acquaintances,
Acquiring new friends,
Being exposed to new ideas,
Expanding your industry contacts,
Securing long-term business contacts,
Developing strategic business partners, and
Securing an extensive amount of resources at your immediate disposal.
So, as a first time entrepreneur, get out there and network, both you and your start-up company will benefit substantially from your efforts.
March 30, 2009 Posted by rochtel | Business Development, Nwtworking, Venture Capital | Angel Investing, Angel investor, enterperneur, entrepreneurs, networking, start-up, Venture Capital, Venture Funding | 2 Comments
Venture Capital – It’s Not “Welfare” for Start-up Companies
Most of the time, when I first meet with entrepreneurs and their start-up companies, they are usually focused on the money they think they “need” to make themselves successful. More often than not they say, “If I just had a $1.0M to get my company off the ground that would solve all my problems.” This “money-focused” mentality often makes these same entrepreneurs take their eye off their real objective — making their company an attractive investment opportunity for potential investors. As I always tell them – “money never solves your problems, either in your personal life or in business, but being prepared, focusing on your company and securing customers will.”
Venture Capitalist focus on the “Best in Class” Investment Opportunities
Venture capitalists and other private equity investors, by the nature of their business, are “risk adverse” and not “risk takers”. This line of thinking seems to escape entrepreneurs and their start-up companies. This is especially true for “first-time” entrepreneurs. These individuals do not take the time to look at their start-up company and its associated “investment risk”, from the venture capitalists point of view.
A venture capitalist has a fixed amount of money in their private equity fund. This fixed sum is used to invest in a limited number of companies over a given period, usually 7 to 10 years. With these limited number of investments, the venture capitalists and their funding sources (e.g. pension funds, private individuals, etc.) know that a number of them will fail, a number of them will break even or do a bit better, and a couple will be highly successful. Therefore, from their point of view, venture capitalists are taking a traditional “portfolio management” approach to minimizing the inherent “risk” of their individual investments. As such, venture capitalists only look for the “best-in-class” investment opportunities to ensure that their “portfolio risk” is minimized and their individual investments succeed over the life time of their investment fund.
Not all Companies are Candidates for Venture Funding
All of the entrepreneurs I meet believe that their companies are fundable by third-party equity investors, be it angel investors, venture capitalists or other private equity sources. The truth is that very few of these same companies will be able to secure monies from these same funding sources. The statistics show that only about 3% of start-up companies, which are reviewed annually by venture capitalists, secure funding from these same funding sources. Therefore, it is not hard to believe that the other 97% are either not fundable or have to secure funding from other sources (boot strap, friends and family, etc.).
As an example, recently, I received a request to help secure funding for a start-up company that was looking to develop a service offering addressing a new, bleeding-edge market that had yet to develop. They were looking for $1.0M in investment capital, but were only projecting $5.0M in revenue in their fifth year of operations. This company is clearly not a candidate for venture capital or any other third party equity funding. On the other hand, suffice it to say, that if a company, at some point, succeeds in generating revenue of $5.0M a year, with high gross margins, this will end up being a fine “life-style” company for its founders. This type of start-up company and investment opportunity is not a bad deal for the founding team over the long term, but is definitely not a candidate for third-party equity investors.
Start-up Companies are in Business to Secure Customers
As a start-up company, entrepreneurs need to remember that they are in business to secure customers and not just to develop a technology, or service offering. By focusing on securing customers early on, these same start-up companies will provide substantial benefits to themselves in both the short and the long runs. In the short run, the start-up company will have demonstrated to potential investors that there is a “market need” for its product and that customers are willing to pay for it. This is very attractive to investors as it reduces their investment risk and demonstrates the potential for market traction. Also, by securing customers early, this will provide this same start-up company with a “lead” customer. This is often key to securing long-term success in the market. A lead customer will help drive a start-up company’s technology, product or service features, functions and capabilities. This is very important to a start-up company’s success in the market, as end customers always know more about the market application requirements than the start-up company developing the technology. Finally, by securing customers early, this will allow a start-up company to generate revenue. This will reduce both the start-up company’s short term and long term capital needs, requiring the founders to give up less equity over the long term.
Planning, Preparation and Securing Customers is the Best Plan for Receiving Funding from Venture Capitalists
Entrepreneurs should not expect that angel investors, venture capitalists or other private equity investors will provide them with money, just because they have an idea. This is an unrealistic expectation. Entrepreneurs need to work hard in planning and preparing themselves and their company to be ready to present their investment opportunity to potential investors. Remember, venture capital is not “welfare” money for start-up companies. Investors are looking to secure a significant return on their investments in a predictable time period. If an entrepreneur and their start-up company do not offer, as a minimum, the following, it will most likely not secure funding.
* A “best-in-class” team,
* A disruptive technology, product or service offering,
* A sustainable long-term competitive advantage in the market,
* The ability to secure customers and market traction,
* A proven business model, and
* The ability to scale and dominate the target market(s) of interest.
So, as an entrepreneur, focus on your start-up company. Take the time to plan and prepare yourself and your start-up company for the rigors of securing funding in this tough environment. This includes securing customers as early as possible. This will substantially increase your odds of securing funding and make your start-up company a much more attractive investment opportunity for venture capitalists or other private equity investors.
The information outlined in this article comes from my new book entitled “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up companies.” Signed copies of this book are available at http://www.carlsbadpublishing.com. Robert also provides business planning, and venture funding consulting services to start-up, small and mid-sized companies.
March 23, 2009 Posted by rochtel | Venture Capital | Angel Investing, Angel investor, angel investors, enterperneur, entrepreneurs, start-up, start-up company, Venture Capital | 2 Comments
Burgeoning Markets –An “Uncontrollable” Risk for Start Up Companies and Investors
There are many different types of risks that entrepreneurs face when starting their companies. This can include technology risk, product development risk, market channel penetration risk, staffing risk and others. Many of these risk factors can be “controlled” by investors, in the short term, by investing more money and/or by adding more resources to mitigate these risks. The risk factor that is out of investors’ control and often causes a start-up company to fail is market risk. Market risk, as defined here, is multifaceted, and is a result of the targeted burgeoning market not developing in the anticipated time frame to support the product demand required by the start-up company. This often results bad news for both the start-up company and its investors.
Emerging “Bleeding-Edge” Burgeoning Markets Take Time to Develop
Often, in order to differentiate themselves from large, established competitors, start-up companies believe that they should address emerging markets with “bleeding-edge” technology. More often than not, this “bleeding-edge technology” strategy comes with a large amount of risk. The most important risk factor here is that the underlying, emerging market that supports this “bleeding-edge technology” does not develop in a predictable, near-term time frame. In this situation, the technology pundits always claim that their targeted market or market segment will “take off” within the next year, providing their company with a substantial return on investment in a very short period of time. This optimistic view of the world, usually does not consider the time it takes to roll-out new technology infrastructure or to establish this same new technology with the target customer base. More often than not, this one-year time frame turns out to be five to seven years or more. This makes it virtually impossible for a small, venture-funded company to finance the multiple generations of product development that are required before their burgeoning target market supports the shipment of significant enough volume to make their business model self-sustaining. This often makes this burgeoning market strategy more of a “hope” than a “reality” for the start-up company and its investors.
First Generation “Bleeding-Edge” Technology – Not Be Ready for Prime Time
Many times the first generation of a new “bleeding-edge” technology is not ready for prime time, as it does not meet the expectations of the target customer base. This will also result in substantial delays in market demand for the start-up’s technology, product or service offering. This again can delay any substantial revenue flow for several years.
As an example of this, in the early 1990’s when cellular phone technology was transitioning from analog technology to digital technology, all of the pundits claimed, that due to the benefits of digital technology — higher capacity and better voice quality, the transition would be immediate. As it turned out, the new digital technology made a person’s voice virtually unrecognizable to other callers. This resulted in many digital phone users turning in their phones for their old analog versions. From the users’ point of view, a little background noise was more tolerable than that of the “bad” voice quality of the digital cellular handset. In addition, given the time requirement to roll out the digital infrastructure, to get ubiquitous digital coverage, individuals did not see any real immediate value to the new digital technology.
Therefore, when developing and then deploying new technologies targeting burgeoning markets, often second generation and sometimes third generation technologies need to be developed to meet the consumers’ expectations. This, again, requires additional investment from the venture capitalists and delays any potential for revenue generation for the start-up company.
Burgeoning Markets – Often Result in More Losers Than Winners
Very often new burgeoning markets and their associated technologies attract a lot of investment monies from the venture capitalists. The result is often a “heard” mentality among these same investors to get in these targeted burgeoning markets at all costs, and be a part of these new “homerun” market opportunities. This, more often than not, results in too many new start-up companies chasing the same burgeoning markets. Where are there are often six to eight start-up companies looking to secure a successful market position in an early stage market, the truth is that only one to two will ultimately be successful. This again, results in higher risk for both the start-up company and the investors. In the end, there will be more losers than winners.
Required Investment May not Bode Well for the Start-up or the Investors
As a result of targeting these burgeoning markets, in many cases, these same start-up-companies often secure a tremendous amount of funding (e.g., $50M to $100M) and then as some point cannot secure additional funding from third-party investors. In this situation, the amount of funding secured significantly outweighs any financial value of the company or its technology, product, or service offering, requiring its investors to sell it to the first large company that will pay pennies on the dollar just to get out of the investment.
This scenario is not unusual. In fact, it has been my experience that within the high-technology wireless markets, this has happened to many start-up companies in the digital cellular, Bluetooth, the wireless LAN (WiFi) and WiMAX markets. For all of these markets, the pundits had projected substantial immediate growth in short periods of time, only to have the markets develop over much longer periods of time, causing many of the early, venture-funded start-up companies that targeted these markets to go out of business or to be sold to larger competitors for an insignificant valuation for the company and their investors.
Market Risk – Must be Thoroughly Evaluated by both Start-ups and Investors
The above does not to imply that there are not many cases where venture-funded, start-up companies, developing “bleeding-edge” technologies for burgeoning markets, do not secure significant returns for their investors. In fact, in the high-technology boom of the late 1990s, many large semiconductor companies were purchasing small start-ups to hedge their bets on some of the emerging wireless markets. At the time, many of these small companies were being purchased at valuations between $200M to $400M. These unheard of valuations, although good for the start-up companies and their investors, rarely made significant returns for the acquiring company, which often shut down these operations within one to two years after their purchase.
The accompanying lesson here is that the “market risk” associated with targeting a new burgeoning market is NOT a “controllable” risk. In fact, as outlined, the associated risk from targeting these emerging markets is multifaceted and many times results in significantly higher investment requirements and long delays in anticipated revenue streams. Therefore, both investors and start-up companies must thoroughly evaluate these risks before targeting a burgeoning market as their primary revenue generation opportunity.
The information outlined in this article comes from my new book entitled “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up companies.” Signed copies of this book are available at http://www.carlsbadpublishing.com. The book is also avaiable at Amazon.com. Robert also provides business planning, and venture funding consulting services to start-up, small and mid-sized companies.
March 16, 2009 Posted by rochtel | Business Planning, Target Markets, Venture Capital | | 4 Comments
When it Comes to Venture Fund Raising, Many Entrepreneurs Don’t Know What They Don’t Know.
The challenges are many for entrepreneurs looking to start their first company. There is business planning, the business plan, and securing venture funding. All of these endeavors require experience. Too often, entrepreneurs go into these endeavors with “blindfolds” on. If you are taking on these challenges for the first time, you don’t know what you don’t know. This can be a very overwhelming, and more often than not results in many restarts that don’t get you to the end goal – securing funding and delivering your start-up company’s technology, product or service offering to market.
With this in mind, it is important for entrepreneurs to realize this early, as approaching investors with a “half-baked” business proposition and/or plan will cause you to lose credibility with investors. More often than not, there are no second chances to present yourself to investors and just so you know, the investor world is very small and word gets out quickly on “bad” deals.
I know from experience that private equity investors are very risk adverse and therefore I have developed a list of 12 Essential Elements they look for in new potential investment opportunities. If you don’t hit these 12 Essential Elements up front you will not get any “face time” with potential investors – be it angels, venture capitalists or other private equity investors.
To facilitate entrepreneurs through the venture funding process, I recently wrote and published my book entitled “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies.” This book provides proven processes and methodologies for securing funding for any start-up company. In addition, unlike other traditional “business plan” books, this book provides a “concept” to “funding” approach to securing venture funding. Hence, no matter where you are in the development of your start-up company, the information contained in this book can provide you with the appropriate materials to think through, successfully plan, and then execute, so that your start-up company will achieve its vision.
I am also available as a consultant to help support you through the trials and tribulations of your start-up company and securing funding. The proven processes and methodologies I provide will allow you to accelerate your start-up from concept to funding. So, invest in yourself and take a proven road map to developing your start-up company and securing funding.
Robert Ochtel is a successful serial entrepreneur. The processes and methodologies, outlined in his book have been used to successfully raised over $50M in early stage funding from such firms as Sequoia Capital, Brentwood Associates, Oak Investment Partners, AT&T Ventures, and Intel Corporation. Robert also, successfully sold a start-up company to IBM for $180M.
March 12, 2009 Posted by rochtel | Business Planning, Business Plans, Venture Capital | | No Comments
Five Degrees Off-Center – Often a Key to Success for Start-up Companies
When focusing on developing their businesses and business plans, many times entrepreneurs have a preconceived idea of their target primary market and customer base. This preconception more often than not “clouds” the strategic vision of the company and its technology, product or service offerings. In addition, it may result in the company not thinking “outside the box” in addressing potential market opportunities which could substantially increase the return on investment for the start-up company and its investors.
Due Diligence Expands Your Company’s Strategic Vision
As a way to expand a start-up company’s strategic vision, begin by doing a general market trends due diligence analysis. This requires the start-up company developing a given technology, product, or service offering to do their homework. To get a feel for the general market and the current and future trends, one must study the market(s) of interest. Doing the appropriate amount of market research will provide your start-up company with the overall basis in which to develop an understanding of the general market trends as well as the strategic opportunities that exist in markets. Generally, start-up companies in developing their market due diligence analysis should focus on three areas of research, including:
• Competitors, and
• End customers.
By focusing on these three areas, the entrepreneur can develop a quick assessment of the overall general market trends and the strategic, opportunistic market needs for a company’s technology, product, and service offerings. It also allows the entrepreneur to step back and separate themselves from their original preconceived notions, based on actual market research, to determine the appropriate path forward, which more often than not is different than their original plan. I refer to this as the “five degrees off center approach.” By doing your homework and now armed with real market due diligence, often entrepreneurs find new and/or hidden market opportunities that are more interesting and facilitate higher return on investment for their start-up company and their investors. Secondary and
Tertiary Markets May Provide More Market Success
Based on market due diligence, often newly identified secondary or tertiary markets can provide excellent opportunities for a start-up company and its technology, product or service offerings. These new market opportunities were not originally available to the entrepreneur and hence limited the overall company strategic focus and potential. By thoroughly evaluating these secondary and tertiary markets, the start-up company will now have the ability now substantially enhance its success in the market. These new market secondary and tertiary market opportunities can benefit the start-up company in the following ways:
• Provide new initial market entry points with substantially less risk,
• Provide a higher potential return on investment,
• Support an expanded customer base,
• Support multiple revenue streams,
• Provide a stronger competitive position in the market, and
• Substantially reduce the market risk for your investors.
All of these benefits will increase the start-up company’s potential for success in the market place. The Original
Primary Market – Still a Target
In many cases, after the market due diligence analysis process, the original primary market is still a market of interest for the start-up company and its technology, product or service offerings. But, with the new found market opportunities it may not make this original market opportunity the primary or initial market entry point. This does not diminish the need to address this original primary market, but it may prioritize the development of the associated features, functions, and capabilities of your initial technology, product or service offering. The end result will most likely be a change in the following:
• The market entry point,
• The target market application,
• The required product features, functions, and capabilities, and
• The target customers.
Reduces Investor Risk and Increases Chances of Funding
By doing the appropriate level of market due diligence, the start-up company now has a cohesive market entry plan and associated technology, product or services features, functions, and capabilities development plan. This plan more often than not is different than the original “preconceived” plan that was being considered before the entrepreneur did their market due diligence. In addition, this new plan may be only “five degrees off center” from the original plan, but it often provides for substantially less risk, higher return on investment and more cohesive approach to addressing the market with the start-up company’s technology, product or service offering. The end result is that this new plan substantially reduces investor risk and increases the potential of securing funding for the start-up company.
The information outlined in this article comes from my new book entitled “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up companies.” Signed copies of this book are available at http://www.carlsbadpublishing.com. The book is also avaiable at Amazon.com. Robert also provides business planning, and venture funding consulting services to start-up, small and mid-sized companies.
March 9, 2009 Posted by rochtel | Business Planning, Venture Capital | | 2 Comments
The Business Planning Process: Large Companies vs. Start-up Companies
During the early stages of development, many start-up companies overlook the business planning process. More often than not these same companies opt to focus on their proprietary technology offering as a basis for success in the market. This “technology-oriented” approach to addressing the market may not result in ultimate success for the company or maximize the return on investment for the shareholders.
The Business Planning Process
Business planning is a process. If your company does not engage in a well defined business planning process, many things can happen. But more often than not, the overall result is that your company will not achieve the financial success desired, because you do not know or understand where your company is going, how the market is changing, or how to appropriately respond to these changes.
Many times, companies that do not participate in the business planning process go after everything and anything that is in front of them. They do not have a clear roadmap to define where they are going, and why they will be successful in a given market or sub-market segment. In many cases, these same companies that do not engage in a diligent business planning process will ultimately end up investing in multiple, non-competitive products, addressing disparate markets, and consuming their limited resources. By doing this, these same companies end up foregoing any possibility of securing a strong, competitive position in their target markets, and ultimately will not be successful. In the end, they will not maximize their return on investment for their shareholders, either private or public.
To skip the business planning process means that these companies are willing to gamble with their shareholder’s money, and in many cases, angel or venture capitalists’ money, with no roadmap to success. It should also be mentioned that participating in the business planning process does not guarantee success in the market. After all, the day a business plan is written, it is obsolete. But, what it does is provide your company with is a roadmap to determine your next steps toward moving forward in the development of your technology, product, or service offering, to meet the market requirements, and obtain a sustainable, competitive advantage in an ever-changing environment.
Large Companies vs. Start-up Companies
Business planning for large, established companies versus start-up companies is not substantially different. Traditionally, the only real underlying difference for these two entities was the availability of human resources and market research sources. Today, and for approximately the last 15 years, the Internet has been a great equalizer in the business planning process for these two types of entities. Now, there are some exceptions regarding access to expensive market research reports, but through diligent research and time, start-up companies can develop business planning documents and business plans, equal in quality and content, to that of large corporations. In many cases, due to the ultimate importance of these planning documents to the overall success of the company, these same start-ups generate much better business plans. In addition, the advent of the Internet has allowed both large, established corporations and small start-ups to expedite their business planning process due to the relative ease of access to information.
Start-up Company Business Planning
In many cases in start-up companies and even in medium-sized or large companies, the business planning process is not well defined, or in many cases, even non-existent. This can be for many reasons, most often of which is due to lack of experience of having participated in such a business planning process in the past, and therefore, there is a lack of understanding of the merits of such a business planning process. I have worked for multiple start-up companies developing high-technology products, services, and technologies targeted for specific markets or market-sub-segments. In all cases, whether defining the next generation product’s functions and capabilities or determining competitive positioning within the market and ultimate revenue flow and return on investment, I engaged in a disciplined approach to the business planning process. This approach has allowed me to successfully raise angel and venture capital and to position these same start-up companies as strong participants in their targeted markets or market sub-segments.
Many times, start-up companies are only interested in focusing on their technology, product, or service offering. That is, they have an internal, “technology-oriented” focus that they believe will provide them with ultimate success in the market. This is a very narrow and uninformed approach to addressing the market, and generally does not provide a successful path forward. In working with start-up companies, my goal is always to move these same internally focused, “technology-oriented” companies to externally focused, “market-oriented” companies. This approach ultimately provides these same start-up companies a much higher probability of success in the market.
This “market-oriented” approach to addressing the needs of market for start-up companies begins with the business planning process. Inevitably, each time I begin working with start-up companies there are many skeptics, from the CEO all the way down to the engineering manager(s). They often firmly believe that they have the technology, product, or service offering that will provide them success in the market. Many times, these same skeptics cannot even define their target markets, let alone their target customers.
In addition, whether initially I thoroughly understand all aspects of the start-up company’s technology, product, or service offering is irrelevant. What is important is that through the business planning process, and ultimately the generation of the business plan, that I work to determine the market dynamics that drive the product features and capabilities that are required for the start-up company to be successful in the market. Often, through the business planning process, I identify multiple market segments or sub-segments that were not originally on the start-up company’s radar screen and that will ultimately provide for a much higher probability of success than originally anticipated. Also, it is through this business planning process that the start-up is able to determine and articulate their long-term and defensible competitive position in the market.
Therefore, as outlined, the business planning process is as important for large, established companies as it is for small start-up companies. Ultimately, it is this business planning process and not the end result, the business plan that determines a company’s technology, product, or service offering’s success in the market.
Same Process, Different Audience
I have developed business plans for large corporations and medium-sized corporations, and angel or venture capital-based start-ups companies. The thing that is common to all of these entities is that the business planning process is the same! Some people may believe that it is different for these various types of entities, but it is not. The truth is that if you do not do your homework, you have very little chance of being successful no matter what the size of your company. The business planning process does not differ due to the amount of resources available, the underlying technology, product, or service offering being developed, or your company’s current competitive position in the market.
What differs in the business planning process, between these two entities, is the ultimate target audience, including:
• Large Corporations: Corporate investment committees,
• Start-up Companies: Angel investors, venture capitalists, etc.
These different audiences, I have found, can be friendly or hostile. Therefore, during the business planning process, one must be very careful to develop all aspects of your technology, product, or service offering so that you are ready for all questions, comments, and underlying agendas within your target audience. It may be that the underlying purpose of your target audience is different than what you expect. Or it may be that individuals within your audience relate to the different aspects of the business planning process and your technology, product or service offering according to their background, experience, and current corporate concerns. But, the truth is that for each entity, big or small, the business planning process remains essentially the same. And in the final analysis, it is the marketing or business development person, team, or group that has spent the time to cover all aspects of business planning for their technology, product, or service offering that will best serve their target audience.
The bottom line is that through the business planning process, both large corporations and start-up companies have the same objective – that is, to maximize the return on investment of stockholders.
The information outlined in this article comes from my new book entitled “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up companies.” This book is available at http://www.carlsbadpublishing.com.