Robert Ochtel’s Blog

An Experienced Approach to Venture Funding

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 After all, the day a business plan is written, it is obsolete.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 www.carlsbadpublishing.com.

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March 2, 2009 - Posted by | Business Planning, Venture Capital | , , ,

2 Comments »

  1. Robert,

    I read through several of your informational pieces and found them to be incredibly insightful. I wish I had found this kind of information when I was in the beginning stage of starting my company, King Promotional Enterprises. I am thankful for finding it now as I am moving into the building stage of my company and find myself in need of new funding.

    I will be recommending your book to several of my friends and colleagues.

    Thank You,

    Kenneth King
    President/CEO
    King Promotional Enterprises, LLC
    http://www.KingPromotional.com

    Comment by Kenneth King | March 3, 2009 | Reply

  2. I definitely recommend all budding entrepreneurs and small business professionals to read Robert’s blogs on ‘The Business Planning Process,’ and each of his ‘Essential Elements.’ They offer insightful guidance on the importance of working through the planning process, developing a business plan, and useful metrics when considering (securing) alternative forms of financial capital. These are great reference materials.

    Comment by Raulie Casteel | March 8, 2009 | Reply


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