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An Experienced Approach to Venture Funding

A Successful Start-up Company uses its Business Plan to Provide it with Flexibility and Adaptability

Today, many entrepreneurs fail to see the real value of a business plan.  More often than not, their biggest concern is whether potential investors read their business plan and fully digest it.  This should not be of primary concern to an entrepreneur.  From an investor’s point of view, a business plan is generally considered a check-off point, to be used as a reference document, which is usually thoroughly reviewed during the due diligence process.  From the entrepreneur’s point of view, a successful business plan is to be used as a jumping off point.  It should be seen as document that memorializes the status of your start-up company, the markets, the competition, etc., as you begin to enter the market to roll out your technology, product or service offering to the market.  Additionally, your start-up company’s business plan should be viewed as a reference document, which, if written properly, provides your start-up with a strong basis in which to move forward, and at the same time provides the appropriate amount of flexibility and adaptability to transform with changes in the market.  This article outlines some of the reasons why both flexibility and adaptability are essential for a successful start-up company.

A Complete Business Plan Provides a Basis for Your Start-up to Move Forward

Developing an investor focused business plan takes a significant amount of effort on the part of the entrepreneur.  Having gone through all of the market research, due diligence and planning, your start-up company’s business plan should provide your investors with the best representation of your start-up company, the market, the completion, and your financial projections, etc. This document, as developed, provides a basis for your start-up company to move forward to address the following activities:

  • Raise venture capital,
  • Develop your technology, product or service offering,
  • Develop your sales channels,
  • Roll out your product to market,
  •  Secure customers,
  • Meet your financial pro forma projections.

 Your start-up company’s business plan should memorialize all of your research and knowledge into a single document and is to be used as your reference point in which to move forward for the next projected period of time, usually 3 to 5 years.  Being a forward looking document, your start-up company’s business plan represents your best estimates of the markets, and the associated competitive landscape in which you are venturing forward to roll out your technology product or service offering to the market.  As such, your business plan provides your start-up company with a strong basis and also provides a jumping off point in which to move forward and attack the market.

Business Plans are Out of Date the Day they are Completed

One thing that I have learned over the years is that business plans that are generated only reflect a “point-in-time”. Business plans are much like financial balance sheets; they represent the world as it exists at that point in time.  That being said, business plans are outdated the day they are put on paper. This may be hard for some first time entrepreneurs to realize or want to digest. The fact is that the market changes on a daily basis. There are new technologies and competitors, the emergence of new markets, as well as constant price and gross margin pressure. These constant changes in the market dynamics necessarily outdate your business plan the day it is completed. Many times these changes do not happen overnight, but rest assured, they do happen, and your business plan must evolve with these anticipated changes.  This is why many corporations, both large and small, institute annual business planning cycles.

As an entrepreneur, it is important to realize that your start-up company’s business plan is a “living document”. This means that changes in the market need to be reflected in your business planning process and ultimate business plan. Accordingly, not all changes will really affect your day-to-day business plan or planning activities. Generally, most changes in the market are evolutionary and if your did your homework from the beginning, your business planning and resultant 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 planning process or 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 planning process and ultimate business plan. 

Always remember your start-up company’s business plan represents a reference “point-in-time” in which to move forward from. If done correctly, it will provide a solid basis in which to move forward and make the necessary changes required in the fast-changing dynamics of the market.

A Successful Business Plan Allows for Market Adaptability

Because the market constantly changes, a successful business plan will predict and allow for a given amount of flexibility.  At the 30,000 foot level, your business plan should anticipate the high-level macro-economic trends in the market.  These trends will affect your company to a certain extent, and as things change your start-up company will be able adapt to these long-term changes in the market. 

At the 100 foot level, your business plan should also reflect the anticipated competitive threats in the market and also provide your start-up company with the ability to also adapt to these changes in the market. Your business plan, being a complete document will more often than not, anticipate these changes and provide you a strong basis in which to move forward in a constantly changing and challenging market.

While most high-level and lower-level market and competitor changes will be anticipated in your business plan, often, even with all of the business planning in the world, there will be changes that cannot be anticipated or predicted. In these cases, your business plan can easily be modified to reflect these more extreme changes in the market.  This type of adaptability may be reflected in:

  • A significant price reduction,
  • A new competitor,
  • A significant reduction in anticipated market growth,
  • The emergence of a new market opportunity,
  • Etc.

All of these items can be integrated into your business plan, and as such it can be modified and adapted to reflect these changes in the market.  Therefore, the key to a successful start-up company is to develop a complete business plan that adequately and accurately reflects the market and at the same time is adaptable enough to roll with both the anticipated and unanticipated changes in the market.

A Product Road Map Supports Market and Customer Flexibility

Most often, the entrepreneur of a new start-up company has an idea on the appropriate technology, product or service offering in which to bring to market. At the same time, the ability of this same entrepreneur to accurately predict all of the appropriate and necessary features, functions and capabilities of their same product offering is virtually impossible. Therefore, as a start-up company you need to remain flexible and work closely with your customer base to develop the targeted features functions and capabilities for your initial and follow-on product offerings.  One of the best ways to integrate this flexibility into your business plan is to develop a product road map.  By developing and integrating a product road map into to your business plan you will be anticipating the evolution of your technology, product or service offering and its associated features, functions and capabilities as desired by the market and your customer base.  Then, as you engage with customers, you will have the flexibility to modify your product road map and the various generations of product offerings, with features, functions and capabilities that more accurately reflect the evolution of the market and your customers’ end market product offerings. Therefore, having previously anticipated the market evolution through the development of a product road map, the details of your business plan can then be easily modified and at the same time remain flexible enough to accurately reflect the market and customer requirements.

As discussed, developing a complete business plan is important to the success of any start-up company.  Doing so provides a strong basis in which to move in the market. That being said, your business plan only reflects a “point-in-time” and is necessarily out dated the day it is completed. Therefore, as an entrepreneur, your business plan needs to remain adaptable and flexible to address both changes in the market and the needs of your customer base.  If you do this you will have a much higher probability of success in the market.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.  For more information on the book go to http://www.carlsbadpublishing.com

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July 20, 2009 - Posted by | Business Development, Business Planning, Business Plans, Competition, Customers, Venture Capital, venture finance, Venture Funding

2 Comments »

  1. This was a really great read, I am very glad I came across your site.

    Comment by disposable digital camera | July 22, 2009 | Reply

  2. Robert-
    I think you performed beautifully in presenting the value to the writer to flex his understanding of what the market has and has not in-store for him. The mental gymnastics alone are phenominal.

    Thank you for your efforts

    Craig McCord
    c_mccord@msn.com

    Comment by Craig McCord | July 22, 2009 | Reply


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