Robert Ochtel’s Blog

An Experienced Approach to Venture Funding

Entrepreneurs, Nothing is Real Until You Start Product Development

I am a big fan of business planning. In fact, I truly believe that the business planning process is invaluable to a successful start-up company, as it provides a path forward for entrepreneurs and their executive teams to follow.  On the other hand, a business plan, the result of the business planning process, is a living document and is out of date the day it is completed.  Why, because the market and landscape are constantly changing. In addition, until you start the development of your technology, product or service offering nothing is real. It is the realities of the actual development that will cause issues and deviations from your original plan. These realities need to be indentified, understood, and managed in order to have a successful start-up company.  In what follows is a short discussion on issues to address once the realities of development begin and start to affect your start-up company.

Verify Your Original Assumptions

One of the first things to do when beginning development of your start-up company’s technology, product or service offering is to verify the original assumptions of your business plan.  Whether it is the development timelines, required product features, functions or capabilities, and any and all associated development costs (e.g., capital equipment, staffing, etc.), you need to spend the time to verify the original assumptions of your business plan.  With the initiation of development new issues will come up that were not originally planned for and these things can deviate substantially from your original business plan.  So, take the time to review and validate and modify as necessary, the original feature requirements as well as the associated development costs and schedule. In addition, in many instances there may have been a substantial amount of time that has elapsed between the completion of the original business plan and the funding of this same plan.  Consequently, many of the features, functions and capabilities, originally outlined in your plan, may no longer be required or on the other hand, there may be many new features, functions and capabilities required from your customer base that were not addressed in the original business plan.  So, in order to start fresh, take the time to verify your original assumptions. This will provide a clean jumping off point for development and allow things to move much smoother going forward with the initiation and execution of development.

Knock Down Unanticipated Development Road Blocks

Even once you begin the development process things can change substantially. The time and effort to develop a specific feature, function or capability may take much longer than anticipated.  You may be required to hire additional staff members to solve a specific problem.  Or, there may be a requirement to purchase additional capital equipment to solve a newly identified issue associated with your development.  As is always the case, when initiating product development, there are going to be new, unanticipated problems and road blocks that need to be addressed.  The trick is to identify and address these problems early.  You do not want these same problems and/or road blocks to spiral out of control, adversely affecting your development schedule and overall development costs.  In addition, you do not want to sweep any of these same potential problems under the rug, as issues identified and addressed early are much easier to solve and will have much less of an impact on your product development and delivery.  So, that the  time to knock down unanticipated development road blocks early, it can only help you in the long run to provide a timely delivery of your technology, product or service offering to the market.

Actively Manage the Development

As the CEO of a start-up company you need to actively manage and be involved in all aspects of your technology, product or service offering development.  Do not take a hands-off approach to managing the development of your start-up company’s key product offering(s).  This will only come back to burn you in the long run.  As the CEO of your start-up company, the buck stops with you, and as such investors will hold you accountable for any schedule delays, unanticipated increases in development costs, etc. In addition, as part of actively managing the development process, you need to understand all of the crucial parts of development, including educating yourself in areas they you are not technically familiar with or lack a basic understanding of the underlying development process.  This is education process is necessary, as it will provide you with the proper insight to ask the right questions, and understand when things just do not make sense, with regard to an unexpected development delay, etc.  By actively managing the development process, you will be able to hold all of your key development managers accountable and assure the timely and cost efficient delivery of your technology, product or service offering.

Product development is really where the rubber hits the road.  All of the activities up to that point have only been planning related and to some extent do not necessarily reflect all of the realities of an actual development.  As such, there are many things that will need to be addressed once you begin development.  To ensure a smooth development process you need to verify your original assumptions, knock down any unanticipated road blocks, and actively manage the development.  Anything less will not result in a successful development and result additional incurred development costs and a longer delivery schedule.  So take the time to address all of the issues associated with your development early on, as it will ensure a smooth, cost effective product development and delivery.

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.

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August 30, 2010 Posted by | Venture Capital | , , , , , , , | 1 Comment

Entrepreneurs, Finding Strategic Partners Can Create Significant Value for Your Start-up Company

One of the key issues to be addressed by start-up companies is the ability to gain credibility in the market.  You may have the greatest technology since sliced-bread, but if no one endorses it, the road to success in the market will be a long one. On the other hand, if you are able to secure one or more strategic partners early on, your road to success will be that much easier.  As strategic partners bring instant credibility in the market place and can open product distribution channels that will allow your start-up company to gain significant, early market traction.  So, it is in the best interest of you and your start-up company to work to secure one or more strategic partnerships early so that you can expedite your success in the market. In what follows is a short discussion on how to locate these same strategic partners as an early stage start-up company.

Go to Networking Events

One of the easiest ways to get your name out there is to go to networking events in your area that focus on start-up companies. These events are attended by entrepreneurs and investors from all backgrounds, including large corporations.  This provides you with the opportunity to meet individuals from various large companies that may have a strategic interest in your start-up company and its technology, product or service offering.  This contact point may be a direct contact from a panelist at the event or indirect contact through an individual who either currently works at a large company you are interested in talking with or has worked there in the past and is willing to introduce you to a key contact point.  Any way you slice it, it is worth getting out there and go to targeted networking events that cover start-up companies and their issues or a topical matter you are interested in for you and your start-up company.  So, put yourself out there and attend networking events, you never know who you are going to run into.

Work Your Own Network

Most entrepreneurs have a long career before they strike out on their own to start their own company. Often this career was spent working for or engaging with large corporate entities. So to help yourself as an entrepreneur, work your personal contact network. Call your past friends and colleagues to tell them what you are up to.  These conversations will often lead to follow-on discussions which allow them to help you with potential key contact points within their or another organization. Nothing is better than and direct introduction through a trusted friend or colleague.  This provides you with instant credibility and will often walk you in the “front door” of an opportunity that you would never have found out about by cold calling, let alone getting directly into the person in charge of the project or opportunity.  So, take the time to connect with your person network.  This type of networking has the ability to open doors that you would not have through cold calling and more often than not, will expedite the discussion process.

 Attend Trade Shows

Finally, you need to attend targeted trade shows.  You can attend as an exhibitor or just an attendee walking the floor.  This approach to getting your name out there will allow you to meet with individuals from targeted companies that may have an interest in your product offering from either a strategic or tactical point of view.  Take the time to “work the floor” by going up to the booth of targeted strategic partners and explain to one of the booth attendees what your company does and who you are interested in talking with. More often than not, if the appropriate contact person is not at the show, the individual you are talking with will provide you with the appropriate contact point within the company. Also, be sure to get the business card of the person you are talking with, as when you contact the appropriate individual within the company, you can tell them that you were referred by this individual.  This will instantly open the door and at the same time provide you with a certain level of credibility to initiate the conversation.  So, take the time to attend targeted trade shows, it can open doors to potential strategic partners for your start-up company.                                

Gaining early credibility in the market is one of the keys to success for a start-up company. This credibility is most often accomplished through developing a partnership with a large, established corporate partner.  To facilitate the engagement with potential corporate partners you need to attend networking events, work your own network and attend trade shows. This will allow you as an entrepreneur to get your name out there and engage directly with potential strategic partners.  It will also help propel your start-up company forward and ensure both near term and long term 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.

August 23, 2010 Posted by | Venture Capital | , , , , , , , | Leave a comment

Entrepreneurs, Finding Key Personnel Takes Time and Effort

Finding the right personnel is one of the keys to a successful start-up company.  With everything on the line each day, as the CEO of your start-up company, you need to find individuals that not only will add value to your start-up company, but are dependable, and at the same time are willing to walk through walls to get things done, all with little to no supervision.  These individuals are hard to come by. You will find individuals that tell you that they can do job.  Or you can find individuals that want to be involved in a start-up.  Or you can find individuals with strong resumes that most likely will not pan out in a start-up environment. So, the game begins. Out of all of these individuals and others you need to determine which candidate will be successful in a start-up environment, contribute beyond expectations, and survive the ups and downs, when things are both good and bad.  In what follows is a short discussion on some of the things that need to be addressed when you are looking to find the right key personnel for your start-up company.

Clearly Define Your Needs

One of the success factors in finding key personnel for your start-up company is to first clearly define your needs.  This includes not only defining the “job” requirements, but defining the individual’s background, experience level, and personality traits. First, defining the job requirements is the easiest. This includes defining the responsibilities and functions that this individual will required to execute on a day-to-day basis.  Next you need to look for individuals with the right background.  Have they worked in a start-up environment in the past, or have they tried to start their own early-stage company?  Individuals that have only worked in a large corporate environment are probably not the correct individuals for your start-up company, as they generally have not had the requirement of getting things done on their own.  That is, they are used to a support staff to take care of them and their job responsibilities.  This is not true for those who have worked in start-up companies.  Experience level is next.  Does this individual need to be a seasoned veteran or do they need to be a less experienced individual with a leading edge technology focus?  In some cases, it is better to get a younger person with less experience, but understands the technology and the associated trends. More often than not, you will not get this from a season veteran.  Why, because technology changes rapidly and generational shifts in technology are happening faster and faster, so make sure you find a person with the appropriate experience level and technology focus. Finally, you need to look at the individual’s personality traits. Are they are self-starter or will they require lots of support and supervision? Can they accept responsibility and run with it or do they need to be coddled to get things done? In the start-up environment you need individuals that require little to no supervision and at the same time have the ability to add significant personal value during the process.  This often comes down to their basic personality traits. So make sure you take the time to look at this, and the other characteristics and requirements outlined here, as they will make the difference between and successful and unsuccessful employee in a start-up environment.                            

Cast a Wide Net

Finding the right individuals for your start-up company and various key positions is not an easy task. In addition, the individuals you need may not be in your backyard.  In today’s environment, many start-up companies are “virtual” corporations. That is, they operate as a group of individuals that are networked via the Internet from various geographic locations across the country, or across the world.  So, when you are looking for an individual with a particular set of skills you need not necessarily stick to your immediate geographic area. You should cast a wide net to find the “best-in-class” individual with the right skill set for the job.  At a future point in time, if there is a need to have these same individuals to move to a given geographic location, this can be done. Until then, operating virtually in today’s environment is both cost effective and efficient for almost all start-up companies.

One of the best ways to find the appropriate individuals for the job and to cast a wide net at the same time is to use Linkedin, a professional social networking site.  If you are looking for a skill set in a given industry or area of expertise, all you need to do is join the appropriate “group” that focuses on the industry or area you are interested in, and post a brief job listing.  This approach to finding individuals with the right skill set is not only efficient and effective, but it is free. So, take the time to cast a wide net, it will provide you with the best set of candidates for your start-up company’s key positions. 

Do Your Diligence

Finally, do your diligence on any potential key personnel. This includes obtaining at least three references and calling all of them.  But before you do this, take the time to create a question list covering both professional and personal background questions. This list is key to making sure you ask all of the appropriate questions to all of the references during your due diligence process. Asking some questions to some references and other questions to other references will not give you a complete picture of an individual candidate.  You need to necessarily go through all of the questions with each reference, including tough questions. This can include asking what you do not like about that candidate or what personalities of this same individual are tough to deal with in a work environment.  By doing your diligence you will get a good picture the individual in question, in order to make an informed decision.

 Finding the right individuals that will fill key positions in your start-up company is a task that takes time and effort.  To do this you need to clearly define your needs, cast a wide net and do your diligence. This is not always a fun task, but in the end, you will find the best candidates for the key positions to help propel your start-up company forward and ensure both near term and long term success.

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.

August 16, 2010 Posted by | Venture Capital | , , , , | Leave a comment

Entrepreneurs, with Regard to Business Planning – Always Start from the Markets

Business planning is the first step in developing a proper business plan.  Often, entrepreneurs choose to skip this step in the business plan development process.  Why?  Because on day one most entrepreneurs want to begin by writing their business plans. This is a mistake, as this jump to the middle of the business plan development process will often require these same entrepreneurs to re-start their business plans by going back to the beginning of the process, business planning.  This being said, if done properly, where do entrepreneurs being their business planning process?  Do they look at their competitors? Do they define their go to market strategy? Do they determine their pricing?  No, one always begins their business planning process by looking at the markets.  In what follows is a short discussion on some of the things that need to be addressed when initiating your business planning process by starting from the markets.

Understanding the General Market Trends and Needs

The first thing you need to do to begin the business planning process is to step back and delineate the overall market trends and strategic market opportunistic needs.  That is, what are the long term general trends in the market?  Is there an aging population?  Are consumers moving toward mobility?  Will gas prices go up long term?  Properly identifying the near term and long term general market trends is very important, as it will define where the expected long-term growth is in the markets.  Understanding these general market trends will also allow you with the ability to identify the associated strategic opportunistic needs of the markets.  Will the elderly require at home care?  What are the data encryption requirements for mobile data, audio and video?  What technologies will be the required in a green economy?  By understanding the general market trends and the associated strategic opportunistic needs of the market you can better delineate where and how you want to participate in the market and how you can better position your start-up company to ride the wave of future these same future trends and needs. This is something investors will want know that you clearly understand and have a long term plan to address with your technology, product or service offerings.

Defining the Market Opportunities

Once you understand the general market trends and needs, you need to move on to defining the target market opportunities.  All markets are not equal. Some are large. Some are small. Some have strong growth. Some have slow growth. If the market is too small your investors will not have the ability to receive a proper return on their investment.  Or, accordingly, a small market will require your start-up company to secure an unrealistic percentage of market share, which will again not seem reasonable in the eyes of your investors.  In essence, here, by defining the market opportunities, you are determining not only the overall size of the target markets, but the expected growth of the markets themselves over the projected period of interest, usually three to five years.  Are the markets high growth markets or slow growth markets?  These are things you need to understand, as you investors generally want to invest in “large” markets that have significant growth potential.  Why, because a rising tide lifts all boats.  Here, if the market it not only large, but has substantial growth there is room for new competition. In addition, large, high-growth markets allow start-up companies to secure market share and create a position for themselves in the market.  So take the time to define the market opportunities that you will be addressing. As part of this planning process, it is also important to understand the unit volume growth numbers, not just the overall market size in total dollars.  These volume growth numbers are essential, as they will provide you with a basis to project your revenue from product sales, but also your market share growth over a generally accepted business planning period of three to five years. So make sure to clearly define the market opportunities, as this is an essential part of the business planning process.

Prioritizing Your Target Markets

As an entrepreneur of a start-up company, by definition you have limited resources.  Therefore, you cannot address all potential market opportunities that are available to you in the market.  Therefore you need to prioritize your target markets.  Some you will address immediately, and some you will address later.  This can be based on many things including:

  • Time-to-market, and near term revenue,
  • Ease of product development,
  • Long term growth potential, or
  • The competitive landscape.

All of these items will affect your decision on which markets to address up front.  The key here is to pick a single market or a limited market-segment space to address.  This will provide you with focus and at the same time allow you to put all of your resources toward a targeted and well defined market opportunity.  It may be that you are only addressing a small portion of a targeted market, say the high-end luxury car market.  Or it may be that you are developing a consumer product that has obvious future commercial market applications. The key here is to prioritize your identified market opportunities and only address those near term opportunities that provide near term market traction and also your start-up company with a unique, differentiated position in the market.  So, take the time to prioritize your target markets, it will provide you with focus and allow your clearly identify both near term and long term market opportunities for your start-up company.

Business planning almost always escapes first time entrepreneurs.  They more often than not they want to begin on day one writing their business plans.  This is a mistake, because if you do not understand the landscape of the potential market opportunities ahead of you, will not make informed business decisions that you can defend in front of your potential investors.  Therefore, as an entrepreneur you need to begin your business planning process by focusing on the markets. This includes understanding the general market trends and needs, defining the market opportunities, and prioritizing your target markets.  By doing this you will create a clear path forward and provide both near term and long term market success for your start-up company.

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.

August 9, 2010 Posted by | Venture Capital | , , , , , , , , , | Leave a comment

Entrepreneurs, Business Plans Often Do Not Reflect Reality

The development of a business plan should be only viewed as a “plan” as it is really out of date the day you put your pencil down.  On the other hand, the business plan is a useful tool for the entrepreneur to create a map of the opportunities they will be addressing in the market.  As such, it provides a baseline of the path forward in the market, a time frame as to when your product will be available, and a blueprint of your financial model, and how you are planning to provide your investors a substantial return for their investment.  That being said, after you secure funding and start development, is when reality sets in.  Many of the scenarios outlined in your business plan from the cost assumptions, to operations, to the target markets may require a dose of reality when you begin development and execution of your original business plan.   In what follows is a short discussion on some of the things that need to be addressed forge through these realities. 

Ferret Out Your Unforeseen Product Costs

Many entrepreneurs do not have a good handle on their product costs and associated margins as presented in their business plan.  The numbers they present are often marred with faulty assumptions and inaccuracies that will hurt their bottom line when they finally bring their product to market.  This is not unusual as “reality” often has a way of creeping in and changing your actual costs.  These realities can often affect your product costs, operating margins, etc.  As an entrepreneur you need to get a handle on anything that significantly affects your original planned costs.  As an example, in operating an on-line eStore there are costs associated with allowing customers to use their credit cards on line to purchase products and services (e.g. merchant and gateway costs). Your business plan may have originally assumed your credit card merchants will only charge you a set service charge of 1.6% of each purchase price plus a fixed fee for each transaction.  But, when you finally get your bill you see that the average charge for each purchase is 2.6% plus the same fixed fee.  This is a big reality for a couple of reasons.  The 1.0% affects your gross margins and your bottom line. In addition, if you have a micropayment based business, this slight change can affect your business model, and also cost your company thousands of dollars every year in unanticipated costs. What happened here? The business plan assumed that the merchant charged a fixed percentage for each online purchase.  The truth is that depending on the consumers credit card, their credit rating, and any rewards programs they participate in, these same merchants have over 490 different costs levels associated with the percentage they charge and the number initial provided is usually a low ball number and does not reflect the realities of the real credit card customer base.  So in the end, the start-up company will be hit with additional costs that will affect their margins and bottom line.

Understand Your Real Operations

Many start-up companies do not really understand the total costs of doing business. They assume they can produce their end products based on a set of assumptions that do not always take into consideration the total cost of production, including marketing and overhead.  They just look at the product cost and not all of the infrastructure costs associated with producing their product and getting it to market. Recently, I was involved with a start-up company creating electronic content from published books. They claimed that their costs were only $1.00 to create a single piece of electronic content. What they did not tell me is that much of upfront costs associated with converting the original content into electronic form were not taken into consideration with this presented cost number.  These conversion costs included extracting the text, properly formatting the files, and sizing the associated images that were to be used in the final product.  The costs they claimed were only associated with the cost of taking the electronic content, once it had been created, and putting it into a spreadsheet that was ultimately extracted automatically into the online database. As it turns out if you take into consideration all of the preparation steps this probably added $3.00 to $4.00 to the cost of producing this same electronic content. So again, when the reality hits the road, the associated operating costs were significantly higher than outline within the business plan. As it turns out, I worked with them to develop a standard format as well as a couple of text/image extraction and verification programs and they were able to get the total costs of creating this same electronic content to about $0.25 single piece of electronic content.  So, again the operational costs of the business plan did not reflect the realities of the real world.

Be Open to New Market Opportunities

Entrepreneurs and their business plans tend to be fairly myopic.  That is, they generally focus on a limited target market or small defined set of target markets in which to sell their product offering.  This is generally considered a good thing, since it provides your start-up company with focus.  On the other hand, often many of the technologies, products or services being developed by this same start-up company could be used in other, non-related markets which may drive new, larger near term and long term revenue opportunities for your start-up company.  As a recent example, I was working with a start-up company that was developing a product for a consumer application.  After talking to an expert in the industry, it turned out that they believed that this same product offering, with minor modifications, could be used for commercial applications. Here, the start-up company was aware of this, but did not focus on this as a near term revenue opportunity for the company.  After a limited number of discussions, what was presented to this same start-up company was a strategic partnership that allowed for immediate nationwide penetration into the targeted commercial market with the strategic partner’s nationwide sales force.  This commercial opportunity, although not originally a near term focus of the start-up company made sense both strategically and helped with their near term marketing tactics.  So, again the business plan did not outline this opportunity for the start-up company, but the realities of the market, drove this start-up company to be open to new opportunities in the market.

A business plan should be considered a useful jumping off point for start-up companies to provide an initial path forward in addressing the market.  In reality, a business plan is out of date the day it is completed and often many of the underlying assumptions of the business plan are either incorrect or change substantially once the realities of the market hits.  Entrepreneurs need to be cognizant of this and appropriately adjust to these same market realities by ferreting out unforeseen product costs, understanding their real operations, and being open to new market opportunities.  By doing this you will be able to navigate through the realities of the market on your road to success.

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.

August 2, 2010 Posted by | Venture Capital | , , , , , , | Leave a comment