Robert Ochtel’s Blog

An Experienced Approach to Venture Funding

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.

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August 9, 2010 - Posted by | Venture Capital | , , , , , , , , ,

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