Robert Ochtel’s Blog

An Experienced Approach to Venture Funding

Entrepreneurs, Putting a Stake in the Ground Early will Help Move your Start-up Company Forward

If certain items are not defined early in the development of your start-up company, things will tend to meander and not move forward in a coherent manner.  You will continue to have early meetings with customers, and potential strategic partners, etc., but your start-up company and its product offering will continue to be fluid and not coalesce into a defined market position and complete product offering with an associated roll-out schedule.  As these discussions continue, things will become more fluid and less defined as each potential customer or strategic partner you meet with will have their own product requirements, opinions and overall list of concerns regarding your start-up company and its potential product offering.  So unless you put a stake in the ground early, you will continue to move down an undefined path and the world will look murkier by the day or by the meeting.  Therefore, to help drive your company forward, as an entrepreneur, you need to address three things that will define your start-up company to your customer base and potential strategic partners. This article defines these three items which will help move your start-up company forward.

Position Your Company and its Product Offering

Defining the market position of your start-up company and its product offering early will help define you in the eyes of your customers and strategic partners. Having meetings with potential customers and strategic partners without a clearly defined market position for your start-up company is a big mistake.  If you continue down this undefined path, each meeting will end up with individual customers or strategic partners walking away with their own conclusions as to where your start-up company and its product offering fits in the competitive and market landscape. This is not good for your customers and definitely not good for your start-up company.  So, define your start-up company and its product offering early. Position yourself against your competitors. Leave your customers and potential partners with a clear idea of why your start-up company and its product offering is different and provides a value proposition that is important to them as either a customer or potential strategic partner.  Anything less will create confusion and leave these same individuals to define your start-up company on their own, with each customer and potential partner coming to a different conclusion.  Therefore, positioning your start-up company and its product offering early is definitely something you want to do as the entrepreneur.  It will help you create a smoother path forward.

  

 Define Your Product and its Key Features and Functions

Often entrepreneurs have a clear view of their product offering in their minds. They believe that they can do anything their customers want, and with each meeting, the list of required product features and functions only gets longer and longer.  Some of these features and functions are important, while many others are only a “wish” list of features and functions from these same potential customers.  So, it is the responsibility of the entrepreneur, early in their start-up company’s existence, to define the key features, functions and capabilities that will not only make their product offering competitive, but make it unique when compared to other product offerings in the market.  Once defined, it is an important to discuss your product’s key features and functions with your customers, as they may want you to prioritize certain features and functions over others. So once you have a clear product description, including features and functions, make sure you talk to your customers. This will validate the product definition you have defined and provide you with a clear path forward for developing your product offering.

 

Develop a Go To Market Strategy, Rollout Schedule, and Product Road Map

Your customers will also be interested in knowing what your go to market strategy is and how it will benefit them. If you have developed a unique go to market strategy that allows your customers to secure a competitive advantage in the market, this is surely something they will be interested in knowing about early.  So, define your go to market strategy early and share it with your customers.  If it is something that truly differentiates your start-up company from its competitors, this will definitely be something that will pique their interest and possibly allow you to secure a level of early commitments from your customer base.

 

It is also important to define a realistic rollout schedule early so that your customers will know when your product will be available in the market. This rollout schedule should necessarily include your start-up company’s initial product offering along with a product road map, which defines future product generations and their associated feature and functions.   Remember, customers need to know when your product will be available and what they can look forward to with future product offerings. One product, single generation product start-up companies do not cut it in the market. This is true for customers and for investors.

 

Entrepreneurs, you need to put a stake in the ground early to move your start-up company forward.  Doing anything less will cause your start-up company to meander and become ill defined for both your customers and investors.  So, define your start-up company’s market position and product offering early. Include in this process, the key features and functions of your product offering.  Finally, develop a realistic go to market strategy, rollout schedule and associated product road map.  Accomplishing these tasks early will help define your start-up company in your customers’ eyes and with potential strategic partners and help move you forward to achieve 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 www.carlsbadpublishing.com.

November 2, 2009 Posted by | Business Planning, Customers, Venture Capital, venture finance, Venture Funding | , , , , , , | Leave a comment

Entrepreneurs, What is Your Start-up Company’s “Value-Added” Proposition?

Simple questions from venture capitalists can be the most difficult to answer for entrepreneurs. Why, because they often require both a strategic vision and specific insights to the long-term nature of all aspects of the market, your competitors, and your customers.  This requirement often eludes entrepreneurs as more often than not they are tactically focused and do not really have a strategic vision for their start-up company and the long term business opportunity their investment represents to their customers and to these same investors.  Therefore, when asked “What is the value-added proposition of your start-up company?” they often stumble and in some instances cannot answer this most simple of probing questions.  Why, because they have not taken the time to really evaluate what they are trying to offer the market and their end customers. That is, “Why are customers going to buy your product?”  As an entrepreneur, there are four tenants that you need to address, which will provide you the necessary insight to address the issue of defining the “value-added” proposition for your start-up company.  This article addresses each of these tenants and their ultimate importance to the potential success of your start-up company’s product offering to the market and its end-customers.

What are the Strategic Opportunistic Needs of the Market?

When developing a product offering you need to start from the markets.  Specifically, you need to address the “strategic opportunistic needs” of the market.  That is, what is the “problem” or “need” you are solving.  If there is no “problem” or “need” to solve, then there is no particular reason for customers to buy your product.  Whether it is lower costs, lower power consumption, higher efficiencies, or better service, etc., there needs to be a strategic opportunistic customer need that you are addressing with your start-up company’s product offering. Therefore, to determine your value-added proposition to the market place and the end customer, you need to definitively identify and solve a market or customer need that is currently not being addressed in the market.  The basis of this strategic opportunistic requirement needs to be based on a real assessment of the customers and the market. Anything less, will not cut it, as customers are very discerning, and if they do not see a definitive need to buy your technology, product or service offer they won’t.  Therefore, take the time to define the needs of the market place. Write these needs down on paper, and verify them by talking to a number of potential customers. You will then be able to appropriately define the “strategic opportunistic needs” of the market and one important tenant of the value-added proposition of your product offering.

 Do You Have a Long-Term Competitive Advantage?

Investors need to know that as a start-up company that you have a long-term competitive advantage in the market. This is usually accomplished through the development and subsequent patenting of certain intellectual property as it relates to your start-up company’s technology, product or service offering. This intellectual property, as defined, needs to differentiate your start-up company’s product offering in the market, and at the same time provides significant value to the long-term competitiveness of your technology, product or service offering.  Remember, investors are looking to create long term value, so that they can ultimately cash-in by either selling your company to a third party or going public (not too often these days).  Therefore, you need to create and protect your value-added proposition with patented intellectual property.  Doing so, will provide your start-up company with a long-term sustainable competitive advantage and allow your investors to earn substantial returns on their investment.

What is the Competitive Positioning of Your Start-up Company?

Do you know the competitive position of your start-up company? More often than not, entrepreneurs do not really understand the value of creating a “unique” competitive position in the market.  By creating this competitive position in the market you are differentiating your start-up company in the market and at the same time creating a value-added proposition to your customer base.  Whether it is a lower cost solution, or a unique service offering, you need position your start-up company and its technology, product or service offering as differentiated from your competitors. Apple does this well with their entire line of product offerings.  By offering unique operating systems and value-added user interfaces, they provide a differentiated end-user experience.  Hence, Apple has developed a “value-added” and unique competitive position in the market.  As such, they are able to charge more for their products, as the customers believe that there is value in the Apple product offerings and the overall end-user experience. Therefore, as a start-up company you need to develop a unique position in the market, such that your customers believe there is significant and unique added value in your product offerings when compared to your competitors.

How Do You Define your Start-up Company’s Product Offering?

How you define your start-up company’s product offering can add significant value to your customers and their needs. As an example, many times there is significant value to your customer base in how you deliver your product to the market.  For example, take Netflix and the movie rental industry. By developing a new delivery channel for a “generic” product offering, the home movie rental market, they have been able to provide substantial “value” to their end-customers, and at the same time differentiate themselves in the market.  Therefore, take the time to properly define your start-up company’s product offering. Make sure you are doing this in the context of developing a differentiated product offering for your target customers and the market.  This will allow you to develop a product offering that is defined by market and the end customer needs.  Solving a customer’s problem by appropriately defining your product offering to the market can be a key to adding significant value to your end customer and at the same time differentiate your product offering in the market.

Creating a “value added” proposition for your target market and its customers requires vision and specific insight to the long-term nature of all aspects of the market, your competitors, and your customers. To do this, as an entrepreneur you need to address four tenants, including: identifying the strategic opportunistic needs of the market, determining your long-term competitive advantages, developing a defendable competitive position, and determining your unique product configuration.  These items together will allow you to develop a “value added” proposition to the markets you are addressing and your end customers.  This will also provide your potential investors with the necessary insight to develop a quick understanding of potential for success of your start-up company and its product offering 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 www.carlsbadpublishing.com.

October 12, 2009 Posted by | Business Planning, Venture Capital, venture finance, Venture Funding | , , , , , , | Leave a comment

Entrepreneurs, Self-Education the Key to Securing Funding

First time entrepreneurs often want to begin day one by writing their business plan and talking to potential venture investors about their “concept” or “idea”.  This is a big mistake.  As an uneducated participant in the start-up funding process, you have little chance of developing a compelling, investor focused business plan or securing venture funding.  This lack of preparation and self-education is pervasive among first time entrepreneurs and results in substantial frustration from both the investors as well as entrepreneurs.  As a result of this lack of self-education on the entrepreneurs’ part, investors always complain that they cannot find “good” deals and at the same time, entrepreneurs complain that there is no venture money available to fund their investment opportunities.  As with any story, the truth regarding this funding dilemma is often somewhere in between.  But, in this case, since entrepreneurs are the ones seeking investor money, the overall responsibility here lies with the entrepreneur.  They need to educate themselves so that they are properly prepared when talking to potential investors. This article discusses the importance the self-education of entrepreneurs and how this self-education is the key to securing funding for your start-up company and its technology, product or service offering.

Take the Time to Really Understand Your Own Investment Opportunity

It is never really good to “learn” about your business investment opportunity while you are talking to investors.  But, this is what many entrepreneurs do. Most entrepreneurs never really take the time to research all aspects of their investment opportunity from the market size, to their competitors’ positioning, to the details of their financials. As such, they go into their first venture capital investor’s meeting unprepared and get ripped apart by seasoned venture capitalists.  Not a fun experience.  There is an easy way around this scenario.  Take the time to really understand your own investment opportunity. This means, don’t start by writing your business plan on day one. Instead, do the opposite; take the time to research your own investment opportunity. This process usually takes about one to three months depending on your background, the number of markets you will be addressing and the breath of your product offering.

This research process is a valuable exercise.  It provides perspective and allows you as an entrepreneur to step back and evaluate which aspects of your investment opportunity that requires more work, before you begin writing your business plan.  Also, this research is a self-education process that ultimately provides you as an entrepreneur with the necessary knowledge and background to be prepared for the test –your first meeting with venture capital investors.  By having done your research on all aspects of your business investment opportunity you will be prepared and will then be able to answer the necessary questions investors ask to properly evaluate you as an entrepreneur and your associated investment opportunity. Remember, you need to be properly prepared to talk with investors about your business opportunity. The self-education process is the key to this preparation.

Understand the Investment Expectations of Venture Capital Investors

Most first time entrepreneurs falsely believe they are fundable, without really understanding the investment expectations of venture capital investors.  This false sense of entitlement is not based on any reality.  Instead it is based on an unrealistic premise – “if I have a “concept” or “idea” it must be fundable”.  Nothing is further from the truth.  Instead, investors have strict investment criteria and specific things they look for when considering potential investment opportunities. Remember, venture capital investors are “money managers” and have a board or directors to report to, so they necessarily have to be selective in the investment opportunities they consider as potential investments. So, as an entrepreneur, it is very important to educate yourself in understanding the expectations of venture capital investors. From the expected financial returns, to the requirement of strong team, to the necessity of creating a long-term sustainable competitive advantage in the market, it is necessarily important to develop a solid understanding of venture capital investors and their investment criteria. Therefore, take the time to read on the subject, attend seminars on venture funding, and go to business plan competitions. This will enlighten you as an entrepreneur with regard to the venture capitalist investor’s funding criteria and provide you with insight to what these same investors look for in potential investment opportunities.

Target Your Venture Capital Investors and Get a Warm Introduction

Most entrepreneurs believe they can send their start-up company’s executive summary to a venture capitalist they do not know and magically this same venture capitalist will read it and invite them to come in for a review session. This is not the case.  In fact, this rarely happens, if ever.  There are a couple reasons for this.  First, venture capitalists are very busy and rarely have time to review let alone read any business plans that come into their office “cold”.  Secondly, venture capitalists like anyone in business prefer to have investment opportunities introduced to them by people they know.  This is known as a “warm” introduction.  The reason for this is that if they know and respect the person that has introduced the potential investment opportunity to them; they know that this person’s reputation is on the line and they would not ask them to look at it unless it was a “quality” investment opportunity.  Remember, investors are always more comfortable in working with people they know and trust.  It is just human nature. Therefore, when looking to secure venture funding it is important to do two things. First, target venture capitalists that have a history of investing in similar start-up companies.  All venture capital firms have target investment criteria (target technologies, markets, investment amounts, etc.).  Spend the time to investigate and target those venture capital firms which meet your investment criteria.  This will provide you with a target list of potential investors. Second, work hard to get a “warm” introduction to these targeted venture capitalists. You can do this by:

  • Going to networking event in which a venture firm’s partner is a panelist,
  • Looking at the companies they have funded and determining if you know someone at these firms,
  • Working with a law firm that has connections to your target list of venture capitalists.

Remember, targeting specific venture capital firms and then working to get a warm introduction will get you a long way down the road to securing funding. 

As first time entrepreneur, you need to necessarily educate yourself.  This takes time, but in the end is the key to successfully securing funding from the venture capital community.  This self-education process includes understanding all aspects of your own business investment opportunity, having a realistic understanding of venture capitalists’ investment expectations, targeting specific venture capitalist firms and securing a warm introduction.  By doing your homework here, you will save yourself a lot of time and substantially increase your chances of securing funding.

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 www.carlsbadpublishing.com.

October 5, 2009 Posted by | Business Planning, Business Plans, Competition, concept, Idea, Venture Capital, venture finance, Venture Funding | Leave a comment

Entrepreneurs, Use General Technology and Market Trends to Define the Future for Your Start-up Company

The stock market always looks to the future.  This should also be true for first time entrepreneurs.  When defining your start-up company’s business proposition, you need to look at both the general technology and the general market trends of the future.  Why, because it is these general trends that will define the future market place for your technology, product or service offering.  General trends are often over looked by entrepreneurs, but venture capitalists always take a “big picture” view as to what technologies and markets will be pervasive five to ten years out in time. As is often the case, what is true and certain today regarding technologies and markets will not be true and certain five to ten years in the future. Therefore, as an entrepreneur you need to have a “big picture” view of the future and make sure your technology, product or service offering will have a role to play in the future, when defining a given market “problem” or “need”.  This article discusses the importance of creating this future frame work, based on general technology and market trends when presenting your technology, product or service offering to your potential investors.

Develop a Clear Understanding of the General Technology Trends

General technology trends change over an extended period of time.  Unlike the predictions often set forth by the technology pundits, a new technology does not take hold in the market in a year’s time frame. It often takes five to seven years or more for a new technology to take hold.  It even takes longer than that for a new technology to become pervasive and accepted by the general public.  Why, because there are many issues that come into play when rolling out a new technology.  These include the following:

  • Initial costs of new technologies are generally high,
  • Infrastructure roll-out takes time and is very expensive,
  • The new technology may not be ready for prime time, and
  • End-users do not always readily embrace new technologies.

These issues can substantially delay the rollout of new technologies.  But in the whole scheme of things, the entrepreneur must be aware of new, general technology trends, their timing and availability to the market.  In this context, having a good understanding of general technology trends, their availability, and how they can affect your start-up company’s product or service offering, in a positive or negative manner, is key to positioning your start-up company and its product offering in the future markets. Knowing and properly presenting your start-up company’s technology product or service offering in the context of these general technology trends will not only gain you credibility with your potential investors, it will provide the underlying and necessary credence to overall potential value of your start-up company and its technology, product or service offering. This is important, as investors need to know and believe that your start-up company’s technology, product or service offering has the ability to create long-term value in the context of the general technology trends of the market.

Review and Understand the General Market Trends

Knowing the general market trends is often a key to positioning your start-up company’s technology, product or service offering to your investors.  General market trends provide the “big picture” of what the future markets are going to look like.  What are the long-term market growth areas?  Will these market growth areas be the same as those markets today? What will the population look like in five to ten years? What will drive the long-term economic engine of the US and world economies?  These high-level general market trends need to be considered, understood and addressed by entrepreneurs looking to define the future for their start-up company’s technology, product or service offering.  Knowing and being able to appropriately define the general market trends of the future will provide potential investors with the necessary context as to how or why your start-up company’s technology, product or service offering will be important to addressing the “problems” or “needs” of future markets.  This is very important to investors, as they need to understand the “big picture” and how your start-up company’s technology, product or service offering will impact the markets of the future.

Define Your Start-up Company’s Product Offering in the Context of These General Technology and Market Trends

As an entrepreneur, remember you are trying to sell your technology, product or service offering to potential investors.  To properly do this you need to sell a vision.  Why, because a vision necessarily provides context, looks to the future, and requires an appropriate presentation of how your start-up company’s technology, product, or service offering fits within the general, future technology and market trends.  This vision necessarily needs to define your start-up company’s product offering in the context of both future technology and market trends.  Not doing so will necessarily hurt your efforts to convince investors of the potential future value of your start-up company and its technology, product or service offering.  By properly painting both the general technology trends and associated general market trends and how your start-up company’s technology, product or service offering provides an opportunity to secure a unique position with regard to these general trends, investors will then buy in to your vision and are much more apt to invest in your start-up company and its technology product or service offering.  Therefore, take the time to step back from your start-up company and its technology, product or service offering and take in the “big picture” in terms of both general technology and market trends.  This will allow you to develop the necessary context and associated vision for your start-up company. It will also allow you to provide the “big picture” contextual view to your potential investors, providing the necessary road to securing funding.

As an entrepreneur looking to present the future to your potential investors, you need to necessarily have a good handle on both the general technology and market trends.  This will allow to you provide the appropriate context as to how and why your start-up company’s technology, product or service offering will be both important to addressing these trends and how at the same time you are solving future “problems” and “needs” in support of these overall trends.  The bottom line is that by addressing these general, future technology and market trends, you will be providing your investors with a vision that allows them to see the future appropriately and how your technology, product or service offering will create value and play an important role in this future.

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 www.carlsbadpublishing.com.

September 28, 2009 Posted by | Business Planning, concept, Venture Capital, venture finance, Venture Funding | , , | Leave a comment

Entrepreneurs, A Breath of Markets Approach Will Lead You to the Right Conclusions

Having a business “idea” or “concept” does not necessarily provide the entrepreneur with much direction in getting started in developing a valuable and fundable business proposition.  This beginning point in the development of a start-up company often leaves first time entrepreneurs in the dark as to which direction to proceed forward with regard to their proposed technology, product or service offering.  They often ask themselves: “Where do I start?”  The best answer here is to begin by focusing on the markets.  Why, because it is the markets where you will sell your technology, product or service offering.  It also the markets that will determine the “problem” or “need” you will be solving.  This focus on the markets will also help you determine how to position your technology, product or service offering against your competitors.  In short, by focusing on a broad breath of markets and the possibility of potential opportunities they represent, you will come to the right conclusions as to where to take your initial “idea” or “concept”, how to develop a value added product offering, what your product offering will ultimately look like and it will in the end provide you with the ability to determine the best return on investment for your venture investors. This article addresses this breath of markets approach in determining how to take your product “idea” or “concept” into reality of a valuable business proposition.

Look at a Broad Breath of Markets

In the beginning of your product definition process, all markets look the same.  Why, because at this point you do not have any details on the size of the market, the growth of the market or the potential “market needs” you will be addressing for any particular market.  Therefore, you should look a broad breath of markets that can potentially be addressed by your technology, product or service offering.  Don’t pick a favorite market at this time.  All you need to do is to determine the baseline market characteristics (size and growth), and potential “needs” or “problem” you will be addressing for a given market.  This analysis will provide you with a high level overview of the market opportunity and at the same time give you the necessary background to determine if a particular market or a number of different markets may be of interest to you and your start-up company.  Remember, this is not the time to discount a given market.  Why, because you do not have enough information on the details that will make your product competitive in this space.  All you are trying to do is to determine, from all the markets you could address, which set of markets are of potential interest and why.  This preliminary market data will be useful in drawing your final conclusions as to which markets are of interest and how to prioritize these same market opportunities.

Review the Competitors for Each Market

Once you have a list of the targeted markets that are of interest, you should next look at the competitors in your potential target markets and review their positions and product offerings.  As such, the competitors for each market will most often be different and have unique product offerings to address the market needs and requirements for that specific market. Pay particular attention to the details of each competitor’s product offering by market. Why, because different markets will require different product features, functions and capabilities, and each given competitor’s product offering will provide you with the appropriate insight as to the necessary key differentiators that make their product offerings competitive for a particular market of interest. These key product differentiators are often unique to a particular market or they may be common across a number of potential markets.  This is something you need to pay attention to since you generally at this point are looking to address as many markets as possible with your product offering.  In addition, you are looking to determine the features, functions and capabilities that will give your start-up company’s product offering a competitive advantage over your competitors for a particular target market.  Here, it pays to be very detailed.  As it is these details that will ultimately lead you to the right conclusions in determining the competitive advantage of your start-up company’s technology, product or service offering.

Define the Product Requirements for Each Market

After you have had time to review the various competitor product offerings for each potential target market of interest, you need to spend time sweating the details on the necessary product requirements for each potential market of interest. Here, you need to develop a product feature, function and capability list for each potential target market. Why, because it is this product requirements list that will provide you with the necessary insight as to what it takes to not only be competitive in a target market of interest, but what it will also allow you determine what additional product capabilities are necessary to make your product a “complete” product offering.  This often requires you to add capabilities (e.g., software, hardware, services) to your start-up company’s “core” capabilities that are well beyond the scope of your company and will require you to secure these capabilities through a strategic partnership or by other means.  In the end, you will have a compelling and “complete” product offering that addresses the needs of each particular target market. This is your goal.  Finally, it is through this market driven product requirements process that you may determine that certain markets cannot be addressed by your start-up company or will necessarily need to be addressed in the future, with follow-on product offerings, once you first establish yourself in other markets. Therefore, defining the detailed product requirements, for each given market will give you the insight you need to not only determine the necessary feature and functional requirements, it will given you insight so setting your start-up company’s targeted market priorities.

Develop Focus for Your Targeted Markets

Once you have looked a breath of markets, reviewed your competitors’ product offerings and defined the product requirements for each potential market of interest, you need to focus in on your target markets.  Here, you need to first identify which markets you believe, based on the above information, you have a clear competitive advantage.  Then you need to identify which of these markets have the highest potential for return on investment for your potential investors.  That is, which markets are the largest and have the highest long term growth.  Finally, you need to prioritize these markets in terms of total financial investment requirements and associated risk.  Some, target markets may be attractive, but will require substantial up-front investment and result in much longer time-to-money and profitability. Alternatively, other target markets may not be as attractive, but are easier to penetrate and will allow you start-up company to generate early cash flow and at the same time provide higher potential near term returns while you establish your start-up company in these target markets.  The point here is to take a look at the whole breath of markets that are available to you and your start-up company and develop a focus for a given, limited number of target markets that make sense logically, strategically, financially and opportunistically. Doing so will provide your start-up company with the focus necessary to move forward with a targeted market driven plan and at the same time provide your start-up company with higher potential for success.

As a first time entrepreneur with a product “idea” or “concept” it is not always easy to see how to move forward to develop a compelling, value added business proposition.  To take this leap forward it is always necessary to start from the markets. This market focused approach requires the entrepreneur to identify a broad breath of markets that have the potential to use their start-up company’s technology, product or service offering to solve an unmet market “need” or “problem”.  Following this market opportunity analysis with a both a review of the competitors product offering and the development of listing of the product requirements for each potential targeted market will provide you with the necessary insight to determine which target market you will ultimately have a sustainable competitive advantage.  In addition, it will provide you with the ability to prioritize these same markets, based on market opportunity, investment requirements, potential risk, and projected overall return on investment.  So, take the time to use a breath of markets approach in the development of your start-up company’s “idea” or “concept”. It will lead you to the right conclusions and provide your start-up company with necessary focus to be successful in your final target markets of interest.

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 www.carlsbadpublishing.com.

September 21, 2009 Posted by | Business Planning, Competition, Competitive Analysis, concept, Customers, Target Markets, Venture Capital, venture finance, Venture Funding | 6 Comments

Three Things Entrepreneurs Absolutely Need to Know Before They Talk To Their First Venture Capitalist Investor

Being an entrepreneur is not a guessing game.  Like any successful endeavors in life, starting a business as an entrepreneur, which depends upon third-party venture investors for its ultimate success, requires time and lots of hard work, as well as considerable planning and preparation.  Much of this planning and preparation process is often overlooked by first time entrepreneurs.  Why, because many of these same first time entrepreneurs believe the following: “Hey, I have a business idea and why shouldn’t I receive funding from a venture capitalists no questions asked.”  This thinking will not get you too far with potential venture capitalist investors.  They expect you to be prepared, and have thought through your proposed business idea from all angles.  In this vain, as a minimum, there are three items you need to answer before you step foot in front of any venture capitalist investor.  This article addresses these three items and outlines why by answering these three questions, you most likely will succeed in getting a follow-up meeting with these same venture capitalist investors.

What Problem am I Solving?

Investors first want to know that you are solving a problem in the market.  They do not want to invest in start-up companies with a technology, product or service offering that is looking for a problem to solve.  Why, because unless there is a “defined need” for you start-up company’s technology product or service offering no one will buy it.  Remember, you are in business to acquire paying customers and not to develop a “cool” technology, product or service offering.  Venture capitalists understand this, and from the beginning they are looking for the underlying reason customers will pay for your product offering.  Is your product offering cheaper?  Does your product get your customers to market faster?  Does your product offering save your customers money?  There many underlying reasons customers will buy your product offering. You need to determine this reason.

All venture capitalists want to know is that there is a reason for customers to buy your technology, product or service offering.  Therefore unless you are filling a “need” in the market you will be hard pressed to convince these same investors that you have a fundable start-up business.  This is very simple and at the same time is more often overlooked by entrepreneurs.  So, before you decided to present your business plan to potential venture investors, take a self assessment and determine what problem you are solving.  Be realistic and practical in your assessment, as you should know your investors will be.

What is My Business Model and Projected Financial Returns?

Most first time entrepreneurs do not really understand the venture funding game.  That is, they really don’t take the time to understand venture capitalist and their objectives and goals. So, let’s be clear, venture capitalists are in business to make money – a lot of money. Therefore, they need to invest in business opportunities that make business sense from the financial point of view.  Therefore, a new start-up company with a proven business model will make sense to venture investors.  On the other hand, a new business venture with an unproven business model will not get any real attention from these same investors.  Why, because venture capitalists are in business to mitigate their financial risk, and having a business model with a proven track record in the market will give these same potential investors the level of comfort that they need to consider the investment opportunity.

In addition, as an entrepreneur it is necessary that you know your projected financial returns of your start-up company for your venture investors. The standard rule of thumb here is 5 times the initial investment in 3 years or 10 times the initial investment in 5 years.  These numbers, do not reflect any reality or are even close to the average returns venture investors receive on their investments, but are merely the standard financial hurdles venture capitalists use to judge different start-up business opportunities.   So, as an entrepreneur you need to know your financial returns and make sure they conform to these industry standard projections.  Anything less will not get you a follow-up meeting with these same potential investors. 

Finally, as an entrepreneur you need to remember that venture capitalists only invest in a limited number of start-up companies over their lifetime of their venture fund, so they need to be careful when vetting start-up company investment opportunities.  Understanding the business model and the projected financial returns is their first step to considering a potential investment opportunity.

Is My Product Offering Unique and Compelling?

As an entrepreneur, you need to have a product offering that is both unique and compelling.  Anything less, will most likely not get venture investors attention.  Why, because these two attributes will differentiate your start-up company’s technology, product or service offering in the market.  If your product offering is unique, it more than likely is patentable or has intellectual property associated with it.  This will differentiate your product offering to your investors.  Why, because it provides the opportunity to create value – something that will potentially bring much higher financial returns when the investors go to sell the company.  Also, being compelling provides a reason for customers to buy your product.  This will provide the ability to create market “buzz” and associated market traction.  Remember, “time-to-money” increases the financial returns for your investors.  So creating a product with compelling value proposition for your customer base will get your investors attention from the beginning. Therefore, as an entrepreneur, if you wish to secure funding from third-party venture investors you need to create a product offering that is both unique in the market and compelling to your customer base.

Venture capitalists see lots of investment opportunities every year. Many review thousands of executive summaries and business plans.  Very few, if any of these same investment opportunities get the attention of the venture capitalists.  Why, because they do not address necessary items that will make their investment opportunity successful from an investor’s point of view.  This article has outlined three necessary things that entrepreneurs need to know before they get in front of venture capitalist. If these three things are not addressed in detail during your first meeting with investors, you will not get a follow-up meeting.  Therefore, be aware these three items as they most likely will provide you with the ability to secure immediate traction with potential third party investors.

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 www.carlsbadpublishing.com.

September 14, 2009 Posted by | Business Planning, concept, Idea, Venture Capital, venture finance, Venture Funding | , , , , , , , | 2 Comments

A Go To Market Strategy, and Associated Product Line Objectives and Tactics are Often Missing from a Start-up Company’s Business Plan

I have read and reviewed many business plans developed by first time entrepreneurs. While all of these plans focus on their technology, product or service offerings, many of these same plans leave out their start-up company’s go to market strategy. The lack of a go to market strategy within your start-up company’s business plan represents a glaring hole to potential investors.  After all, developing your technology product or service offering addresses only half of the problem.  The other half of the problem is getting your product to market, securing paying customers, and acquiring market traction and revenue in a timely manner.  Anything less will result in a failed start-up company. This article addresses the need for all start-up companies to have a go to market strategy, as well as associated product line objectives and tactics in their business plans.  Doing so, will allow these same start-up companies to delineate to their investors how and when they expect to secure paying customers, associated revenue and positive cash flow.

Do You Have a Go To Market Strategy?

As the entrepreneur of a start-up company you are necessarily developing a technology, product or service offering to sell into the market.  Therefore, you need to determine who your customers are and how you are going to gain access to these same customers is a cost effective, timely, and efficient manner.  To do this, you must develop a go to market strategy to address the customers within the target market(s) of interest.   As such, your start-up company’s go to market strategy must take into consideration the following:

  • What are the defining characteristics of your start-up company’s technology, product, or service offering for the target market(s) of interest?
  • Which target customers are market leaders and most important to the acceptance of your company’s technology, product, or service offering?
  • What is the “value proposition” of your company’s technology, product, or service offering to your customer base?
  • How do you plan on selling or promoting your technology, product, or service offering to the target customers of interest?
  • How can your company’s technology, product, or service offering best secure significant market share?
  • What are the costs associated with your go to market strategy and various sales channels?

By addressing all of these issues, you can develop a go to market strategy that uniquely fits your technology, product or service offering. This go to market strategy must be included in your start-up company’s business plan, as it is essential to secure customers and at the same time potential investors expect to see this as part of a complete, investor focused business plan.  So, spend the time to think through and then delineate your start-up company’s go to market strategy in your business plan. This will help you achieve success in the market.

What are Your Product Line Market Objectives?

Once you define your go to market strategy for your technology, product or service offerings, you need to develop product line market objectives for each product offering.  These product line market objectives are to be developed in congruence with your start-up company’s overall market strategy and need to have the following characteristics:

  • Align with your go to market strategy,
  • Address all aspects of the target markets and customer base,
  • Are attainable over a defined timeframe, and
  • Have several measurable tactics associated with them.

Therefore, your start-up company’s product line objectives, as defined, need to follow your start-up company’s go to market strategy and address the key issues regarding the implementation and execution of this strategy. 

As an example, let’s assume your start-up company’s go to market strategy is to become the market leader within a defined target market segment.  As such, an associated product line objective could be to: “Secure two tier one customers by the end of year one of operations.”  This objective, as defined, is commiserate with your start-up company’s go to market strategy.  In addition, from your market research and due diligence, you have defined your targeted customers and developed a list of the tier one and tier two customers within this target market segment of interest.  Therefore, having defined your objectives and developed a list of target customers, you can then easily develop a set of tactics that work in conjunction with your defined product line offering market objectives.

Develop Measureable Product Line Market Tactics?

Product line market tactics follow your company’s product line market objectives. Unlike a product line market objectives, previously outlined, a product line’s market tactics should provide definable tasks in order for your company to achieve the objectives of your product line that are in line with the overall go to market strategy. In addition, market entry tactics should also have a time frame tied to them. This provides one more dimension of measurable performance that is tied to meeting the overall corporate market goals and objectives of your company and its technology, product, or service offering.

Product line market tactics need to be definable tasks that are measurable both quantitatively (e.g., revenue growth, customer agreements) and in time. The underlying reason for this is that the business plan your start-up company has developed is based on distinct market objectives, with a time table that reflects a specific return on investment criteria for your company’s technology, product, or service offering. By developing measurable market entry tactics, one necessarily supports the requirements of the resultant objectives of the business plan.

Continuing with the previously outlined example, your start-up company’s product line market tactics could include:

  • Set up meetings with five tier one customers by month three,
  • Secure letters of intent from two targeted tier one customers by month six, and
  • Obtain a signed licensing agreement from two tier one customers by month 12.

These market entry tactics follow the company’s overall strategy and are in compliance with the associated objectives for its technology, product, or service offering. By executing these product line market entry tactics in a defined and commensurate time frame, one can be assured to meet the overall objectives of your start-up company’s business plan.

 First time entrepreneurs often over look the need to develop a clearly defined market entry strategy with associated product line objectives and tactics.  By doing this, you are effectively not addressing half of the problem associated with developing your start-up company’s technology, product or service offering — getting your product to market, securing paying customers and acquiring market traction and revenue in a timely manner. By developing a well defined go to market strategy and the defining the associated product line objectives and tactics to support this overall go to market strategy, you can set your start-up company on its road to success in the market.  Therefore, spend the time to develop your start-up company’s go to market plan. By doing so, you will facilitate both your start-up company’s short 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.  For more information on the book go to www.carlsbadpublishing.com.

August 10, 2009 Posted by | Business Planning, Business Plans, go to market strategy, Market Traction, product line objectives, product line tactics, Target Markets, Venture Capital, venture finance, Venture Funding | 3 Comments

Entrepreneurs, “The Audacity of Hope” is Not a Path Forward for Securing Funding and Ultimate Success

Most entrepreneurs engage in the development of a start-up company to fulfill their hopes and dreams of being their own boss of a successful company and potentially becoming rich. This is the American dream and the primary reason America remains a powerhouse of both job and wealth creation in the world. At the same time, I often hear first time entrepreneurs say “If I only had a million dollars then I would be able to develop a successful start-up company.”  This hope is based on the false premise that money by itself will solve all of the problems of their start-up company.  Like in life, money does not solve your problems, and in business money will not necessarily make your start-up company successful.  Case in point, Teledesic was a start-up company founded in the 1990s to build a commercial broadband satellite constellation for providing Internet services. Teledesic originally planned on building a network of 840 active satellites and received multiple billions of dollars of venture funding only to officially suspended operations in October 2002.  As with Teledesic, the failure of any start-up company is inevitably not a money issue, but the combination improper planning, inept execution, and the inability to get market traction.  The misplaced “audacity of hope” that securing funding alone will solve all of your start-up company’s problems, is really based on an entrepreneur’s unrealistic expectations and unwillingness to do the hard work required to make their start-up company successful.  This article outlines the three things all start-up companies need to do on their path to securing funding and to ultimately make themselves and their start-up companies successful.

Dare to do Business Planning to Facilitate Funding Success

The most important thing an entrepreneur needs to do before they write their business plan and then go out to engage potential investors for the purpose of securing funding is to engage in business planning.  Yes, you need to first begin your start-up business by doing the appropriate amount of business planning.  Business planning, as investors know, is what differentiates successful start-up companies from unsuccessful start-up companies.  In addition, this is where most entrepreneurs fall short.  There are two primary reasons for this, including the following:

  • Entrepreneurs either chose to ignore, or lack the desire to put in the required effort to do business planning. They do not want to do the unavoidable hard work on their way to developing an investor quality business plan, including, the due diligence, research and overall planning that will ultimately define their start-up company.  This lack of desire to do this hard work will ultimately hurt you and your start-up company. 
  • Entrepreneurs do not have the proper backgrounds or do not have an understanding of the importance of business planning in the road to developing an investor quality business plan. In this case, again, a lack of knowledge can hurt you and your start-up company.

Whatever their underlying reason, entrepreneurs need to understand that the business planning exercise is where all of the required business plan details are formulated, developed and finalized.  Business planning is where you acquire the required knowledge regarding your proposed business proposition.  From the target markets, to competitor positioning, to the projected financial returns, this is where you become an expert in both your product offering and your business. By not engaging in the required business planning, in the near term, you will not impress your investors with the knowledge required to secure funding.  In addition, in the long-term, not knowing your competitors or the markets will not allow you, as an entrepreneur, to maximize the return on investment for your start-up company and for your investors. Therefore, dare to plan, as it will provide you with the necessary knowledge to secure funding and facilitate your start-up company’s success in the market.

Flawless Execution will Drive Success

There are many, many things that need to be accomplished for a start-up company to be successful.  In all cases, for any given start-up, there are too many things to do and not enough time to do them.  This is why the focus on flawless execution will help drive your start-up company to success.  Focusing on executing at all levels, and across all disciplines of your start-up enterprise is the lynch-pin that will drive success.  Therefore, as an entrepreneur, you need to properly map out your targeted, significant milestones and then hit these milestones with flawless execution.  Time is everything for your start-up company, and making sure that you execute in a timely manner will drive the ultimate success of your start-up company.

Potential venture investors also necessarily want to see flawless execution and that you are hitting your milestones in a timely manner.  This ultimately increases the value of your start-up company. In addition, nothing provides investors with more confidence in a start-up company’s management team than the timely execution of significant, value added milestones.  This is a big differentiator for start-up companies. As most investors know, for start-up companies, everything always takes twice as along and twice as much money.  Hence, the lack of execution, wastes both invaluable time and investors’ monies.  Therefore, clearly define achievable and significant milestones and then work diligently to execute and deliver.  This will impress investors and at the same time drive your start-up company to success in the market.

Market Traction a Final Key to Success

Achieving market traction is your start-up company’s final key to success.  Remember you are not in business to just to develop an interesting and unique technology, product or service offering.  You, as the entrepreneur of a potentially successful start-up company, are in business to acquire paying customers. Therefore, securing paying customers and achieving market traction early is a key to any successful start-up company.  To achieve this market traction means that you need to call and then engage with customers early. They need to know that your start-up company is out there in the market and that in addition you offer “value” to their end market application. 

Securing customers and acquiring early market traction, even before securing funding, is often where most start-up companies fail.  They have done their planning, have executed flawlessly, but they often fail to engage with their target customer base and secure customers.  This will not impress your potential investors.  One of the first questions these same investors always ask is whether you have any customers or interested customers. If your answer to this question is that you do not have any customers, then they will want to know who you have talked with and then determine their interest.  Remember investors are risk adverse by their nature and securing market and customer traction early goes a long way to addressing their risk tolerance and ultimately securing funding. This is especially true in today’s tough funding environment. 

Finally, as an entrepreneur,  you need to remember investors need to know that you have a product offering that provides “value” to the market and has the ability to secure customers, and quickly.  Venture investing is all about achieving the highest return on investment in the shortest period of time.  Acquiring paying customers early is the only way to achieve this objective.  Investors know this and therefore they necessarily will focus on your start-up company’s ability to acquire customers and achieve market traction in a timely manner.

“The audacity of hope” is not the path forward to securing funding, nor is it a key to success for you as an entrepreneur of your start-up company. As outlined here, doing the appropriate business planning, executing flawlessly, and then securing market traction are the best avenues forward in securing funding and achieving success for your start-up company. By addressing these three items, you are on the appropriate path to fulfill all of your hopes and dreams through the development of a successful 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.  For more information on the book go to http://www.carlsbadpublishing.com

August 3, 2009 Posted by | Business Planning, Business Plans, Customers, Execution, Market Traction, start-up, Venture Capital, venture finance, Venture Funding | 2 Comments

Entrepreneurs, Don’t Ignore the “800 Pound Gorillas”

Many times, first time entrepreneurs are enamored by their start-up company’s technology, product or service offerings.  As such, they often ignore the large established players or the “800 pound gorillas” in the market. Instead, they believe that their product offering alone will provide them with the long term competitive advantage that will allow them to gain market share as well as to outpace and out maneuver their competitors. What these same entrepreneurs often forget, or choose to ignore, is that these same 800 pound gorillas have access to deep pockets, a multitude of technologies and resources, and well established sales channels that individually or together can immediately provide them with a strong market position, instantly change the competitive landscape, and in some cases, crush these same early stage start-up companies, by either substantially diminishing their positions in the market or forcing them out of the market all together.  This article outlines some of the reasons why these same entrepreneurs and their start-up companies should not ignore these established market players, or 800 pound gorillas.  It also provides two relevant examples of large market players, Microsoft and Intel, using their vast resources to establish their presence in burgeoning markets, even when they were late to market

Established Players Often Wait to Address Burgeoning Markets

Burgeoning markets, especially those related to technology, often take years to first get established and then grow to a level that will make these same markets of interest to large, established players.  On the other hand, start-up companies often stake their existence on these same burgeoning markets, hoping that they develop rapidly, and at the same time that their technology, product or service offering is not only first to market, but has the ability to secure significant market share within these same burgeoning market spaces.  This all or nothing strategy may be good for a start-up company, but the amount of risk associated with entering a burgeoning market too early, is often much too high for established companies to incur.  As such, many of these same large, established market players, or 800 pound gorillas, often wait until the market develops and then use their market muscle, deep pockets and broad technology bases to first establish and then create their positions in these markets. This wait to play strategy is a low risk approach to determining if a burgeoning market is attractive enough to provide these same large companies with associated return that is in line with the internal hurdle rates established within large corporations. 

Just Because They’re Not Players in the Market Don’t Ignore Them

One of the biggest mistakes that start-up companies make is that they believe that they have the only technology, product or service offering that will be successful in their targeted market(s).  More often than not, they forget about alternative products or substitute product offerings.  In addition, just because large, established companies have not entered their target market space does not mean that these same start-up companies should ignore them.  These same large players have the vast resources and established sales channels to immediately make an impact on an attractive market opportunity. Believe me, if there is a high growth market in which they can make money, these large established competitors will move into this market space and make their presence known, and quickly.  They not only have the resources to make their presence known, in some instances these same large, established companies have crushed their start-up counterparts, even with inferior technology, product or service offerings.  Therefore, it is naïve for entrepreneurs to believe that attractive market opportunities will be theirs for the taking.  In fact, the opposite is true, if the market is ripe for making money, and is large enough to support a number of competitors, the large, established competitors will come, and they will not take mercy on their smaller, resource limited counterparts. These are the rules of a capitalistic market.  So, just because you cannot see these large established players in your immediate rearview mirror, they are there and are often “closer than they appear”. Therefore, as Andy Groove has often said, “only the paranoid survive”, this is not only true for Intel, it is especially true for start-up companies and their technology, product or service offerings.  Be aware, the 800 pound gorillas are just around the corner.

The following are two examples of large established players making their presence known within burgeoning growth markets, even after being late to market in these same market spaces.  

Microsoft and the Emergence of the Internet Browser and the World Wide Web

In the early 1990s, a small start-up named Netscape, founded by a college student at the University of Illinois, had established a strong presence in a new, emerging market called the Internet, or World Wide Web. This technology, developed by the U.S. military in the 1960s, was originally called ARPANET[1] and used only by the academic community as a way to communicate using the existing worldwide computer infrastructure. The limited use was primarily based on the fact that there was no easy way to communicate information using the Internet without using a difficult computer programming language. Netscape, developed a programming language called Hyper Text Markup Language (HTML), which allowed for ease of communication and ability to post information such that it was easily read and readily available to the end user. Now, computer-based communications via packet switching and worldwide computer infrastructure using an Internet browser was viable, and it would allow for businesses to post their technology, product, or service offering information to their customer bases in a usable manner. The Internet explosion began, and Netscape was the market leader.

Sometime later, Microsoft realized it had missed this huge market opportunity defined as the Internet and the HTML-based browser technology that would provide them access to hundreds of millions of customers. Microsoft then set out to establish itself in this market, and at the same time, crush Netscape. This was played out in the press. With its massive amount of resources, market presence, and well-established name, Microsoft started bundling its own browser technology with its Microsoft Windows operating system at the exclusion of Netscape and its browser technology. This put Netscape at a serious competitive disadvantage in the market, since Microsoft would now have its new browser technology installed in every new personal computer in the market. Netscape went to court and the court ruled that Microsoft could not bundle its browser technology and, at the same time, exclude Netscape. But, the damage had already been done. Netscape did not have the resources to compete with Microsoft and was eventually sold to America Online. Microsoft, even though it was late to market, had crushed the competition and established itself in the Internet browser market, with its sheer marketing muscle and ownership of the market channels.

Intel and the 802.11 Wireless Fidelity (WiFi) Market

Intel, the dominate player in personal computer-based microprocessor chips, is a well-known company with a massive amount of resources to compete in emerging markets. In the late 1990s, a start-up company named Atheros had developed a new chipset to address the emerging, short-range wireless technology market called 802.11 or wireless fidelity (WiFi). Originally targeted at 5.0 GHz, Atheros, a Stanford University spin-off, had developed a new disruptive approach of using CMOS silicon technology for their radio frequency (RF) chips. Armed with a strong patent portfolio, Atheros was out to change the wireless market by using standard CMOS fabrication technology to develop their WiFi RF chips, an area that traditionally used the much more expensive BiCMOS technology due to the performance requirements of RF chips. Atheros entered the WiFi market with their leading-edge technology solution and took a strong, market-leading position. Aimed at the growing laptop computer market, Atheros at the time was the clear leader in the emerging WiFi (802.11) market.

Intel, recognizing it was late to market, needed a WiFi chipset solution themselves. Being too late to develop their own WiFi chipset, Intel licensed their original WiFi chipset offering from a third-party chip company, and offered it as part of their product offering for laptops, branding the product offering as “Centrino” in the market place. Because Intel owned the PC market and had the ability to create its own brand name in the market, most consumers believed that Intel had the most technologically advanced and most cost-effective WiFi chipset solution in the market. This was far from the truth; in fact, at the time Intel WiFi chipset was several generations behind the Atheros WiFi chipset solution. This fact did not stop Intel from dominating the laptop computer portion of the WiFi market, putting them in the market leadership position. Atheros eventually went public and did very well, but Intel continues to be the dominate player in the WiFi market due to their strong position in the personal computer microprocessor market.

There are hundreds of examples of large, established companies being late to market or not offering the most compelling, technologically advanced solution in the market and still being a success. What one should remember, as an entrepreneur of a start-up company is that large, established companies have many different ways to enter into and then dominating a new market. In many instances, early entry or a compelling technology, product or service offering are not necessarily the paths forward to success, for these large, established companies. In addition, these same large companies should not be counted out as competitors, even if their market entry point to addressing a given market is not obvious. As has been shown, more often than not, it is these same large, established companies that can immediately change the dynamics of the market due to their market presence, channel ownership, established name, and the massive amount of discretionary resources available to them.  So entrepreneurs be aware, do not ignore the “800 pound gorillas” they can and will change the competitive landscape of burgeoning markets, more often than not, to the detriment of 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.  For more information on the book go to http://www.carlsbadpublishing.com


[1] ARPANET (Advanced Research Projects Agency Network) developed by DARPA of the United States Department of Defense, was the world’s first operational packet switching network, and the predecessor of the global Internet.

July 27, 2009 Posted by | Business Development, Business Planning, Competition, Large Established Companies, Market Traction, start-up, Venture Capital, venture finance, Venture Funding | 1 Comment

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

July 20, 2009 Posted by | Business Development, Business Planning, Business Plans, Competition, Customers, Venture Capital, venture finance, Venture Funding | 2 Comments