Robert Ochtel’s Blog

An Experienced Approach to Venture Funding

Entrepreneurs, When Developing Your Business Plan – Sweat the Details

Most business plans, developed by first time entrepreneurs, are light on substance.  That is, they generally lack the details required to make this document an investor focused business plan, or provide any real value to themselves or their investors.  On the other hand, it is the details of a business plan that will help these same entrepreneurs through the funding process and at the same time provide their start-up company with the proper background information to make sure that they are ultimately successful in the market.  So, when developing your start-up company’s business plan, make sure that you sweat the details. This will serve you well in the short term during your fund raising activities and in the long term to insure your start-up company and its technology, product or service offering remain competitive in the market. This article addresses some of the reasons you need to sweat the details in developing your start-up company’s business plan.

Developing a Investor Focused Business Plan Takes Time

Most entrepreneurs want to start out day one writing their business plan.  While this may seem like the most appropriate logical first step, in reality, you need to begin developing your business plan by doing business planning.  Doing the appropriate business planning upfront, will ultimately save you time in the long run.  Much like an architect that develops an appropriate plan to build a quality house, you need to do the appropriate amount of due diligence and planning to develop an investor quality business plan.  

Developing a business plan ultimately takes time, a lot of time.  This is the reason many entrepreneurs want to skip this activity.  On average, it takes about 300 hours to develop an investor quality business plan, but by doing so you will ultimately learn more about your business proposition and your start-up company than you ever could by not developing an investor focused business plan. The business planning and the business plan development process will allow you to identify road blocks, target the appropriate markets, and ultimately uniquely position your company in the market.  The value that you receive by going through the due diligence process, doing business planning, and finally writing your business plan will pay you back, ten times over when you begin to present your start-up company to potential investors. So take the time to develop an investor focused business plan. It is definitely worth your effort.

Developing a Quality Business Plan Requires the Details

A quality business plan requires details. From the market size (in units), to the cost of goods sold, to competitor positioning, ultimately, a quality business plan will have the appropriate amount of details to address all of the issues facing your start-up company.  On the other hand, the lack of details can hurt you both in the short term and long term.  In the short term, a business plan, being thin on details, will not serve you will when securing funding from your potential investors.  Not knowing your markets, your competitors, or financial pro forma projections, will raise a definite red flag with your investors.  They will question whether you really know your target markets and if ultimately you are the one that can lead a start-up company to success in the market. In the long term, by not having developed the appropriate amount of details in your business plan, you will not have a strong base in which to move forward in the market.  This can cause serious problems in the future for your start-up company and its technology, product or service offering, as unforeseen road blocks can result in serious issues in the market. Also, not having developed a quality business plan with the appropriate amount of details, will not allow you address new competitors in the market and uniquely position your company with a long-term competitive advantage in the market.  Finally, by not knowing the details and not having memorialized them in your business plan you will ultimately not have a jumping off point in which to move forward, as the market and competitive landscape changes and you need to address new unforeseen issues.  Therefore, if you are going to spend the time to develop a business plan, and you should, sweat the details.  This will benefit you in the short and the long terms.

 Details will Provide Your Start-up Company with Direction

More often than not, when a first time entrepreneur develops a business idea or concept they do not really know all of the required details involved in both developing their technology, product or services offering and bringing the start-up company successfully to the market.  By going through the business planning process and ultimately developing the details of your business plan, you learn what direction to take your start-up company and how to roll out your start-up company’s technology, product or service offering to the market.  This can include:

  • What markets to address?
  • Which product features and functions to introduce first?
  • How to position your start-up company against your competitors?
  • What the “value” of your technology, product or service offering is to your customers?
  • What market channels will be best for your start-up company?
  • What is unique about your start-up company’s business model?

 All of these items will provide your company with direction and will be uniquely addressed when developing the details of your start-up company’s business plan. Ultimately, the final direction in which to move your start-up company and its technology, product or service offering will be a combination of the details of all of the above and more.  Also, in many cases, by developing the details of your business plan, you will often take a new direction, not originally contemplated when you developed your business idea or concept. This will usually serve you and your start-up company well, as by developing the details, you now know with certainty and conviction which direction to take your start-up company.  This will provide you with the highest probability of success in the market.

 Details will Provide You with Confidence in Front of Potential Investors

When presenting in front of sophisticated investor, you will be barraged by many questions.  Having developed a detailed business plan will provide you with the necessary confidence in which to address these same questions.  On the other hand, if you have not developed a detailed business plan, many of the questions you will receive from potential investors will result in your stumbling and stammering searching for an appropriate response. With the details of your business plan in tow, you will, more often than not, be able to answer all of the questions of these same sophisticated investors.  This will not only provide you with confidence, but it will give these same investors the confidence that you know what you are talking about and that you are an expert in the field you are addressing with your technology, product or service offering.  This perceived expertise and confidence goes a long way with potential investors. They need to know that they can count on you to know what you are doing and why you are doing it.  Having developed a detail business plan facilitates you and your start-up company with your potential investors.

Sophisticated Investors will Expect you to Know the Details

From the details of the market growth projections, to the gross margins of the financial projections of your start-up company, sophisticated investors will expect you to know all of the details of your business plan.  This is a daunting responsibility, but having already developed a detailed business plan, you have a firm basis in which to move forward.  The trick here is to be able to recall all of this detailed information while you are on your feet presenting to these same investors.

Today, more often than not, potential investors will not have read your business plan.  Therefore, they do not know the details of your business plan nor do they have any impression of you or your start-up company.  This is where knowing the details of your business plan, and being able to recall this information, in a sometime hostile environment, will provide you with instant credibility with your potential investor base.  The more you know about the details of your business, the more you will impress these same investors with your knowledge, and expertise in your field.   Also, from an investor’s point of view, they will expect you to know all of these details. After all, they are counting on you to develop and run a successful company, and therefore, you need to know all of the details when presenting your business plan in front of potential investors.   

As discussed, when developing your business plan, you need to sweat the details. By doing so, you will not only learn a lot about your start-up company and the business you will be addressing, you will also develop a level of confidence, not available without sweating the details of an investor focused business plan.  In addition, often by developing a detailed, investor focused business plan, you will create a new direction in which to take your start-up company which can facilitate your ultimate success in the market.  Finally, by having put in the time and effort required to develop a detailed business plan, you will substantially increase your knowledge base and at the same time become an expert in the market. This will not only provide you with confidence in front of your potential investors, it will provide you a solid basis in which to recall detailed business plan information while presenting to these same investors.  So, when developing your business plan, sweat the details, it will serve you well in the long run.

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 13, 2009 Posted by | Business Development, Business Planning, Business Plans, Venture Capital, venture finance, Venture Funding | 2 Comments

When Seeking Venture Funding Don’t Forget to Focus on Your Business

The process of securing venture capital or any other type of private equity funding is very time consuming.  With all of the preparation, travel, presentations and required follow-up, entrepreneurs often forget to focus on their business.  This article reminds entrepreneurs that while focusing on their venture fund raising activities is important to move their start-up company forward, they need to remember to focus on their business and to move it forward, as this is just as important of an activity as is venture funding is for their start-up company.

Fund Raising is a Time Consuming Activity.

Ask any entrepreneur that has secured venture funding, and they will tell you that it is a very time consuming activity.  First, there is the materials preparation, including the development of your start-up company’s:

  • Executive Summary,
  • Business Plan, and
  • Road Show Materials.

Each of these documents, individually, can take substantial development time, working and then re-working to get them to the level of being investor-quality documentation.  As such, it usually takes several months of research, due diligence, creation, writing and then re-writing to develop the appropriate investor documentation.  Also, getting the attention venture funding investors (e.g., venture capitalists), just to schedule a meeting, can be very laborious and challenging for entrepreneurs.  This is especially true if you do not have a lawyer or some other person to provide your start-up company with the appropriate “soft” introduction to the investor community. Then, there is the required travel, presentations and follow-up with each of the individual venture investment groups, just to get to the next level of potential investor interest.  So, as can be described by seasoned entrepreneurs, venture fund raising is a very time consuming and difficult task that can take all of your available time, if you let it. This leaves little time to focus on your start-up company’s day-to-day business related activities.  This is not a recipe for a successful start-up business as there a multitude of issues that need to be addressed daily to ensure your start-up company in moving in the right direction and at the same time creating value for your company.

 Fund Raising Takes Time.

Many entrepreneurs assume that they can secure venture funding in two months or less.  This is not realistic.  Even in a good economy, it takes a typical start-up company 6 to 12 months to secure venture funding for the development of their technology, product or service offering.  This time table assumes that you have contacts in the funding community, and can set up your initial meetings with investors fairly early in the funding process.  If this is not the case, then you can add on a few months to just schedule your initial meetings with targeted investors.  Also, in today’s economy, this funding time table is even longer, given the fact that in slow economic times, investors tend to stick with their current investments, making it just that much more difficult for entrepreneurs to secure funding, from these same investors, than it would be in a strong economy.  Therefore, as an entrepreneur, you need to look at a realistic time table for securing venture funds, and often the resulting time table is much longer than originally anticipated.  This can make the funding process and the associated time frame can be even more detrimental to the overall development of your start-up company.

You are in Business to Create Value for Your Company.

As an entrepreneur, you are in business to create value for your company.  This means that in addition to securing venture funding, you must work diligently to move your company forward, with or without funding, such that you are creating value for your company every day.  This should be your personal expectation and it surely is the expectation of your investors.  They have to believe that even without funding that you and your executive team can continue to use creative ways to move your company forward and at the same time creating underlying value for your company in the market.  This can include:

  • Securing customers,
  • Aligning with strategic partners,
  • Developing your sales channels,
  • Continue to market your company to target customers,
  • Working with early “beta” test customers,
  • Moving product development forward to the next level, and
  • Other.

All of these activities and many others can create inherent value for your start-up company, both in the market and to your potential investors.  So remember, that securing venture funding is only one vehicle that can be used to move your company to the next significant value level. There are many other things you can do on your own through securing customers, the development of a strategic partnership, or bootstrapping that can also create near term value for your start-up company, and at the same time prove to your investors that you have the ability to move your start-up company’s business forward, even in non-ideal financial circumstances.

Continuing to Focus on Your Company’s Business is Often Beneficial.

During the venture funding process, focusing on your company’s business can take you away from the everyday hassles associated with venture funding.  This can be a good thing. By continuing to simultaneously focusing on your company’s day-to-day business activities, you can move your company forward to the next level and accomplish significant milestones that will be beneficial to your company.  This business focus can also create new opportunities that were not originally available to you and your company at the beginning of the venture funding process.  Remember, the venture funding road is a long one, and continuing to knock down significant development milestones, securing customers, or developing strategic partnerships, etc. can be just the ticket to get the attention of your investors.  Also, often, significant business opportunities often take time to develop and by continuing to focus on your business, while your are raising funding, can often provide the required time period for such opportunities to develop and take hold for your start-up company. 

Focusing on Your Business Can Facilitate Funding.

In the end, by focusing on your business while working to secure venture funding may be the vehicle that facilities the funding for your company.  No company can go for 6 to 12 months, without focusing on their business.  In addition, by developing new business opportunities during the funding process, you continue to create value for your company and its potential investors.  One or all of these business activities together, may be just the ticket that gives your potential investors the proof that your company is the one they are willing to risk their monies on to provide the types of returns they require.  Therefore, continue to focus on your company’s business and your investors will recognize the value you are creating during for your start-up company, even before you secure funding from third party investors.

Focusing on venture funding is just one phase of your start-up company’s development.  But, your company’s business is the real item that needs to be developed to create value for your company.  Therefore, while you are trying to secure funding for your start-up company do not forget to focus on your business.  By doing so, you can create significant value along the way and at the same time help facilitate the venture funding of your start-up company.

June 1, 2009 Posted by | Business Planning, Finance, Venture Capital, venture finance, Venture Funding | , , , | 1 Comment

A Competitive Analysis Helps Position Your Company in the Market and with Your Investors

All business plans should contain a thorough competitive analysis of your start-up company and its technology, product or services offering.  This analysis is a key to positioning your company in the market.  It is also a key to convincing your investors that you have done your homework and have a product offering that provides a long term, sustainable competitive advantage.  Finally, a thorough competitive analysis provides a basis to inform these same investors that your company and its technology, product or service offering is something worth considering investing in with the potential for a substantial return on investment.  This article outlines various items to consider when developing your start-up company’s competitive analysis.

Never Tell Your Investor There is “No” Competition

One of the biggest mistakes a first time entrepreneur can make when developing their business plans is to not spend the appropriate amount of time developing a thorough competitive analysis. This is a huge mistake and will often come back to haunt you.  In addition, many times I have witnessed entrepreneurs trying to tell their potential investors that there are no competitors or no “direct” competitors for their technology, product or service offering. This again, is a big mistake with investors.  First, they will not believe you.  There are always competitors or potential competitors within the target markets for your start-up company’s technology, product or services offering.  Second, making this statement will cause you to lose your credibility with the same individuals you are trying to impress with your knowledge of the market. Therefore, as an entrepreneur, one must take the time to do their research and due diligence to identify their competitors, both large and small, and also at the same time identify those companies that have the capabilities to enter your market space with a compelling product offering.  One thing is for sure, if you are successful company and making money in a given market, the competitors will come.

Listen to Andy Grove

Andy Grove wrote a book entitled “Only the Paranoid Survive.”  In his book, Andy outlines his belief in the value of paranoia in business. Here, he rightfully claims the following: “Business success contains the seeds of its own destruction. The more successful you are, the more people want a chunk of your business and then another chunk and then another until there is nothing left. I believe that the prime responsibility of a manager is to guard constantly against other people’s attacks and to inculcate this guardian attitude in the people under his or her management.”

 This belief that “only the paranoid survive” must drive your start-up company when entering a market and developing a long term competitive position in this same market space with your new technology, product or service offering.  This basic understanding of business also underlines the value of developing a thorough competitive analysis for your start-up company.

Determine the Key Product Attributes

When reviewing the market and its competition, one must focus on what key technology, product or service offering attributes are important to your customer base.  This attribute list should include all the features, functions and capabilities that you believe are important to your customers.  The purpose of developing this key attribute list is to develop a list of identified and compelling features, functions and capabilities that the current competitors use to differentiate their products in the market. It should also be noted that these attributes should be verified with your customer base.  Often what you believe, as an entrepreneur, are important features, functions and capabilities are not necessarily that important to your customers.  So, spend the time talking and verifying key product attributes with your customer base.  This will go along way when presenting your competitive analysis to your investors.  This will also substantiate the credibility of your analysis. 

Present a Succinct Summary of Your Analysis to Your Investors

To present your competitive analysis to your investors in an easy and readable format, often it is best to summarize all of your due diligence and research on your competitors in a table format.  This table presentation is easy to read for your investors and can be used to present a substantial amount of important information in a succinct and compact format.  To develop this table lists all of your competitors, along with your start-up company, on the horizontal table axis.  On the vertical table axis list out the important and identified key features, functions and capabilities that differentiate the various product offerings to their customer base.  This table, as outlined, and if developed with the appropriate level of detail, will provide a clear view of the competition in the market.  It should also delineate, to your potential investors, how your company’s technology, product or service offering provides a clear, sustainable competitive advantage in the market.   

In addition to your table-based competitive analysis presentation, you should include a summary paragraph that outlines the conclusions of your competitive analysis table to your investors. These conclusions should emphasize to your investors the clear advantages of your company’s product offering in the market. By presenting your competitive analysis and due diligence in this format your investors will get a clear, concise summary picture of your start-up company and the competitive advantages of its technology, product or service offering in the market.

Position Your Company

Once you have developed your company’s competitive analysis and presented it in the appropriate table format, one should next use this same information to position your company and its product offering in the market.  This is best accomplished by developing a “perceptual map” – a two axis graphic which is based on the two key attributes that differentiate various successful product offerings in the market.  (As an example, two key attributes for the microprocessor market can include speed and power consumption.)  These two key attributes are then used to position your company and its product offering with regard to your competitors.  This “perceptual mapping” exercise is a key to developing an identified market position with regard to your start-up company and its product offering and the other various competitor product offerings in the market.  When determining your company’s product positioning one should consider the following:

  • Does your company’s product offering address the “high” end of the market according to these two key attributes?
  • Does your company’s product offering address the “low” end of the market according to these two key attributes?
  • Does your company’s product offering address the whole market?
  • Does your company’s product offering only address a clearly identified sub-segment of the market? 

The object here is to position your company and its product offering relative to your competitors.  This “perceptual mapping” positioning analysis will provide your customers and investors with clearly identified market position that differentiates your start-up company and its product offering from the competitors in the market.

As outlined, spending a significant amount of time and effort to develop a proper competitive analysis is required for your start-up company and its technology, product or service offering. This analysis is very important to both your potential investors as well as your potential customers.  Also, if done properly, this competitive analysis also provides you and your start-up with a differentiated market position that will be attractive to your customer base and allow your start-up company to secure market share from existing competitors in the market.  Finally, it also allows you to provide your investors with a clear picture of the long term and sustainable competitive advantages your start-up company and its technology, product or service offering provides the market.

For more information on developing a proper competitive analysis for your start-up company, along with a detailed discussion on “perceptual mapping” refer to my new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies.” This book is available at http://www.Amazon.com.

May 11, 2009 Posted by | Business Planning, Business Plans, Competition, Competitive Analysis | Leave a comment

Entrepreneurs – Know Your Start-up Company’s Funding Requirements and Associated Significant Milestones

As part of the funding process, entrepreneurs need to spend time delineating their start-up company’s funding requirements and associated significant milestones. These items are one of the first things potential investors review. In addition, having mapped these significant milestones to your anticipated funding rounds is a key to gain credibility with your potential investors. This article outlines various items entrepreneurs need to consider regarding their funding requirements and associated milestones.

Delineate a Detailed Development Schedule

As part of a complete business plan, entrepreneurs must delineate a development schedule for their start-up company’s technology, product or service offering. This development schedule must be based on realistic assumptions, such that it is not only believable to the start-up company and its team, but it must also pass the scrutiny of potential third party investors and their consultants. Therefore, it is important, as an entrepreneur, that you take the task of delineating a detailed development schedule seriously. Any misrepresentations, or items in your start-up company’s development schedule that do not make sense to the investors and their due diligence team will cause them to question your credibility as an expert in your industry, as well as your start-up company and its management team. Remember, investors at this point, are looking for reasons not to invest in your start-up company, and so any upfront inconsistencies in the details of your development schedule will give them a reason to move on the next investment opportunity.

Identify Significant Milestones

Once you have completed a detailed development schedule, your next step is to review it from a funding requirements point of view. Here, you need to determine what the significant milestones are for your start-up company’s technology, product, or service offering. This can include items such as the following:

  • Technology simulation completed,
  • Completion and delivery of prototype, 
  • Alpha testing completed,
  • Beta testing completed,
  • Second prototype developed and beta tested,
  • Production units completed, and
  • Delivery of first production units.

Your start-up company’s milestones may be different, but the key here is to identify the significant milestones associated with the development of your technology, product or service offering. Here, investors are looking for points in your start-up company’s product development cycle that add significant value to your company and that at the same time can be used to increase your company’s valuation for subsequent funding round, as necessary. It should also be noted that development milestones should necessarily include both business and technology milestones. Remember, you are in business to secure customers not just to develop a technology, product or service offering.

Determine Your Total Funding Requirements

Once you have completed your development schedule and identified your significant milestones, you must review your start-up company’s financial pro forma statements to determine your company’s funding requirements. Here, reviewing your cash flow statements is a key to determining your company’s total funding requirements and the associated timing of this funding. This is where most start-up companies have some issues and it may require you to secure external help to both develop your financial pro forma statements (Income Statements, Balance Sheets, and Statement of Cash Flows), and to review and delineate various funding scenarios.

At this point it is important to develop several financial pro forma funding scenarios including:

  • Best case scenario,
  • Typical case scenario, and
  • Worst case scenario.

Each “case” scenario needs to be developed to include both internal (development) and external (market) driven factors, both of which will affect your company’s projected financial pro forma statements and hence the funding requirements for you company. This will take a significant amount of time and effort, but, in the end you will have developed a complete picture of your start-up company’s funding requirements. Finally, each funding “case” should include a complete list of the assumptions that go along with each scenario. This type of financial analysis and presentation will earn you credibility with your investors.

Map Your Development Milestones to Your Funding Requirements

The next step is to “map” your significant development milestones to your funding requirements. This can best be presented in table form or graphic form. This mapping provides your investors with a complete picture of the funding requirements of your company and the associated significant milestones. Many first time entrepreneurs do not go through this step and it generally will provide difficulty when it comes to investors wanting to understand the value of your company at the various points of its development. So, spend time reviewing your significant milestones and mapping them to your funding requirements, this will provide for smoother discussions with your investors.

Be Flexible

Once you have identified your significant milestones, determined your total funding requirements, and mapped these two items, learn to be flexible with your potential investors. Very seldom does the original funding scenario (e.g., $10M of total funding in two funding rounds – $4M and $6M) that you envisioned for your start-up company, or that you have mapped out in your business plan, come to fruition as presented. This can be for many reasons, including, but not limited to:

  • Your potential investors may only have a small amount of money to invest (e.g., angel investors),
  • Your investors would like to see your product’s significant features, functions, and capabilities proven out, before they invest more money,
  • Your investors have concerns over your company’s ability to secure market traction and would like to see your company secure a lead customer before the next round of funding.

All of these items and an infinite number of other concerns and issues will dictate your company’s final funding rollout scenario. The key here is to be flexible. Having gone through the details of your start-up company’s significant milestones and total funding requirements, it will then be easy for you to support any funding scenario that comes your way. Also, in reality, it may be beneficial for you and your company to entertain other funding scenarios, than originally envisioned. As a result, this may require you and your team to give up a smaller amount of total equity in the long run, and enhance your company’s future valuation in follow-on rounds of funding.

As outlined, spending a significant amount of time developing a detailed development schedule, identifying significant milestones, determining your total funding requirements, and then mapping these milestones to your start-up company’s funding requirements is key to securing funding from third party investors. By doing this work upfront you are guaranteed to increase your credibility with your potential investors. This will also ensure smoother discussions with your investors, once you move forward in the due diligence process.

May 4, 2009 Posted by | Business Planning, Business Plans, Venture Capital, venture finance | 1 Comment

Burgeoning Markets –An “Uncontrollable” Risk for Start Up Companies and Investors

There are many different types of risks that entrepreneurs face when starting their companies. This can include technology risk, product development risk, market channel penetration risk, staffing risk and others. Many of these risk factors can be “controlled” by investors, in the short term, by investing more money and/or by adding more resources to mitigate these risks. The risk factor that is out of investors’ control and often causes a start-up company to fail is market risk. Market risk, as defined here, is multifaceted, and is a result of the targeted burgeoning market not developing in the anticipated time frame to support the product demand required by the start-up company. This often results bad news for both the start-up company and its investors.

Emerging “Bleeding-Edge” Burgeoning Markets Take Time to Develop
Often, in order to differentiate themselves from large, established competitors, start-up companies believe that they should address emerging markets with “bleeding-edge” technology. More often than not, this “bleeding-edge technology” strategy comes with a large amount of risk. The most important risk factor here is that the underlying, emerging market that supports this “bleeding-edge technology” does not develop in a predictable, near-term time frame. In this situation, the technology pundits always claim that their targeted market or market segment will “take off” within the next year, providing their company with a substantial return on investment in a very short period of time. This optimistic view of the world, usually does not consider the time it takes to roll-out new technology infrastructure or to establish this same new technology with the target customer base. More often than not, this one-year time frame turns out to be five to seven years or more. This makes it virtually impossible for a small, venture-funded company to finance the multiple generations of product development that are required before their burgeoning target market supports the shipment of significant enough volume to make their business model self-sustaining. This often makes this burgeoning market strategy more of a “hope” than a “reality” for the start-up company and its investors.

First Generation “Bleeding-Edge” Technology – Not Be Ready for Prime Time
Many times the first generation of a new “bleeding-edge” technology is not ready for prime time, as it does not meet the expectations of the target customer base. This will also result in substantial delays in market demand for the start-up’s technology, product or service offering. This again can delay any substantial revenue flow for several years.

As an example of this, in the early 1990’s when cellular phone technology was transitioning from analog technology to digital technology, all of the pundits claimed, that due to the benefits of digital technology — higher capacity and better voice quality, the transition would be immediate. As it turned out, the new digital technology made a person’s voice virtually unrecognizable to other callers. This resulted in many digital phone users turning in their phones for their old analog versions. From the users’ point of view, a little background noise was more tolerable than that of the “bad” voice quality of the digital cellular handset. In addition, given the time requirement to roll out the digital infrastructure, to get ubiquitous digital coverage, individuals did not see any real immediate value to the new digital technology.

Therefore, when developing and then deploying new technologies targeting burgeoning markets, often second generation and sometimes third generation technologies need to be developed to meet the consumers’ expectations. This, again, requires additional investment from the venture capitalists and delays any potential for revenue generation for the start-up company.

Burgeoning Markets – Often Result in More Losers Than Winners
Very often new burgeoning markets and their associated technologies attract a lot of investment monies from the venture capitalists. The result is often a “heard” mentality among these same investors to get in these targeted burgeoning markets at all costs, and be a part of these new “homerun” market opportunities. This, more often than not, results in too many new start-up companies chasing the same burgeoning markets. Where are there are often six to eight start-up companies looking to secure a successful market position in an early stage market, the truth is that only one to two will ultimately be successful. This again, results in higher risk for both the start-up company and the investors. In the end, there will be more losers than winners.

Required Investment May not Bode Well for the Start-up or the Investors
As a result of targeting these burgeoning markets, in many cases, these same start-up-companies often secure a tremendous amount of funding (e.g., $50M to $100M) and then as some point cannot secure additional funding from third-party investors. In this situation, the amount of funding secured significantly outweighs any financial value of the company or its technology, product, or service offering, requiring its investors to sell it to the first large company that will pay pennies on the dollar just to get out of the investment.

This scenario is not unusual. In fact, it has been my experience that within the high-technology wireless markets, this has happened to many start-up companies in the digital cellular, Bluetooth, the wireless LAN (WiFi) and WiMAX markets. For all of these markets, the pundits had projected substantial immediate growth in short periods of time, only to have the markets develop over much longer periods of time, causing many of the early, venture-funded start-up companies that targeted these markets to go out of business or to be sold to larger competitors for an insignificant valuation for the company and their investors.

Market Risk – Must be Thoroughly Evaluated by both Start-ups and Investors
The above does not to imply that there are not many cases where venture-funded, start-up companies, developing “bleeding-edge” technologies for burgeoning markets, do not secure significant returns for their investors. In fact, in the high-technology boom of the late 1990s, many large semiconductor companies were purchasing small start-ups to hedge their bets on some of the emerging wireless markets. At the time, many of these small companies were being purchased at valuations between $200M to $400M. These unheard of valuations, although good for the start-up companies and their investors, rarely made significant returns for the acquiring company, which often shut down these operations within one to two years after their purchase.

The accompanying lesson here is that the “market risk” associated with targeting a new burgeoning market is NOT a “controllable” risk. In fact, as outlined, the associated risk from targeting these emerging markets is multifaceted and many times results in significantly higher investment requirements and long delays in anticipated revenue streams. Therefore, both investors and start-up companies must thoroughly evaluate these risks before targeting a burgeoning market as their primary revenue generation opportunity.

The information outlined in this article comes from my new book entitled “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up companies.” Signed copies of this book are available at http://www.carlsbadpublishing.com. The book is also avaiable at Amazon.com. Robert also provides business planning, and venture funding consulting services to start-up, small and mid-sized companies.

March 16, 2009 Posted by | Business Planning, Target Markets, Venture Capital | 4 Comments

When it Comes to Venture Fund Raising, Many Entrepreneurs Don’t Know What They Don’t Know.

The challenges are many for entrepreneurs looking to start their first company. There is business planning, the business plan, and securing venture funding.  All of these endeavors require experience. Too often, entrepreneurs go into these endeavors with “blindfolds” on. If you are taking on these challenges for the first time, you don’t know what you don’t know. This can be a very overwhelming, and more often than not results in many restarts that don’t get you to the end goal – securing funding and delivering your start-up company’s technology, product or service offering to market.

 

With this in mind, it is important for entrepreneurs to realize this early, as approaching investors with a “half-baked” business proposition and/or plan will cause you to lose credibility with investors.  More often than not, there are no second chances to present yourself to investors and just so you know, the investor world is very small and word gets out quickly on “bad” deals.

 

I know from experience that private equity investors are very risk adverse and therefore I have developed a list of 12 Essential Elements they look for in new potential investment opportunities.  If you don’t hit these 12 Essential Elements up front you will not get any “face time” with potential investors – be it angels, venture capitalists or other private equity investors.

 

To facilitate entrepreneurs through the  venture funding process, I recently wrote and published my book entitled “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies.”  This book provides proven processes and methodologies for securing funding for any start-up company. In addition, unlike other traditional “business plan” books, this book provides a “concept” to “funding” approach to securing venture funding.  Hence, no matter where you are in the development of your start-up company, the information contained in this book can provide you with the appropriate materials to think through, successfully plan, and then execute, so that your start-up company will achieve its vision. 

 

I am also available as a consultant to help support you through the trials and tribulations of your start-up company and securing funding.  The proven processes and methodologies I provide will allow you to accelerate your start-up from concept to funding.  So, invest in yourself and take a proven road map to developing your start-up company and securing funding.

 

For more information on Robert’s consulting services go to www.carlsbadpubishing.com. Robert can be reached at Robert@carlsbad-tg.com.

 

Robert Ochtel is a successful serial entrepreneur. The processes and methodologies, outlined in his book have been used to successfully raised over $50M in early stage funding from such firms as Sequoia Capital, Brentwood Associates, Oak Investment Partners, AT&T Ventures, and Intel Corporation. Robert also, successfully sold a start-up company to IBM for $180M.

March 12, 2009 Posted by | Business Planning, Business Plans, Venture Capital | Leave a comment

Five Degrees Off-Center – Often a Key to Success for Start-up Companies

When focusing on developing their businesses and business plans, many times entrepreneurs have a preconceived idea of their target primary market and customer base. This preconception more often than not “clouds” the strategic vision of the company and its technology, product or service offerings. In addition, it may result in the company not thinking “outside the box” in addressing potential market opportunities which could substantially increase the return on investment for the start-up company and its investors.

Due Diligence Expands Your Company’s Strategic Vision

As a way to expand a start-up company’s strategic vision, begin by doing a general market trends due diligence analysis. This requires the start-up company developing a given technology, product, or service offering to do their homework. To get a feel for the general market and the current and future trends, one must study the market(s) of interest. Doing the appropriate amount of market research will provide your start-up company with the overall basis in which to develop an understanding of the general market trends as well as the strategic opportunities that exist in markets. Generally, start-up companies in developing their market due diligence analysis should focus on three areas of research, including:

• Markets,

• Competitors, and

• End customers.

By focusing on these three areas, the entrepreneur can develop a quick assessment of the overall general market trends and the strategic, opportunistic market needs for a company’s technology, product, and service offerings. It also allows the entrepreneur to step back and separate themselves from their original preconceived notions, based on actual market research, to determine the appropriate path forward, which more often than not is different than their original plan. I refer to this as the “five degrees off center approach.” By doing your homework and now armed with real market due diligence, often entrepreneurs find new and/or hidden market opportunities that are more interesting and facilitate higher return on investment for their start-up company and their investors. Secondary and

Tertiary Markets May Provide More Market Success

Based on market due diligence, often newly identified secondary or tertiary markets can provide excellent opportunities for a start-up company and its technology, product or service offerings. These new market opportunities were not originally available to the entrepreneur and hence limited the overall company strategic focus and potential. By thoroughly evaluating these secondary and tertiary markets, the start-up company will now have the ability now substantially enhance its success in the market. These new market secondary and tertiary market opportunities can benefit the start-up company in the following ways:

• Provide new initial market entry points with substantially less risk,

• Provide a higher potential return on investment,

• Support an expanded customer base,

• Support multiple revenue streams,

• Provide a stronger competitive position in the market, and

• Substantially reduce the market risk for your investors.

All of these benefits will increase the start-up company’s potential for success in the market place. The Original

Primary Market – Still a Target

In many cases, after the market due diligence analysis process, the original primary market is still a market of interest for the start-up company and its technology, product or service offerings. But, with the new found market opportunities it may not make this original market opportunity the primary or initial market entry point. This does not diminish the need to address this original primary market, but it may prioritize the development of the associated features, functions, and capabilities of your initial technology, product or service offering. The end result will most likely be a change in the following:

• The market entry point,

• The target market application,

• The required product features, functions, and capabilities, and

• The target customers.

Reduces Investor Risk and Increases Chances of Funding

By doing the appropriate level of market due diligence, the start-up company now has a cohesive market entry plan and associated technology, product or services features, functions, and capabilities development plan. This plan more often than not is different than the original “preconceived” plan that was being considered before the entrepreneur did their market due diligence. In addition, this new plan may be only “five degrees off center” from the original plan, but it often provides for substantially less risk, higher return on investment and more cohesive approach to addressing the market with the start-up company’s technology, product or service offering. The end result is that this new plan substantially reduces investor risk and increases the potential of securing funding for the start-up company.

The information outlined in this article comes from my new book entitled “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up companies.”  Signed copies of this book are available at http://www.carlsbadpublishing.com.  The book is also avaiable at Amazon.com. Robert also provides business planning, and venture funding consulting services to start-up, small and mid-sized companies.

March 9, 2009 Posted by | Business Planning, Venture Capital | 2 Comments

The Business Planning Process: Large Companies vs. Start-up Companies

During the early stages of development, many start-up companies overlook the business planning process. More often than not these same companies opt to focus on their proprietary technology offering as a basis for success in the market. This “technology-oriented” approach to addressing the market may not result in ultimate success for the company or maximize the return on investment for the shareholders.

The Business Planning Process

Business planning is a process. If your company does not engage in a well defined business planning process, many things can happen. But more often than not, the overall result is that your company will not achieve the financial success desired, because you do not know or understand where your company is going, how the market is changing, or how to appropriately respond to these changes.

Many times, companies that do not participate in the business planning process go after everything and anything that is in front of them. They do not have a clear roadmap to define where they are going, and why they will be successful in a given market or sub-market segment. In many cases, these same companies that do not engage in a diligent business planning process will ultimately end up investing in multiple, non-competitive products, addressing disparate markets, and consuming their limited resources. By doing this, these same companies end up foregoing any possibility of securing a strong, competitive position in their target markets, and ultimately will not be successful. In the end, they will not maximize their return on investment for their shareholders, either private or public.

To skip the business planning process means that these companies are willing to gamble with their shareholder’s money, and in many cases, angel or venture capitalists’ money, with no roadmap to success. It should also be mentioned that participating in the business planning process does not guarantee success in the market. After all, the day a business plan is written, it is obsolete. But, what it does is provide your company with is a roadmap to determine your next steps toward moving forward in the development of your technology, product, or service offering, to meet the market requirements, and obtain a sustainable, competitive advantage in an ever-changing environment.

Large Companies vs. Start-up Companies

Business planning for large, established companies versus start-up companies is not substantially different. Traditionally, the only real underlying difference for these two entities was the availability of human resources and market research sources. Today, and for approximately the last 15 years, the Internet has been a great equalizer in the business planning process for these two types of entities. Now, there are some exceptions regarding access to expensive market research reports, but through diligent research and time, start-up companies can develop business planning documents and business plans, equal in quality and content, to that of large corporations. In many cases, due to the ultimate importance of these planning documents to the overall success of the company, these same start-ups generate much better business plans. In addition, the advent of the Internet has allowed both large, established corporations and small start-ups to expedite their business planning process due to the relative ease of access to information.

Start-up Company Business Planning

In many cases in start-up companies and even in medium-sized or large companies, the business planning process is not well defined, or in many cases, even non-existent. This can be for many reasons, most often of which is due to lack of experience of having participated in such a business planning process in the past, and therefore, there is a lack of understanding of the merits of such a business planning process. I have worked for multiple start-up companies developing high-technology products, services, and technologies targeted for specific markets or market-sub-segments. In all cases, whether defining the next generation product’s functions and capabilities or determining competitive positioning within the market and ultimate revenue flow and return on investment, I engaged in a disciplined approach to the business planning process. This approach has allowed me to successfully raise angel and venture capital and to position these same start-up companies as strong participants in their targeted markets or market sub-segments.

Many times, start-up companies are only interested in focusing on their technology, product, or service offering. That is, they have an internal, “technology-oriented” focus that they believe will provide them with ultimate success in the market. This is a very narrow and uninformed approach to addressing the market, and generally does not provide a successful path forward. In working with start-up companies, my goal is always to move these same internally focused, “technology-oriented” companies to externally focused, “market-oriented” companies. This approach ultimately provides these same start-up companies a much higher probability of success in the market.

This “market-oriented” approach to addressing the needs of market for start-up companies begins with the business planning process. Inevitably, each time I begin working with start-up companies there are many skeptics, from the CEO all the way down to the engineering manager(s). They often firmly believe that they have the technology, product, or service offering that will provide them success in the market. Many times, these same skeptics cannot even define their target markets, let alone their target customers.

In addition, whether initially I thoroughly understand all aspects of the start-up company’s technology, product, or service offering is irrelevant. What is important is that through the business planning process, and ultimately the generation of the business plan, that I work to determine the market dynamics that drive the product features and capabilities that are required for the start-up company to be successful in the market. Often, through the business planning process, I identify multiple market segments or sub-segments that were not originally on the start-up company’s radar screen and that will ultimately provide for a much higher probability of success than originally anticipated. Also, it is through this business planning process that the start-up is able to determine and articulate their long-term and defensible competitive position in the market.

Therefore, as outlined, the business planning process is as important for large, established companies as it is for small start-up companies. Ultimately, it is this business planning process and not the end result, the business plan that determines a company’s technology, product, or service offering’s success in the market.

Same Process, Different Audience

I have developed business plans for large corporations and medium-sized corporations, and angel or venture capital-based start-ups companies. The thing that is common to all of these entities is that the business planning process is the same! Some people may believe that it is different for these various types of entities, but it is not. The truth is that if you do not do your homework, you have very little chance of being successful no matter what the size of your company. The business planning process does not differ due to the amount of resources available, the underlying technology, product, or service offering being developed, or your company’s current competitive position in the market.

What differs in the business planning process, between these two entities, is the ultimate target audience, including:
• Large Corporations: Corporate investment committees,
• Start-up Companies: Angel investors, venture capitalists, etc.

These different audiences, I have found, can be friendly or hostile. Therefore, during the business planning process, one must be very careful to develop all aspects of your technology, product, or service offering so that you are ready for all questions, comments, and underlying agendas within your target audience. It may be that the underlying purpose of your target audience is different than what you expect. Or it may be that individuals within your audience relate to the different aspects of the business planning process and your technology, product or service offering according to their background, experience, and current corporate concerns. But, the truth is that for each entity, big or small, the business planning process remains essentially the same. And in the final analysis, it is the marketing or business development person, team, or group that has spent the time to cover all aspects of business planning for their technology, product, or service offering that will best serve their target audience.

The bottom line is that through the business planning process, both large corporations and start-up companies have the same objective – that is, to maximize the return on investment of stockholders.

The information outlined in this article comes from my new book entitled “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up companies.”  This book is available at www.carlsbadpublishing.com.

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