Robert Ochtel’s Blog

An Experienced Approach to Venture Funding

Start-up Companies Often Require an Experienced Leader to Move Forward in Securing Funding

I have met a million start-up companies that say they need venture capital to get going.  Many of these same start-up companies have accomplished a lot in a short period of time, and with little money.  But, at the same time, these start-up companies are not ready or prepared for venture capital funding. Why, because they do not have a cogent business plan that will stand up to the rigors of the venture capitalists.  What often they have is a concept or even once in a while, a working prototype, but they often do not have a plan that outlines how they are going to spend the required monies and what financial returns the venture capitalists can expect to get for their investment. At this point, many of these same entrepreneurs are stuck. They have a compelling concept or even a prototype, but they do not have a way forward to secure funding.  What they often need is someone, who has experience in fund raising to come in as the CEO of the company and provide the leadership required to move the company forward in secure funding.  This article outlines several of the near term leadership-related issues this new CEO needs to address to get the start-up company moving forward to securing funding.

Set the Expectations for the Team

The first thing the new CEO needs to do is to set the expectations for the team.  This includes outlining what investors are looking for from the executive team and their start-up company. Too often, start-up companies and their executive teams have an unrealistic expectation of what it takes to secure venture funding or even what is expected from venture capital investors. This needs to be cleared up at the start.  Venture capitalists are a tough group from which to secure funding, and statistically these same investors only typically invest in 3 out 100 start-up companies they review.  Therefore, the conclusion one should come to here is that venture capitalists are looking for something that is really unique with the ability to create a substantial impact in the market.  Anything less will not get their attention.  Even with these characteristics, there are many start-up companies that do not get funded, due to many other reasons, including a bad executive team, no real go to market strategy, etc.

In addition, many entrepreneurs do not really know or understand the amount of work and effort that is required to get from where they are to securing venture capital funding.  So, it is also important to set the work-related expectations for the executive team up front.  They need to understand the raising money is hard work and it requires a substantial amount of effort over a prolonged period of time from all of the team members, not just one or two, members of this same executive team.  So remember, setting the venture funding expectations up front will help lead the team through the funding process.

Define the Near Term Funding Goals

The most important near term goal the new CEO can set is to develop a business plan that is sellable to venture community.  Having a great business concept of even a prototype will not necessarily provide the path forward to securing funding from venture capitalists. So, here as the leader of the start-up company, you need to set the near term goals for the company.  This necessarily includes developing an investor focused business plan, but in addition it can include:

  • Creating an appropriate strategy and focus for the start-up company,
  • Defining the appropriate product offering as required by the market,
  • Determining the start-up company’s financial model,
  • Securing the appropriate partners to provide a complete product offering,
  • Calling customers and getting real feedback on your product offering,

In addition to the above, many other things need to be addressed.  The point here is that while you are developing an investor focused business plan, as the leader of the company, you need to address all of the necessary things that will make your start-up company successful. Having done your homework and accomplished these near term goals will provide you with a much more complete business plan and provide your investors with the necessary confidence in your start-up company and your team.

Assign and Execute the Associated Tasks

Nothing ever gets accomplished unless the team is pulling together in the same direction. Here, as the leader of the start-up company and its executive management team you need to assign tasks, with associated delivery dates, to these same team members. More often than not, each team member will have an appropriate skill set that can be used to not only help develop your investor focused business plan, but to open the necessary doors to secure the right resources, get into the right customers, and target the necessary potential strategic partners, etc.  All of these things need to be accomplished in parallel and it is often a daunting task. But, with a committed team and the appropriate leadership, the assignment and the execution of these same tasks possible in a defined time frame.  By going through this, the team will also necessarily become closer, as they are working toward to same goal of securing funding for their start-up company. So, as the leader of the team you not only have the responsibility of assigning the tasks, you necessarily have the same responsibility to see that these tasks get executed on time. This will allow you to not only deliver an investor focused business plan, but provide a complete picture of how and why your start-up company and its team will be successful in the market.

Too often start-up companies claim they need funding to be successful, but have no idea how to secure this funding.  With a great concept or even a working prototype, these same start-up companies often lack direction or the ability to secure the necessary funding to move forward.  To move to the next step, these same start-up companies often need to hire a CEO, with funding experience, to provide the leadership to guide their start-up company through the funding process. Here, the near term leadership responsibilities, as defined here, include setting the appropriate funding-related expectations for the executive team, defining the near term funding goals, and assigning and executing the appropriate tasks.  With this new leadership, the start-up company and its executive team have a much higher potential for success in securing funding and ultimately being a force 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.

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November 16, 2009 Posted by | Business Plans, Venture Capital, Venture Funding | , , | 2 Comments

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, No Matter Where You Start with Your Business “Concept” or “Idea”, Your Final Product Offering Will Often Be Quite Different

Many times entrepreneurs start with a business “concept” or “idea” with little or no real knowledge of the market, their competitors, potential strategic partners or the customer requirements. Accordingly, the genesis of an entrepreneur’s business “concept” or “idea” can be based on many different things, including a hunch, a gut feeling, a discussion with a friend or colleague, or even some real market-based experience.  Many times, this “concept” or “idea” initially envisioned by the entrepreneur is correct in terms of the underlying supposition regarding the market need or problem they are trying to solve.  But in the end, the final configuration of their product offering is often very different than their original “concept” or “idea”. The reason for this is that the market realities necessarily dictate the final configuration of a start-up company’s business “concept” or “idea”. Therefore, entrepreneurs often end up with a substantially different product offering than they originally begin with.  This is not a bad thing, and ultimately often results in a much higher level of success in the market.   This article addresses the underlying reasons that an entrepreneur’s original business “concept” or “idea” changes as they become more familiar with the realities of the market.  In the end, the result is a better final product offering that has a much high potential for success in the market.

Review the Markets

With the instantiation of their start-up company and their associated business “concept” or “idea”, entrepreneurs often have a target market in mind for their final product offering. From the beginning, this target market is their primary focus and often they are not to be dissuaded from their single market focus.  This myopic approach to looking at the market(s) is often a big mistake and can result in a failed start-up company. As such, many of these same entrepreneurs often forgo the opportunity to review all the potential market opportunities that can be addressed with their technology, product or service offering.

A much better approach is for the entrepreneur is to step back and review all potential markets from the 30,000 foot level.   With this level of market-separation, the entrepreneur can now take into consideration all of the other potential markets that may be complementary or supplementary to their initial, primary target market.  This approach of reviewing all of the potential markets available for the entrepreneur’s product offering is invaluable for many reasons, including:

  • It allows the entrepreneur to examine the underlying characteristics (e.g., size, growth, competition, etc.) of their primary target market and all other potential markets of interest on their individual merits,
  • It provides the entrepreneur with the ability to identify other new, potential revenue generating opportunities,
  • It provides a market-based approach for the entrepreneur to prioritize the necessary features, functions, and capabilities of their final product offering according to the market needs,
  • It allows the entrepreneur to prioritize all of their potential markets into primary, secondary and tertiary market opportunities, and
  • It provides the entrepreneur with necessary information to determine which markets will provide the highest potential return on investment for their start-up company.

This high-level market analysis is invaluable, as it provides the entrepreneur with the necessary knowledge to make an informed decision on bringing their technology, product or service offering to market.  Having now identified which target markets make sense for their product offering, the entrepreneur can now prioritize these same market opportunities appropriately.  As often is the case, from this high-level market review, the entrepreneur more often than not decides to target another, different market than they originally intended as their initial primary market focus for their start-up company’s technology, product or service offering.  Consequently, this change in market focus often drives the entrepreneur to develop additional and/or different features, functions, and capabilities for their final product offering than originally envisioned at conception. This is a good thing, as this enhanced final product offering can often support multiple revenue streams and a substantially higher return on investment than originally anticipated.

Study the Competition

Often, an initial business “concept” or “idea” by its very nature is half baked. The reason for this is that there is little or no market reality integrated into this initial business “concept” or “idea”.  Therefore, to get these same market realities into the features, functions and capabilities of their product offering and to further develop their start-up company’s business “concept” or “idea”, the entrepreneur must study their competition.

To most entrepreneurs the thought of developing a competitive analysis sounds like a difficult and painful task. More often than not, these same entrepreneurs do not want to spend the time necessary or the due diligence effort required to analyze the competition and their product offerings.  While it is true that developing a thorough competitive analysis is a difficult task that can take a significant amount of time, it can very beneficial to the entrepreneur and their start-up company.  Some of the benefits of developing a complete competitive analysis include:

  • Identifying all the necessary features, functions, and capabilities of their start-up company’s product offering. 
  • Defining the key features, functions and capabilities that differentiate their product offering to that of their competitors.
  • Determining how to position their product offering against their competitors based on these same defining features.

The end result is that through the development of a thorough competitive analysis the startup company’s final product offering is often much different than that of the entrepreneur’s original business “concept” or “idea”.  But, again, this is okay, because this same entrepreneur and their start-up company now has a product offering that provides a competitive advantage in the market and at the same time provides significant value to the end customers.

Identify Strategic Partners

Most start-up companies go to market with a core technology, product or service offering.  At the same time, from the customers’ point of view, this core technology, product or service offering is often “incomplete” and many times requires one or more complementary technologies, products or services to make it a “complete” product offering to properly service the market.  Therefore, to develop a “complete” product offering, it is often necessary for the entrepreneur to identify potential strategic partner candidates that can provide the necessary complementary technology, product or service offerings. These strategic partners can range from hardware providers, to software developers to service partners, etc. By identifying the appropriate strategic partners, the entrepreneur is taking the proper initiative to make their initial business “concept” or “idea” into a “complete” product offering, further ensuring their success in the market.

Finally, take the necessary time to identify and analyze potential strategic partners. Remember, great strategic partners will add significant value to your start-up company beyond their technology, product or services.  In addition, take the time to also consider their market position, customer base and channel access.  These items can add significant value to your start-up company and its ability to secure and create a long term defensible position in the market.

Talk to Your Customers

All of the market research and analysis in the world does not mean much unless it is verified with your start-up company’s customer base.  Also, it is this customer verification process that many times causes a start-up company’s final product offering to vary significantly from its initial business “concept” or “idea”. What an entrepreneur initially believes are both important and necessary features, functions, and capabilities for their product offering are often much different from the end-customers point of view.  This is a significant point, as often, entrepreneurs never talk to their customers and therefore do not really understand what is important to their customer base.  Obtaining customer feedback is invaluable to an entrepreneur and to their start-up company.  It not only allows the entrepreneur to validate or invalidate their initial business “concept” or “idea”, it provides them with the ability to prioritize the necessary features, functions and capabilities of their product offering. Therefore, by talking to their customers, entrepreneurs often find out that their final product offering will be much different than originally envisioned at the business “concept” or “idea” stage.  This is necessarily a good thing in that it provides the entrepreneur and their start-up company with a final product offering that targets the needs of their target customer base.

A business “concept” or “idea” is only the first step in the development of a valuable product offering.  As often is the case, a start-up company’s final product offering will be much different than the entrepreneur’s original business “concept” or “idea”. This is necessarily part of the process of developing a product that addresses a market need, and at the same time provide a long-term, sustainable competitive advantage in the market. So, as an entrepreneur you need to review the markets, study your competition, identify strategic partners, and talk to your customers.  Your start-up company’s final product, although much different than your original business “concept” or “idea”, will be much more valuable to your customers and at the same time put you on a path to 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 24, 2009 Posted by | Business Plans, concept, Customers, Idea, start-up, Strategic Alliance, Target Markets, 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

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

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

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

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