Robert Ochtel’s Blog

An Experienced Approach to Venture Funding

Entrepreneurs, Self-Education the Key to Securing Funding

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

Take the Time to Really Understand Your Own Investment Opportunity

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

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

Understand the Investment Expectations of Venture Capital Investors

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

Target Your Venture Capital Investors and Get a Warm Introduction

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

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

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

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

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.  For more information on the book go to www.carlsbadpublishing.com.

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

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

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

Develop a Clear Understanding of the General Technology Trends

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

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

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

Review and Understand the General Market Trends

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

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

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

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

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.  For more information on the book go to www.carlsbadpublishing.com.

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

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

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

Look at a Broad Breath of Markets

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

Review the Competitors for Each Market

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

Define the Product Requirements for Each Market

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

Develop Focus for Your Targeted Markets

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

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

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.  For more information on the book go to www.carlsbadpublishing.com.

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

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

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

What Problem am I Solving?

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

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

What is My Business Model and Projected Financial Returns?

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

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

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

Is My Product Offering Unique and Compelling?

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

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

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.  For more information on the book go to www.carlsbadpublishing.com.

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

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