Robert Ochtel’s Blog

An Experienced Approach to Venture Funding

Entrepreneurs, Nothing is Real Until You Start Product Development

I am a big fan of business planning. In fact, I truly believe that the business planning process is invaluable to a successful start-up company, as it provides a path forward for entrepreneurs and their executive teams to follow.  On the other hand, a business plan, the result of the business planning process, is a living document and is out of date the day it is completed.  Why, because the market and landscape are constantly changing. In addition, until you start the development of your technology, product or service offering nothing is real. It is the realities of the actual development that will cause issues and deviations from your original plan. These realities need to be indentified, understood, and managed in order to have a successful start-up company.  In what follows is a short discussion on issues to address once the realities of development begin and start to affect your start-up company.

Verify Your Original Assumptions

One of the first things to do when beginning development of your start-up company’s technology, product or service offering is to verify the original assumptions of your business plan.  Whether it is the development timelines, required product features, functions or capabilities, and any and all associated development costs (e.g., capital equipment, staffing, etc.), you need to spend the time to verify the original assumptions of your business plan.  With the initiation of development new issues will come up that were not originally planned for and these things can deviate substantially from your original business plan.  So, take the time to review and validate and modify as necessary, the original feature requirements as well as the associated development costs and schedule. In addition, in many instances there may have been a substantial amount of time that has elapsed between the completion of the original business plan and the funding of this same plan.  Consequently, many of the features, functions and capabilities, originally outlined in your plan, may no longer be required or on the other hand, there may be many new features, functions and capabilities required from your customer base that were not addressed in the original business plan.  So, in order to start fresh, take the time to verify your original assumptions. This will provide a clean jumping off point for development and allow things to move much smoother going forward with the initiation and execution of development.

Knock Down Unanticipated Development Road Blocks

Even once you begin the development process things can change substantially. The time and effort to develop a specific feature, function or capability may take much longer than anticipated.  You may be required to hire additional staff members to solve a specific problem.  Or, there may be a requirement to purchase additional capital equipment to solve a newly identified issue associated with your development.  As is always the case, when initiating product development, there are going to be new, unanticipated problems and road blocks that need to be addressed.  The trick is to identify and address these problems early.  You do not want these same problems and/or road blocks to spiral out of control, adversely affecting your development schedule and overall development costs.  In addition, you do not want to sweep any of these same potential problems under the rug, as issues identified and addressed early are much easier to solve and will have much less of an impact on your product development and delivery.  So, that the  time to knock down unanticipated development road blocks early, it can only help you in the long run to provide a timely delivery of your technology, product or service offering to the market.

Actively Manage the Development

As the CEO of a start-up company you need to actively manage and be involved in all aspects of your technology, product or service offering development.  Do not take a hands-off approach to managing the development of your start-up company’s key product offering(s).  This will only come back to burn you in the long run.  As the CEO of your start-up company, the buck stops with you, and as such investors will hold you accountable for any schedule delays, unanticipated increases in development costs, etc. In addition, as part of actively managing the development process, you need to understand all of the crucial parts of development, including educating yourself in areas they you are not technically familiar with or lack a basic understanding of the underlying development process.  This is education process is necessary, as it will provide you with the proper insight to ask the right questions, and understand when things just do not make sense, with regard to an unexpected development delay, etc.  By actively managing the development process, you will be able to hold all of your key development managers accountable and assure the timely and cost efficient delivery of your technology, product or service offering.

Product development is really where the rubber hits the road.  All of the activities up to that point have only been planning related and to some extent do not necessarily reflect all of the realities of an actual development.  As such, there are many things that will need to be addressed once you begin development.  To ensure a smooth development process you need to verify your original assumptions, knock down any unanticipated road blocks, and actively manage the development.  Anything less will not result in a successful development and result additional incurred development costs and a longer delivery schedule.  So take the time to address all of the issues associated with your development early on, as it will ensure a smooth, cost effective product development and delivery.

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

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August 30, 2010 Posted by | Venture Capital | , , , , , , , | 1 Comment

Entrepreneurs, with Regard to Business Planning – Always Start from the Markets

Business planning is the first step in developing a proper business plan.  Often, entrepreneurs choose to skip this step in the business plan development process.  Why?  Because on day one most entrepreneurs want to begin by writing their business plans. This is a mistake, as this jump to the middle of the business plan development process will often require these same entrepreneurs to re-start their business plans by going back to the beginning of the process, business planning.  This being said, if done properly, where do entrepreneurs being their business planning process?  Do they look at their competitors? Do they define their go to market strategy? Do they determine their pricing?  No, one always begins their business planning process by looking at the markets.  In what follows is a short discussion on some of the things that need to be addressed when initiating your business planning process by starting from the markets.

Understanding the General Market Trends and Needs

The first thing you need to do to begin the business planning process is to step back and delineate the overall market trends and strategic market opportunistic needs.  That is, what are the long term general trends in the market?  Is there an aging population?  Are consumers moving toward mobility?  Will gas prices go up long term?  Properly identifying the near term and long term general market trends is very important, as it will define where the expected long-term growth is in the markets.  Understanding these general market trends will also allow you with the ability to identify the associated strategic opportunistic needs of the markets.  Will the elderly require at home care?  What are the data encryption requirements for mobile data, audio and video?  What technologies will be the required in a green economy?  By understanding the general market trends and the associated strategic opportunistic needs of the market you can better delineate where and how you want to participate in the market and how you can better position your start-up company to ride the wave of future these same future trends and needs. This is something investors will want know that you clearly understand and have a long term plan to address with your technology, product or service offerings.

Defining the Market Opportunities

Once you understand the general market trends and needs, you need to move on to defining the target market opportunities.  All markets are not equal. Some are large. Some are small. Some have strong growth. Some have slow growth. If the market is too small your investors will not have the ability to receive a proper return on their investment.  Or, accordingly, a small market will require your start-up company to secure an unrealistic percentage of market share, which will again not seem reasonable in the eyes of your investors.  In essence, here, by defining the market opportunities, you are determining not only the overall size of the target markets, but the expected growth of the markets themselves over the projected period of interest, usually three to five years.  Are the markets high growth markets or slow growth markets?  These are things you need to understand, as you investors generally want to invest in “large” markets that have significant growth potential.  Why, because a rising tide lifts all boats.  Here, if the market it not only large, but has substantial growth there is room for new competition. In addition, large, high-growth markets allow start-up companies to secure market share and create a position for themselves in the market.  So take the time to define the market opportunities that you will be addressing. As part of this planning process, it is also important to understand the unit volume growth numbers, not just the overall market size in total dollars.  These volume growth numbers are essential, as they will provide you with a basis to project your revenue from product sales, but also your market share growth over a generally accepted business planning period of three to five years. So make sure to clearly define the market opportunities, as this is an essential part of the business planning process.

Prioritizing Your Target Markets

As an entrepreneur of a start-up company, by definition you have limited resources.  Therefore, you cannot address all potential market opportunities that are available to you in the market.  Therefore you need to prioritize your target markets.  Some you will address immediately, and some you will address later.  This can be based on many things including:

  • Time-to-market, and near term revenue,
  • Ease of product development,
  • Long term growth potential, or
  • The competitive landscape.

All of these items will affect your decision on which markets to address up front.  The key here is to pick a single market or a limited market-segment space to address.  This will provide you with focus and at the same time allow you to put all of your resources toward a targeted and well defined market opportunity.  It may be that you are only addressing a small portion of a targeted market, say the high-end luxury car market.  Or it may be that you are developing a consumer product that has obvious future commercial market applications. The key here is to prioritize your identified market opportunities and only address those near term opportunities that provide near term market traction and also your start-up company with a unique, differentiated position in the market.  So, take the time to prioritize your target markets, it will provide you with focus and allow your clearly identify both near term and long term market opportunities for your start-up company.

Business planning almost always escapes first time entrepreneurs.  They more often than not they want to begin on day one writing their business plans.  This is a mistake, because if you do not understand the landscape of the potential market opportunities ahead of you, will not make informed business decisions that you can defend in front of your potential investors.  Therefore, as an entrepreneur you need to begin your business planning process by focusing on the markets. This includes understanding the general market trends and needs, defining the market opportunities, and prioritizing your target markets.  By doing this you will create a clear path forward and provide both near term and long term market success for your start-up company.

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

August 9, 2010 Posted by | Venture Capital | , , , , , , , , , | Leave a comment

Investors Don’t Fund Your Start-up Only to Have You to Figure Out What to do Next

Most entrepreneurs come to investors with an “idea” or “concept”, looking to receive investor’s monies only to allow them to figure out what to do next.    This is a very misplaced approach and is guaranteed to turn investors off.  With this approach, more often than not, you will get an immediate rejection with no explanation. Why? Because, investors are very busy and only interested in only the most well developed and presented investment opportunities. Something that is not well thought through and or properly presented will not get their attention or their monies.  This should be understood by all entrepreneurs that approach angel investors or venture capitalists. As such, investors don’t fund start-up companies only to have you figure out what to do next.  They fund you to execute a well thought through plan.  To accomplish this, you need to do your planning, develop a business plan and be ready to execute.  If you do this, you will greatly improve your potential for not only getting potential investor’s attention, and you will also increase your chances of receiving funding from these same investors.

Do Your Planning

Doing planning is the most important and time consuming, arduous task an entrepreneur needs to take on.  This is something you need to do early, as waiting to do your appropriate planning will only send your start-up company in the wrong direction and require you start over, causing you to lose valuable time.  Planning is difficult for most entrepreneurs, as more often than not they want to start writing their business plan day one.  This is a huge mistake, because if you do not have the appropriate information, at your disposal, you will not come to the right conclusions regarding how, and in what direction to move your start-up company and its technology, product or service offering forward. Therefore, take up to two months to properly research and secure the appropriate information that will help you develop a well thought through business plan.  This includes:

  • Determining your proprietary technology, product or service offering,
  • Identifying the general trends and strategic opportunistic needs of the market,
  • Identifying a set of target markets and their growth projections,
  • Analyzing the competitors within your targeted markets,
  • Developing basic market entry strategy and tactics, and
  • Understanding the basic financial model of the targeted markets.

By spending the appropriate amount of time doing your planning up front, you will develop a vision, focus, and direction for your start-up company. On the other hand, if you expect potential investors to fund you to do this early planning work, you will be sadly disappointed.

Develop a Business Plan

After you have spent the time to appropriately plan the early stages of your start-up company, you need to put together a well thought through business plan that takes in all of this planning information. This plan will be much easier to write at this point because you have taken the time to secure the necessary information.  Now, you just need to take the necessary time to put it on paper.  This is also a very big task, and it again will take a significant amount of time and effort. But, if and until, you put your business plan on paper, your start-up company will remain “in the ether”.  As, it is only when you begin to put your business plan on paper do you have the ability to identify issues, holes and other items that need to be addressed to complete your business plan. So, take the necessary time to develop a will presented and thought through business plan, you will learn a lot in the process and many times provide yourself will essential insights on how and in which direction to move your start-up company forward.  Finally, ignore those individuals that tell you that today investors do not read business plans.  While, in some cases, this may be true, it should be remembered the writing and development of a well thought thorough business plan will again provide you with the necessary insights that will provide your start-up company with significant advantages when you finally go to market.  Remember, take the time to develop a well thought through business plan it will serve you well when you go to secure funding from potential investors.

Be Ready To Execute

By the time you begin to talk with investors, you should be ready to execute your business plan. To be ready for this, you need to have:

  • Identified and talked with your target customers,
  • Secured a well seasoned “A- level” executive team,
  • Secured relationships with any necessary strategic partners, and
  • Developed a well thought through and developed go to market strategy and associated tactics.

By doing this you will have identified many, if not most of the issues that could possibly cause your start-up company to stumble out of the gate.  You will also have put your start-up company in a strong competitive position which will allow you to execute and rapidly secure customers and revenue. This will impress your potential investors and get their attention.  Remember, investors do not fund you to figure things out, they fund you to execute.

Most entrepreneurs come to investors with an “idea” or “concept”, only looking to receive investor’s monies to allow them to figure out what to do next.    This is a very misplaced approach and is guaranteed to turn investors off.  By taking the time up front and putting the effort to do your planning, develop a business plan, and being ready to execute you will impress your investors and more than likely get their attention.  In addition, by doing so, you are not expecting investors to fund you to figure things out, but putting your start-up company in the best position to receive funding from potential investors.  So, get in there and do the necessary work up front, it will serve you well when you begin talking with potential 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.

March 8, 2010 Posted by | Venture Capital | , , , , , , , , | Leave a comment

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

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

Fund Raising is a Time Consuming Activity.

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

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

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

 Fund Raising Takes Time.

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

You are in Business to Create Value for Your Company.

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

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

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

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

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

Focusing on Your Business Can Facilitate Funding.

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

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

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

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

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

The Business Planning Process

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

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

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

Large Companies vs. Start-up Companies

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

Start-up Company Business Planning

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

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

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

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

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

Same Process, Different Audience

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

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

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

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

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

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