Robert Ochtel’s Blog

An Experienced Approach to Venture Funding

Dealing with Crisis Management in the Typical Day of Start-up Company CEO

More often than not, as the CEO of a start-up company, you walk into to work to start your day and accomplish your planned tasks and then everything changes.  You are immediately in the middle of multiple crises.   Your Vice President of Sales quits.  You find out that it costs twice as much as planned to develop your product offering. You learn that your newest product offering has been delayed three months due to an unforeseen development issue.  What do you do?  Your original plans for the day are shot, and you now have to address multiple crises to address that are each individually important to the success of your start-up company. In addition, you have your investors breathing down your neck to secure customers and revenue.  This is just a typical day in the life of a start-up company CEO.  It is crisis after crisis, with each situation requiring immediate attention and direction on how to solve the problem at hand. It is not an easy life, but it is very typical. In what follows is a short discussion regarding some answers on how to manage these recurring crises situations as they occur in the typical day of a start-up company CEO.

Step Back and Separate Yourself from the Situation

When a crisis or a series of crises hits, the first thing to do is to step back and separate yourself from the situation.  Reacting emotionally or providing a knee jerk reaction to the situation often will only make it worse. By stepping back and evaluating the situation from a non-emotional standpoint you can then:

  • Gain perspective of the issue(s),
  • Fully understand the implications of the situation,
  • Understand your options, and
  • Offer a more thoughtful solution to the situation.

 Self-separation also allows you to look at the situation from the 30,000 foot level. Often when individuals come to you with a problem, due to their past and present involvement, they are emotionally tied to the situation. This often clouds their judgment and does not allow them to think with the appropriate perspective regarding the situation at hand.  By separating yourself from the situation, you can provide unique insight into the crisis that needs to be solved and often offer other options that would not be considered by someone directly involved in the problem or situation.  So, first separate yourself from any potential crisis situation.  This will provide you with a better problem solving perspective.

Establish Priorities

With more than one crisis to solve simultaneously, the first thing you need to do is to prioritize these individual problem situations. Not all crisis situations need to be solved immediately.  Some should be addressed today, some may be addressed tomorrow, and some can even be addressed later this week or even sometime next week.  As the CEO of the company, you need to look at all of the crises that need to be addressed and prioritize which one(s) need to be put on the top of your list for today.  The other crises you need to respond to can often be addressed tomorrow and at some point within the immediate future. By prioritizing the crises situations, you have provided yourself some space and time to address the most immediate crisis that requires your full attention.  The other crises on your newly established priority list will get your attention as you solve the most immediately pressing problems or issues facing your start-up company.  So take the time to establish priorities to the crises you face, this will allow you to focus all of your attention on an immediate problem or issue as required, and provide you with the ability to move on to the next crises as other higher priority problems get resolved.  

Break a Crisis Down into Smaller Steps

Not all crises can be easily solved.  In fact, many times an individual crisis is very complicated and will take weeks, if not months to solve.  In these situations it is best to break the crisis situation down into smaller steps and then focus on those steps individually.  Everything is solvable. But, often a larger crisis situation will require you break it down into smaller steps and solve these steps individually on your way to addressing and solving the overall crisis.  This is important, as it is often much easier to get your arms around the smaller steps of the crisis, than that of the overall crisis.  In addition, it is often that by solving the smaller steps of the crisis that you come up with other more effective solutions to the overall crisis.  So, break your individual crises down into smaller steps.  This will allow you to solve the overall problem in a more efficient, effective manner.

Crises management is often par for course in the typical day of a start-up company CEO.  To be effective and efficient in addressing the number of daily crises that will come your way, you need to step back and separate yourself from the crisis, establish priorities, and finally break the individual crisis down in smaller manageable steps.  By taking this approach to addressing the daily crises that come your way, you will become a much more efficient and effective CEO of your start-up company.

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

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July 19, 2010 Posted by | Venture Capital | , , , , , , | 1 Comment

Entrepreneurs, Vision, Strategy and Tactics will Take You on the Road to Success

“Ready, fire, aim” is the approach most entrepreneurs take to developing their start-up companies from the ground up.  They do not do any planning or have a vision in which to base their follow-on strategy and tactics to develop their “concept” or “idea” into a fundable business proposition.  This approach to initiating your start-up company will not take you on the road to success in the market.  What it will do, is to lead you down a meandering path to various dead ends and re-starts only to result in frustration, lost time and a lack of focus.  By beginning with a vision for your start-up company and its “concept” or “idea”, this will allow you to necessarily to create a top-down focus from the beginning and help when you initiate your strategy to entering the market and the follow-on and measurable tactics to implement your execution plans. In what follows is a short discussion regarding the requirements of developing a vision, strategy, and tactics to take you on the road to success in the market.

Create a Vision

When Henry Ford started the Ford Motor Company he had a concept and an associated vision to develop inexpensive automobiles for the masses.  He had observed that most if not all automobile companies of the day focused on developing automobiles for the rich, but he wanted to bring these same advantages and privileges that went along with owning an automobile to common folks.  So, his vision, from the beginning, was to develop an automobile company that was clearly differentiated from the other automobile companies of the time that focused on low volume production of expensive cars for the rich. Henry Ford’s original concept and vision was to develop a high volume production automobile company that focused on producing low cost automobiles.  This was unheard of at the time and seemed virtually impossible given the “state-of-art” of production methods at the time.  But with this vision and focus, he set out to accomplish this goal – develop a low cost automobile for the masses. This same top-down visionary-based approach to developing a start-up company should be emulated by today’s entrepreneur.  By developing a concept and vision you create focus and do not get distracted by other market opportunities that do not fit your vision, but only focus on developing the a product offering that satisfies the vision and long-term goals of your start-up company. Anything less will result in distractions and not allow you to focus on your vision, take you down many dead-end paths and not provide a road to success for your start-up company.

Develop a Strategy

Once you have a vision, you need to focus on developing a corporate strategy to follow this vision.  With the goal of developing a low-cost automobile, Henry Ford’s overall strategy was to become the “lowest cost” manufacturer in the automobile business. This meant:

  • Developing an automobile design that had a low bill-of-materials cost,
  • Develop a simplified manufacturing process,
  • Lower corporate overhead and
  • Minimize channel costs.

No one individual item would result in becoming the lowest cost manufacturer in the market, but all of these things together would result in implementing his strategy of becoming the “low cost” automobile manufacturer in the market.  So, as an entrepreneur you need to focus on developing a strategy that uniquely positions your start-up company in the market.  Do you provide the best service?  Do you offer a unique user experience? Do the most value to your targeted customers?  By developing a strategy that follows the vision for your start-up company this will allow you as an entrepreneur to focus and uniquely position your start-up company and its product offering in the market.

Define Your Tactics

While vision and strategy together set the direction of your start-up company, it is the definable and measureable tactics that are used to implement a successful vision and strategy.  In the case of Henry Ford and the Ford Motor Company, the overall measureable tactics were associated with the “cost” of producing an automobile. While Henry had had some success with his low cost strategy for producing an automobile for the masses, it was not until he moved from a “work group” production line to a “specialized task” production line when his goal of developing and producing the industry’s “low-cost” automobile was achieved.  The idea for this “specialized task” production line was taken from his visit to a meat packing company in Chicago.  By implementing similar production tactics of “specialized tasks”, common in the meat packing industry, into his automobile production line, Henry Ford was able to achieve his vision of producing the lowest cost automobiles for the masses. This tactic truly differentiated the Ford Motor Company at the turn of the 20th century and allowed it to produce products for its target market – the consumer masses.  Today’s entrepreneurs also need to develop measurable tactics to support their company’s vision and strategy.  This will again provide focus and allow for measurable results that can be quantified and move them toward success in the market.

Entrepreneurs often take a “ready, fire, aim” approach to developing their start-up companies from the ground up. This approach to the market is does not provide focus and will result in a start-up company meandering and as a result losing valuable time and  energy focusing on market opportunities the do not make sense for your start-up company.  Alternatively, by taking time to plan and start from a “concept” and vision for your start-up company and then following this with an associated strategy and the appropriate tactics, this will allow you to develop a straight forward path and create a differentiated start-up company and product offering in the market.  In addition, this will also substantially increase your chances for 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.

June 28, 2010 Posted by | Venture Capital | , , , , , , | Leave a comment

Knowing Your Customers Can Help Drive Your Start-up Company to Success in the Market

Every year over 500,000 would be entrepreneurs in the United States prepare and present their business propositions in front of angel investors and venture capitalists. Many of these same entrepreneurs often over look one important item, knowing their customer base. This faux pes can be detrimental to their start-up company, as investors need to understand that you know your customers and their needs, intimately.  Also, by not engaging with their potential customers early on, start-up companies can miss the market by developing the “right” product with the “wrong” features, functions, and capabilities.  In addition, these same internally focused start-up companies may miss the best benefit of all, developing a strong strategic relationship with a customer that is a market leader. This article addresses some of the reasons it is always beneficial to engage with your customer base early and often.

Do You Know Your Customers?

As a potential entrepreneur interested in taking your technology, product or service offering to market, you need to “know” your customers. This includes identifying the market leaders, market laggards, and the up and coming rising “stars” in all of your target markets of interest. This type of familiarity with your customer base will allow you to develop an appropriate go-to- market strategy and associated tactics when addressing your targeted market space.  Market leaders of today are not necessarily the market leaders of tomorrow.  Therefore, doing your diligence on the various competitors in your market and understanding their status, product portfolio, market position, etc. is invaluable when presenting your technology, product or service offering to these same customers. What is important to one customer will not necessarily be important to the next. So, by familiarizing yourself with your customer base and you will be much more comfortable when you call on them and ultimately present your product offering to them.  Remember, Apple was not even in the cell phone market a few years ago, now they are a major player in the “smart phone” segment of the market.  Therefore, anticipating this and familiarizing yourself with your potential customers puts you and your start-up company in the driver’s seat when engaging with your potential customers.

 What Segments of the Market Are You Addressing?

Most markets can be broken up into several market segments.  This generally includes the following:

  • High tier segment,
  • Medium tier segment, and
  • Low tier segment.

These segments are often based on price, but also as such, usually have many different sets of features, functions, and capabilities for each product offering to each market segment.  Often, start-up companies entering a new market cannot afford to address all market segments of a given market space.  Therefore, as a new company entering the market you need to familiarize your company with the various sub-segments within a given market and then determine the product features, functions, and capabilities that are necessary to address these market segments and also at the same time have an understanding regarding those same features, functions and capabilities that are “nice to have”.  This market segment familiarity will drive the features, functions and capabilities of your technology, product or service offering.  Not trying to be everything to every market segment is often a key attribute of successful start-up companies.  When entering a market for the first time, it is much better to be focused on a given market segment than trying to do everything for every potential customer.  Therefore, knowing what market segment or segments you are addressing up front will provide you with focus and allow your start-up company to be successful when entering a new market.  Later on, after you are successful in your target market segment, you can expand your product offering.  This strategy worked very well for the Japanese car companies entering the US market in the late 1960’s and early 1970’s. Originally, they entered the low-end segment of the US car market. Today, these same Japanese car makers are dominant players in all US car market segments.

Develop A Strategic Alliance with a Key Customer

Historically, the most successful start-up companies have often had the good fortune of developing a strategic alliance or “close relationship” with a market leader in their target market space. This relationship can be mutually beneficial to both the start-up company and the market leader. From the start-up company’s point of view developing a strong relationship with a key strategic partner will allow them to focus their product features and develop a first product offering that has a guaranteed market.  This is invaluable to the start-up company, as this key strategic alliance partner knows the end market application better than they do, and at the same time will help them focus their development efforts to a product offering that will be market driven and as a result successful in the market. From the market leader’s perspective, developing a relationship with a start-up company with a unique technology, product or service offering, will often allow them to differentiate their end-product in the market, gain market share, and address new emerging market opportunities, much faster than they would be able to by developing the technology, product or service offering on their own. This mutually beneficial relationship results in a win-win opportunity for the start-up company as well as the market leader.

Allow Customers to Drive Your Strategic Road Map

Many start-up companies do not have a well defined product road map. This is generally seen by investors as a gaping hole within their business plan, as only presenting a single product offering often indicates to investors a lack of familiarity with the market, and the long-term general market trends.  Seldom are start-up companies successful with their first product offering. Often, given market competition and the rapid pace of a changing market, these same start-up companies only become successful, gaining significant market share, after their second or third generation product offering.  So, only presenting a single product offering to your investors is a recipe for disaster.  This is where your customers can have a large impact on the future product offerings of your start-up company.  By engaging early with your customers and listening carefully to their needs and the market requirements, you can allow these same customers drive your product strategic road map. This will provide you with a basis to move forward and although it may change over time, a customer driven product road map is invaluable when presenting to you potential investors.  Nothing is more valuable to an investor presentation than having real customer input, based on actual conversations with your target customers. This provides instant credibility and market expertise not available by any other means.

Develop Valued Customer Relationships for Your Future Success

Developing valued customer relationships is a key to the success of any start-up company. Doing so allows you to gather invaluable input, vet new ideas, and at the same time stay close to the market trends.  Remember a “market driven” company will have much more long term success in their targeted market than that of a “technology driven” company. So, as a start-up company you need to value your customers, listen to their input, and reflect this invaluable information in your product development plans and associated product road map.  Too often, companies tend to believe they know more about the market than that of their customers. This is not the case.  Since your customers are one step closer to the end market application they are the ones to drive the technology, product or service features for your current and next generation product offerings.  Remember to use these same customers as a basis for your decision making and learn to value this relationship, as it will provide you with invaluable insight to both the near term and long term trends in the market.   

Knowing your customers will help drive your start-up company to success in the market.  By knowing your customers, determining your target market segments, developing strong strategic alliances, presenting a customer driven product roadmap and ultimately valuing your customers, you as an entrepreneur will be miles ahead when presenting to potential investors.  This customer familiarity will help you develop successful product offerings, both near term and long term, and at the same time allow your start-up company to secure significant market share, ensuring your long term success in the market.  So get out there and talk to your customers, you can only benefit from such one-on-one interaction ant it will help drive your start-up company to success in the market place.

June 29, 2009 Posted by | Customers, Strategic Alliance, Target Markets, Venture Capital, venture finance, Venture Funding | , , , , | 1 Comment

Venture Capital – It’s Not “Welfare” for Start-up Companies

Most of the time, when I first meet with entrepreneurs and their start-up companies, they are usually focused on the money they think they “need” to make themselves successful. More often than not they say, “If I just had a $1.0M to get my company off the ground that would solve all my problems.” This “money-focused” mentality often makes these same entrepreneurs take their eye off their real objective — making their company an attractive investment opportunity for potential investors. As I always tell them – “money never solves your problems, either in your personal life or in business, but being prepared, focusing on your company and securing customers will.”

Venture Capitalist focus on the “Best in Class” Investment Opportunities

Venture capitalists and other private equity investors, by the nature of their business, are “risk adverse” and not “risk takers”. This line of thinking seems to escape entrepreneurs and their start-up companies. This is especially true for “first-time” entrepreneurs. These individuals do not take the time to look at their start-up company and its associated “investment risk”, from the venture capitalists point of view.

A venture capitalist has a fixed amount of money in their private equity fund. This fixed sum is used to invest in a limited number of companies over a given period, usually 7 to 10 years. With these limited number of investments, the venture capitalists and their funding sources (e.g. pension funds, private individuals, etc.) know that a number of them will fail, a number of them will break even or do a bit better, and a couple will be highly successful. Therefore, from their point of view, venture capitalists are taking a traditional “portfolio management” approach to minimizing the inherent “risk” of their individual investments. As such, venture capitalists only look for the “best-in-class” investment opportunities to ensure that their “portfolio risk” is minimized and their individual investments succeed over the life time of their investment fund.

Not all Companies are Candidates for Venture Funding

All of the entrepreneurs I meet believe that their companies are fundable by third-party equity investors, be it angel investors, venture capitalists or other private equity sources. The truth is that very few of these same companies will be able to secure monies from these same funding sources. The statistics show that only about 3% of start-up companies, which are reviewed annually by venture capitalists, secure funding from these same funding sources. Therefore, it is not hard to believe that the other 97% are either not fundable or have to secure funding from other sources (boot strap, friends and family, etc.).

As an example, recently, I received a request to help secure funding for a start-up company that was looking to develop a service offering addressing a new, bleeding-edge market that had yet to develop. They were looking for $1.0M in investment capital, but were only projecting $5.0M in revenue in their fifth year of operations. This company is clearly not a candidate for venture capital or any other third party equity funding. On the other hand, suffice it to say, that if a company, at some point, succeeds in generating revenue of $5.0M a year, with high gross margins, this will end up being a fine “life-style” company for its founders. This type of start-up company and investment opportunity is not a bad deal for the founding team over the long term, but is definitely not a candidate for third-party equity investors.

Start-up Companies are in Business to Secure Customers

As a start-up company, entrepreneurs need to remember that they are in business to secure customers and not just to develop a technology, or service offering. By focusing on securing customers early on, these same start-up companies will provide substantial benefits to themselves in both the short and the long runs. In the short run, the start-up company will have demonstrated to potential investors that there is a “market need” for its product and that customers are willing to pay for it. This is very attractive to investors as it reduces their investment risk and demonstrates the potential for market traction. Also, by securing customers early, this will provide this same start-up company with a “lead” customer. This is often key to securing long-term success in the market. A lead customer will help drive a start-up company’s technology, product or service features, functions and capabilities. This is very important to a start-up company’s success in the market, as end customers always know more about the market application requirements than the start-up company developing the technology. Finally, by securing customers early, this will allow a start-up company to generate revenue. This will reduce both the start-up company’s short term and long term capital needs, requiring the founders to give up less equity over the long term.

Planning, Preparation and Securing Customers is the Best Plan for Receiving Funding from Venture Capitalists

Entrepreneurs should not expect that angel investors, venture capitalists or other private equity investors will provide them with money, just because they have an idea. This is an unrealistic expectation. Entrepreneurs need to work hard in planning and preparing themselves and their company to be ready to present their investment opportunity to potential investors. Remember, venture capital is not “welfare” money for start-up companies. Investors are looking to secure a significant return on their investments in a predictable time period. If an entrepreneur and their start-up company do not offer, as a minimum, the following, it will most likely not secure funding.

  •  A “best-in-class” team,
  • A disruptive technology, product or service offering,
  • A sustainable long-term competitive advantage in the market,
  • The ability to secure customers and market traction,
  • A proven business model, and
  • The ability to scale and dominate the target market(s) of interest.

So, as an entrepreneur, focus on your start-up company. Take the time to plan and prepare yourself and your start-up company for the rigors of securing funding in this tough environment. This includes securing customers as early as possible. This will substantially increase your odds of securing funding and make your start-up company a much more attractive investment opportunity for venture capitalists or other private equity investors.

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

March 23, 2009 Posted by | Venture Capital | , , , , , , , | 4 Comments

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

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

The Business Planning Process

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

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

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

Large Companies vs. Start-up Companies

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

Start-up Company Business Planning

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

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

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

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

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

Same Process, Different Audience

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

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

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

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

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

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

Essential Element #2: Take Time to do Business Planning before You Jump.

More often than not start-up companies do very little product planning or basic product or market due diligence before they decide what path is best for their company. This “read, fire, aim” approach to business planning has caused many start-up companies to fail or at best restart their planning process after multiple failed efforts in meeting with investors. The old adage “you never get a second chance to make a first impression” is true – especially in the private equity funding community. More often than not, given the small, insular characteristics of the finance community, you will not get a second chance to restart your company and secure investor interest. So take time to do business planning before you jump.

Business Planning and Business Plans – What’s the Difference?

The difference between business planning and a business plan is that one is a process – business planning – and the other is the result of the business planning process – a business plan.

The Business Planning Process
Business planning is a process. Many large- and medium-sized corporations go through their business planning process on an annual basis. This process determines where they are going to spend their resources (capital equipment, human resources, etc.) in the future based on the dynamics of the market place. This annual process is sometimes very well defined, with an end date and deliverables that are provided at all different levels of management. In other cases, the business planning process is very informal and does not require the same level of due diligence. In small companies, especially start-ups, the business planning process can be non-existent. Whether well defined or informal, the objective of the business planning process is to set the direction of the corporation for the next three to five years based on the dynamics of the market place. Business planning provides a process that all levels of the organization can review and agree to, such that everyone from the lowest to the highest level of the organization is moving in the same direction.

With the stated goal of optimizing the return on investment for the corporation, and ultimately the shareholders, the business planning process is the key for successful start-up companies. By going through this business planning process, you can determine the best way to spend the company’s resources for the next three to five years. Many times, various technology, product, or service ideas or concepts do not make it through the business planning process. This is the “stated goal” of the business planning process – to weed out those technologies, products, or service offerings that do not provide a sufficiently high enough return on investment opportunity for which a company should spend its valuable resources.

The Business Plan
The business plan is the end result of a start-up company’s business planning process. The business plan is a document that delineates, in detail, the technology, product, or service offering that is being funded for the next three to five fiscal years and possibly beyond. The business plan is a single document that provides all the details of the technology, product, or service offering, from expected development costs to projected market penetration over the foreseeable period of interest to the expected financial return on investment. The business plan is often developed over a period of time and goes through multiple iterations. The end result is a “complete” document that provides all of the necessary details for a given technology, product, or service offering.

Why Both Business Planning and Business Plans are Necessary

The business planning process, and the result, the business plan, are necessary for companies to rationally determine where to spend their valuable resources, over the projected period of interest. For large corporations, the business planning process can result in the development of multiple technology, product, or service business plans. Refer to the following figure. On the other hand, for start-up companies the business planning process generally results in the development of a single business plan. Refer to the following figure.

The Business Planning Process – “Provides the Roadmap”
The business planning process is used to provide the “roadmap” for your corporation. If not done, your corporation, public or private, has no rational path forward in which to invest its resources. In addition, there is no ultimate understanding of the “topography” of the market. The result is that your corporation is walking down the road with a “blindfold” on, not knowing what to do or where to invest its resources. Even if the blindfold is taken off and there are multiple paths in which to take, your corporation does not know based on a rational planning process, which path forward will be the best for the company. There are no defined strategies or tactics that allow your company to navigate the turns or bumps in the road. In addition, there is no way to define your company and how you plan to position yourself, relative to your competitors, in the market.

The exercise of going through the business planning process and at the same time using this process as a tool in which to vet your company’s business ideas, resulting in a focused business plan does several things for your company. First, this process allows all business concepts and ideas to be reviewed on a level playing field. This gives each business idea and resulting business plan the ability to be presented and evaluated on its own merits. Second, this process provides the ability for the company to review each business plan on its investment requirements and return on investment. This provides a financial basis in which to evaluate all business plans. Finally, once completed it provides a corporate-level vetted roadmap in which your company can move forward to introducing its new technologies, products, or services into the market.

The Business Plan – “Sets the Bar”
The business plan “sets the bar” in which a corporation measures itself and its overall performance. Based on a business plan or multiple business plans, a corporation then has a way to determine if it is performing up to the its own projected goals and standards, as well as the generally accepted standards that define a successful company in the industry in which they are participating. These can include, but are not limited to:
• Revenue growth objectives,
• Market share gains,
• Gross margin targets,
• Sales and marketing objectives,
• Customer traction goals,
• Operational margin goals,
• Earnings growth objectives, and
• Return on investment targets.

The business plan can also determine if the technology, product, or service offering is maximizing the return on investment for your corporation by comparing projected and actual performance over a given period of time.

By going through the business planning process and developing the resultant business plan, your corporation can then develop a proactive, rational plan for addressing the market for its underlying technology, product, or service offerings.

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.

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February 2, 2009 Posted by | Venture Capital | , , , , , | 2 Comments

Venture Capitalists Prefer Large Established Markets!

Many entrepreneurs only focus on bleeding-edge, burgeoning markets when developing their company’s technology, product or service offering. This is done for several reasons, including:
• Burgeoning markets have limited competition,
• Ability to establish an early foot-hold to increase the perceived “value” of their company, and the
• Difficulty in developing a differentiated, long-term competitive advantage in an established market.

I recently published this article on http://www.ezinearticles.com . It outlines why this burgeoning market approach may be too risky for many venture capitalists and then provides five reasons why venture capitalists prefer large established markets over bleeding-edge technology markets.

The access the content this article go to http://www.carlsbadpublishing.com and click on the Articles and Book Press page.

All 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 http://www.carlsbadpublishing.com .

January 29, 2009 Posted by | Venture Capital | , , , , | Leave a comment

Essential Element #1: A Technology Does Not Make a Product.

In my experience in raising private equity for start-up companies, there exist two types of companies: technology-oriented companies and market-oriented companies. Both types of companies believe that they will be successful in the market. But it has been my experience that the market-oriented companies will ultimately provide their company with a highest, long-term return on investment.

Become a Market Oriented Company
The “technology-oriented” company focuses on its technology as the only means that will provide them success in the market. This type of company, often a typical profile of many start-ups, believes that it is their technology that will provide them with success in the market. They are not concerned with the size or growth of the markets, their competitor offerings, their customers’ needs, or what it takes to be a success in the market. All they know is that they believe that they have “unique” technology that will provide them with the ability to be successful in the market. Technology-oriented companies are blinded by their own thinking. They are “internally focused” companies that do not have the ability to bring their heads up from their technology and survey the landscape that they are intending to address. In many instances, it is these same technology-oriented companies that do not even know who their customer base is and cannot describe their needs in a succinct, well thought through manner. The technology-oriented company focuses their success solely on the success or failure of their technology. These same companies many times have great technology in the laboratory, but never succeed in bringing a great product or service to the market.

The “market-oriented” company takes a much broader focus on the attributes that potentially define their success in the market. The market-oriented company, like the technology-focused company, has “unique” technology that may provide them with the underlying ability to be successful in the market. But, unlike the technology-oriented company, the market-oriented company understands a technology that is successful in the laboratory may not be sufficient to be successful in the market. The market-oriented company generally believes that it is their technology that may provide them with success in the market, but they are genuinely concerned about all other aspects that will define the success of their product or service offering, including the size or growth of the markets, their competitor offerings, their customers’ needs, or what it takes to be a success in the market. Market-oriented companies are not blinded by their own thinking. They have the desire to learn all they can about their market and the attributes that define success in their target markets. Market-oriented companies are “externally focused” companies that do bring their heads up from their technology and survey the landscape that they are intending to address. In many cases, it is these same market-oriented companies that intimately know their customer base. This can be through experience, but most likely is due to the amount of research and due diligence they have done regarding their target markets. The market-oriented company can describe their customers’ needs in a succinct, well thought through manner. Finally, market-oriented companies have a much higher probability of being a success in the market. These companies have great technology in the laboratory and generally succeed in ultimately bringing a complete product or service to the market.

So given you have a choice, engage in the business planning process and make your start-up company an externally, market-focused company. This will increase the probability of success for your company securing venture capital funding and ultimately provide for the highest return on investment for your company’s shareholders.

January 27, 2009 Posted by | Venture Capital | , , , , | 1 Comment