Creating and Launching A New Business Venture
Key Points to Consider
What economic forces are shaping entrepreneurship? Why?
What is the most exciting aspect of entrepreneurship? What is the most worrisome?
How can entrepreneurs measure the dimensions of the “window of opportunity”?
How can entrepreneurs be more successful in planning their startup?
Which resources are most difficult for entrepreneurs to obtain?
What marketing research should entrepreneurs use to analyze new opportunities?
What information should a good business plan contain?
Why do investors need to see a well-prepared business plan before they invest?
In what other ways can writing a business plan benefit an entrepreneur?
Why do some business plans fail?
Entrepreneurs see opportunity where others see risks. They generate lots of ideas as they pursue business opportunities. Experts say that an entrepreneur can never be too prepared—screening out unpromising ventures requires a methodology based on experience, judgment, and internal reflection, but not always upon mounds of new data. With a little insight and diligent preparation, people who yearn for their own business can feel confident of forthcoming success or, at the very least, can decide rationally that they should not start a new business.
The key to creating and starting the new business venture successfully is to look at the window of market opportunity, create and fit the new business strategy, and then measure the appropriate risk, considering whether or not the opportunity fits personal goals and needs. Assessing viability requires analyzing a venture’s ability to not only profitably win customers, employees, and resources, but also to secure financing. This unit discusses legal issues entrepreneurs face and creating the business and marketing plans. Subsequent units cover financing issues and managing rapid growth.
The opportunity should be based on a distinct “competitive advantage” that creates a “barrier to entry,” preventing others from following. A competitive advantage may be based on an invention, unique “intellectual property” like software code, or the entrepreneur may be a “domain expert” having unique insight about solving a particular problem in a sector of a large industry. In fact, 60 percent of the Inc. 500 CEOs say that the idea for their company came from working in the same industry. No venture will have the resources or ability to compete against all competitors and should not attempt to do so. Instead, an entrepreneur should target a few key competitors and act to ensure success against them. The opportunity should be a niche with potential for plenty of growth and high gross margins in order to make sure that the startup has enough capital to achieve long-term viability.
What form should the new business venture take? One of the key issues that an entrepreneur must resolve very early in the entrepreneurial life cycle is what legal form of organization the venture should adopt. Creating the legal entity that best supports the opportunity is almost always a challenge. Each of the forms differs from the others along several dimensions. It is very important that the entrepreneur carefully evaluate the pros and cons of the various legal forms when organizing the new venture. Important to note that these decisions about the legal entity must be made prior to the submission of a business plan and the request for venture capital, loans, lines of credit, and joint ventures.
Successful entrepreneurs don’t take risks blindly. They carefully craft strategies that work. But still, reports indicate that 90% of the small businesses don’t have a business plan or business strategy. Some claim that they lack the time and money to research business opportunities. But all are in a race with time because by the time an opportunity is investigated fully, they know that it may no longer exist. If done wisely though, strategic planning can help entrepreneurs reach a higher level of success in their ventures.
Few areas of entrepreneurship attract as much attention as the business plan. Professional entrepreneurs, advisers, and consultants, as well as educators know that writing a business plan is part art and part science. The business plan is probably the single most important document to any entrepreneur at the startup stage because it is the preferred mode of communication between entrepreneurs and potential investors and becomes a selling document that conveys its excitement and promise to any potential investor or stakeholder.
General Dwight D. Eisenhower once said, “Plans are nothing. Planning is everything.”
Planning is a great exercise to help you think through all the business aspects and forces you to know your business. Our focus is not about whether you should plan. Our focus is about planning effectively. As the famous business guru Peter Drucker says, “Entrepreneurship is risky mainly because so few of the so-called entrepreneurs know what they are doing. They lack the methodology. They violate elementary and well-known rules.” Entrepreneurs, Drucker argues, need a systematic approach for putting all the pieces of the puzzle together. Business planning helps entrepreneurs work smarter, stay alert for roadblocks, test new ideas, stay motivated, help align expectations with stakeholders and investors, and even reduce stress.
Business planning helps you become the “value manager.” A value manager focuses on “long-run cash flow returns” while having the perspective of an “outsider’s view of the business” and “a willingness to act on opportunities to create incremental value.” The first opportunity to create incremental value is through selling. Entrepreneurship is about selling your ideas, your mind, your labor, your skills, and your teams. Your business plan will help you develop immediate “sales momentum,” or what we call traction.
Preparing a business plan that needs to both guide the growth of the new venture and to attract interest from outside stakeholders requires a great amount of skill, time, and analysis. A well-prepared business plan is used internally to help the venture team decide what choices are to be made about startup costs and to help figure out how the venture will be managed. Most importantly, the plan should help the team to identify the resources required to pursue the opportunity, explain how the team will bootstrap itself to gather the resources required, and, finally, propose methodologies for controlling and allocating such critical capital resources. A business plan can also be used externally for raising financing. The plan should be able to convince and communicate to investors that the new venture has identified an opportunity and that the venture team has the entrepreneurial talent to exploit that opportunity and the management skills for achieving positive cash flow targets on time.
The venture drill is the formal process that all entrepreneurs must address when raising money from outside investors. The three steps to the venture drill are packaging, placing, and presenting. Packaging is researching and writing an effective business plan. Placing is skillfully introducing the opportunity before the best investors. Presenting is communicating and making the deal in a formal meeting. Entrepreneurs tell us that starting a company, raising money, and making deals is a constant battle and business planning helps them sort issues out.