Download Common faults in business plans (continued)

SESSION 2
THE START-UP FIRM
1. SELLING YOURSELF AND THE PRODUCT/SERVICE
2. THE BUSINESS PLAN
3. NEVER GIVE UP
4. EMELIE NORBORG, DELOITTE
1. SELLING YOURSELF AND THE
PRODUCT/SERVICE
Two sales processes coincide
in the start-up phase
Selling yourself
and the business
Selling the
product or
service
Three-quarters of the Inc. founders we interviewed
served as their company’s chief or only salesperson.
In the high-ticket items sold by the Inc. start-ups
[median sales unit $ 5,000], entrepreneurs reported
that their personal passion, persuasiveness, and
willingness to satisfy special requirements were as
important as the attributes of their products.
Bhidé (2000)
Founder’s involvement in selling
10%
8%
Main salesperson
Heavily involved
82%
Bhidé (2000)
Somewhat involved
The elevator speech
15-30 seconds is about how long most people have to
introduce themselves. And it’s about the most amount
of time that people who don’t know you are willing to
listen to you.
Content of the elevator speech:
- Who are you?
- What is your company (where is it located)?
- What is the product or service you are selling?
Goal: Enticing the listener to ask more questions.
How to know if it works
“Talk to people about your offering. Gauge their
reaction. If they change the subject, look at you
strangely, or look away, then your description may be
off. If they say, “Tell me more” or “That’s interesting”,
you are probably describing what you do well. I started
out telling people that I help executives find their dream
careers and I got a lot of blank stares. Today, I tell
people that I work with executives who are out of work
or overworked. Now they want to hear more.”
Deborah Brown-Volkman, Surpass Your Dreams (2004)
Is all this really necessary?
Yes! Don’t ever underestimate the need for
marketing yourself and the new product or
service.
“I was working really hard on networking, getting
to know the important people. When things were at
their peak, it was obvious that I was balancing a
very fine line in terms of my workload.”
Anders Wall
2. THE BUSINESS PLAN
Typical contents
Executive summary
Product and company description
Market analysis
- Target market (customers)
- Sales forecast
- Marketing plan (4 Ps)
Industry and competitor analysis
Development plan
Management team
Financial plan
- Financial projections
Some add ‘Critical risks’
Human
resources
External
events
Finance
Technology
Manufacturing
Critical risks
Regulations
Customers
Suppliers
Competitors
Protection
of idea
A close relative - The business model
1.
2.
3.
4.
5.
What is the offer to the customer?
Who is the customer(s) or customer segment?
What is the value created for the customer?
What is the revenue model?
How is this accomplished in terms of:
- Technology
- Sales and distribution
- Partnerships, etc.
Cost reductions
Revenue increases
Three aspects of business plans
1. They are not necessarily employed in the
start-up phase.
2. More used by external observers than by
the entrepreneurial team itself.
3. Few business plans are executed exactly as
planned.
“The idea about a company was that we had
seen the second version of Palm Pilot Pro some
time around 1998. And we thought that we could
do something funny with hand-computers…that is
how advanced the business plan was from the
start.”
Founder of start-up firm (from Sanz-Velasco, 2007).
The business plan used by
the entrepreneurial team
”… new venture managers loose couple the
plan from their actual operations. Even the
ones with the best intentions to consistently
update the plan do not do it. They indicate
that their business model develops too
quickly and that they want to focus on doing
business instead of writing about it.”
Karlsson (2005)
Is it of any use at all then?
”We found that those who wrote business plans were
no more likely to persist in nascent activity as
compared to non-planners ... We found that writing a
business plan has no statistically significant effect on
the profitability of the nascent organization … It
appears that new organizations do not write business
plans to improve performance, rather, they do so in
order to conform to institutionalized rules and to
mimic the behavior of others.”
Honig & Karlsson (2004), data on 396 nascent entrepreneurs over a twoyear period.
Business plans and performance
in the growing firm
Business plan
Performance (survival)
Legitimacy
Financing
Business plans are moving objects
“More than one-third of the Inc. 500 founders we
interviewed significantly altered their initial
concepts, and another third reported moderate
changes. Apparently, instead of committing to
technology, customer, product line, and other such
basic choices, entrepreneurs start with a set of
tentative hypotheses tested rapidly through a series
of experiments and adaptive responses to
unforeseen problems and opportunities.”
Bhidé (2000)
“One of the significant characteristics of
successful entrepreneurs is that they are
constantly open to new solutions, listening to
what the market and customers want.”
Anders Brännström, Volvo
Common faults in business plans
(1) Too technically oriented:
Business plans are about doing business, not what great things
technology can do.
(2) Too little emphasis on presenting and analyzing the skills of the top
management team:
All can promise commitment, top management skills differ. What
do they know? Whom do they know? How well are they known?
If skills are lacking, what are the plans to acquire these skills?
(3) Too vaguely perceived customers:
Can you name an existing customer, and who are the next ten
customers?
Common faults in business
plans (continued)
(4) Unspecified customer segment:
“Many business owners are afraid to pick who their target
audience is. They worry that they are walking away from
something good, such as a missed opportunity or potential
customers. They worry that they are being too narrow or
limiting by specializing. What you really walk away from is
an unproductive strategy. You cannot serve the whole world
successfully. What you walk towards is something much
greater – serving the kind of customers you understand
well.”
Deborah Brown-Volkman (2004)
(5) Focus on potential markets, when early break-even is more
important.
Common faults in business
plans (continued)
(6) No assessment of what can go wrong, and of the consequences.
Other aspects
(1) Many, especially venture capitalists, focus on “customer need”
and “customer value”:
“Many would-be entrepreneurs call me telling me they have an
idea for a new business and that they want to come and see me.
Unfortunately, it’s impossible to see all of them, so I have
developed a few questions that allow me to judge how far along
they are “with their idea.” The most telling question is, “Can you
give me the names of prospective customers?”. Their answer
must
be very specific. If they are unable to name several
customers immediately, they simply have an idea, not a market.”
William Bygrave, Babson College
Other aspects (continued)
(2) Right or wrong, many evaluators put a lot of emphasis on the
venture team:
“When I receive a business plan, I always read the résumé section
first. Not because the people part of the new venture is the most
important, but because without the right team, none of the other parts
really matter.”
“A typical professional venture-capital firm receives approximately
2,000 business plans per year…most venture-capitalists believe that
ideas are a dime a dozen: only execution skills count.” (William A.
Sahlman)
“I invest in people, not ideas. If you can find good people, if they’re
wrong about the product, they’ll make a switch, so what good is it to
understand the product that they’re talking about in the first place.”
(Arthur Rock, venture capitalist associated with Apple, Intel, and Teledyne)
Other aspects (continued)
(3) You are selling a business idea, not presenting it:
- If you’re a researcher, likely to be “too honest”
and focus too much on technological uncertainty.
Write and present it with the receiver’s priorities in mind:
- VC investor
- Bank
- Potential buyer
Growth
Firm size
Industry
Time horizon
Management philosophy
Stability
Cash flow
Collateral
Other aspects (continued)
(4) Communicating the essentials is more important than length:
“Sometimes you get these really thick business plans, and then it’s
almost like you start looking for what is wrong in there. Others
present just five overheads, five, and everything is crystal clear,
they’ve got it!”
Anders Brännström, Volvo
(5) Depending on the reader, you may need to state explicitly what
you want:
“We are looking for a first round of financing for a total of X.”
3. NEVER GIVE UP
Brace yourself I
“As incomprehensible as 39 rejections may be for
many, the original proposal by founder Scott Cook
to launch a new software company called Intuit,
was turned down by that many venture capital
investors before it was founded.”
Timmons (2004)
Brace yourself II
Schultz of Starbucks pitched the idea to 242
investors, 200 turned him down.
Brace yourself III
“We get so many inquiries that we simply have to
say no to a lot of proposals. Often, the people are
surprised and distressed that we won’t even see
them for an interview. I guess we only invite some
10 per cent of all entrepreneurs for an interview,
and by the end of the day only 1 out of 50 may get
funded.”
Leif Gunnerhell, Roslagens Affärsänglar
The “success rate” of business plans
“The survival rate of the typical business idea is
very small: for every 100 ideas presented to
investors in the form of a business plan or
proposal of some kind, only between one and
three usually get funded.”
Bragg & Bragg (2005)