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PACKAGING AND SELLING THE ENTREPRENEURIAL IDEA

Written by: Andy Marken

Article Overview: Developing a business plan to get funding...survive

PACKAGING AND SELLING THE ENTREPRENEURIAL IDEA

As you drive along Highway 101 in California's Santa Clara Valley, on Route 128 near Boston, the beltway around Washington D.C., the Carolina’s Silicon Triangle, Washington State’s Silicon Forest or nearly anywhere across the country, you can almost see the parched bones of entrepreneurial ideas that have died and been cast aside. They lie next to now healthy giants and soon-to-be-successful product and service organizations.

There seems to be a never-ending stream of great people with "the idea of the decade"--the one that was going to help them carve a place for themselves, and their followers, in the industry.

Some succeed--beyond their wildest dreams. Some fail quickly, almost painlessly. Some take a long time to die. Others are acquired when they are in the painful throes of death. Some of the companies and ideas are never born because they can't acquire the necessary parental support ... money.

A number of experts – particularly recruitment executives – feel that anyone in the hardware, software and communications arena, who has the desire – and the idea – should take the plunge and become an entrepreneur. They reason that even if the company fails, the individual has marketable skills that can then be sold to someone else. Others feel that you should be prepared for success--and failure.

One recruiter said that given two candidates the one who was involved in a start-up that failed compared to an individual with a growth track record with a single firm would probably have the edge in today’s market. Their reason was that the individual most certainly gained some valuable experience as to what works and what doesn’t.

Generally, people who take the new venture plunge have been successful all of their lives. But anyone, regardless of his or her past successes, has to be prepared for the bumpy road that lies ahead when starting a new product or service organization.

The start-up will consume all of your energy--and possibly your life savings. If it fails, it's more than a financial set back. It's a dramatic blow to your ego and self-esteem. But it is the successes that keep dreams alive and the reason more people try for the gold ring every year.

Money, Money, Money
A general partner at one venture capital firm recently said that good people and good ideas are key ingredients of a successful start-up. However, they are quick to point out that money is what makes the whole thing happen.

One entrepreneur reinforced this statement by saying that when you start a company and are trying to build it, "money is more important than your mother."

Venture capital is often thought of as the first method of raising money for a new company. However, venture capital actually comes quite a bit further down the line.

The first source of money is your own bankroll. It is encouraging to investors when they know that the entrepreneur believes so much in the concept that he or she will be the initial investor.

This is followed by money from friends, relatives, your partners and the bank. After you have exhausted these sources, it is time to approach the group or organization that will most likely be your biggest backer--the venture capitalist.

Actually, you’ll be doing these activities in parallel because none of the sources quickly sign the huge checks you need to grow your enterprise.

Venture Capitalists Some people consider venture capitalists to be worse than loan sharks. Others picture them as angels.

They are neither. They are business people. They invest in young firms and hope to make money when the company goes public or is acquired. They invest in those companies that they feel will provide an optimum return for their investors.

Different venture capital firms weigh the criteria for their investments differently. But they all spend considerable time look at the people involved in the start-up. They invest in people who think big, are highly motivated, are willing to make substantial personal commitments and have a track record of success. They also look for products and/or programs that meet specific market needs in a high-quality cost-effective manner.

Some firms look for large; rapidly growing markets where there are significant
opportunities. Others look for new, emerging markets where market leadership can be established quickly. Still others look for a smaller market in which the company can be the dominant factor.

Match your target venture group with your goals--just as you would if you were selling your products to a prospect.
Next, realize that there are various categories of investments and selection criteria within each category. There is seed, bridge, start-up, first-round and second-round financing. Each has its degree of risk for the venture capital firm. That means the equity they will require will vary.

Despite the well-covered demise of the dot.com era, there is still an estimated $120 billion in funding available for new enterprise investments this year. With that amount of money sitting in the bank, you may think that venture capital and R&D partnership firms are falling all over each other to fund the next wave of computer and communications opportunities.

Wrong.

Even in downturn periods like these, venture capital firms still receive an average of 100+ technology and service/support new business proposals each month.

The Business Plan
Unfortunately, instead of paving the way for funding, the proposals are often more detrimental than helpful. In fact, the sad truth is that the majority of the business plans presented are not just badly written, they're very badly written. This makes the evaluation/decision period longer and more difficult for both parties.

Pyramid Your Plan
The business plan should be presented to potential investor in the same manner that your products and services are presented to potential customers--quickly and effectively. A simple way to accomplish this is with a pyramid-style presentation. This type of proposal starts with a summary and sections are expanded toward the base.

After you get through the legalities and disclaimers, the most important part of your plan should be the executive summary. This one- to two-page summary clearly states what the company is going to do, what the market potential is, how the company plans to achieve market penetration, the time period involved, the product/service plans, the amount of money needed and how that money will be used.

The second most important section of the business plan is the business summary. This includes corporate objectives and strategy; a market summary with product/service objectives; unique technology involved; a plan of operation/action; a financial summary and investment requirements.

The executive and business summaries are the most important parts of your proposal because few senior funding officials will read beyond these areas.

The Product
The next section is the product or service description. This includes the product's, system's or service's features and capabilities, as well as future plans. Too many entrepreneurs fall in love with their technology and view the marketing and sales programs/efforts as necessary evils.

However, most investment experts feel that marketing is as important (if not more so) than technology. They reason that even the best technology has a prime life span of one-two years and then it will be usurped by another even better technology. Marketing and communications on the other hand sets the company – and its products/services – apart from the masses of firms that wax on and on about their unique and special technology. Differentiate yourself by including an aggressive marketing and promotional program.

In short, marketing is where it's at.

Market Analysis
The fourth section is the market analysis which should discuss the market or markets, the trends and the need your products/services will fill.

Depending upon the potential market, there are numerous information sources for this section. Start with the publications that target your specific market area, including leading business and trade publications. By knowing who and what to ask at the publications, you can usually find a significant amount of valuable information at no cost.

Many of the publications not only have conducted extensive product, technology and company research but also marketplace studies on current market shares and future industry requirements. They are usually willing to share this information because they realize that if you are successfully funded you represent a potential advertiser.

Over the last decade, a complex market research industry that covers every aspect of every market has emerged. Research reports can also be purchased from organizations such as International Data Corporation (IDC), Gartner Group, Forrester, META, Jupiter and others.

Another excellent source is to search the growing number of global information sites on the World Wide Web. Simply search for key words and key phrases and you will find a wealth of data from around the world. The power of the Internet can give you instant access to global engineering, marketing and technical research, major educational institution libraries, governmental research and reports as well as the Web sites of competitive firms.

The time spent on the Web can be very enlightening and informative. While many are of no interest to you, Forrester has noted that every day more than 10,000 new Web sites are opened every day. Somewhere in these electronic repositories you will find the documents, data and images you need.

The Competition
The fifth section of the business plan is the competitive analysis. This includes a discussion of the participants in the market as well as potential market players, the number of years they've been in business, their size, sales volume, product niche markets and product plans. Today firms of every shape and product discipline have Web home pages with excellent information just waiting for you to access.

Don't try to bluff your way through this section. Entrepreneurs are always inclined to say that they have no competition because their products/services are unique, different and clearly superior to anything that is in use today. If your products/technology are this far out on the bleeding edge most investors will come to the conclusion that market penetration/acceptance will be slow because sales require a long and expensive educational sales process. If there are other firms in the same segment it means that your organization only has to “share” the market educational cost and you can more quickly focus on your unique sales proposition.

If your company and its products or services are of interest to the investors, you can be certain that they will have more than a passing knowledge of the industry and its participants. In addition, the funding industry is closely knit. It only takes a few phone calls to check out details.

Background
After evaluating the competition, include a section on the management. It
includes a discussion of the current management team, as well as any additional people you will need and when you expect to add them.

Keep in mind that funding people look at the total picture and evaluate every portion in detail. At times, part of their investment plan will include replacing certain members of the team with individuals of greater strength. It could even be you.

These strings are not attached out of malice. They are putting out the hard cash and want to do everything possible to ensure that the company will succeed so that they can get their return on investment. After all, a number of people have great ideas but can't execute them.

The Whole Plan
Finally, a complete business plan includes a section on financial projections where all of the pieces come together on a cold, hard ledger sheet. For the first two years of operation, lay out the program's cashflow in monthly detail. The third year should be outlined by quarters and the fourth and fifth years in six-month increments.

No one believes that your crystal ball is so clear that you can see what is going to happen month by month in the third, fourth and fifth years. But you should at least show that you have planned that far ahead.

By following this outline, you can develop a clear, logical business plan that attracts investment interest. Great ideas need help to make them happen. A well-written business plan will help you prepare for success.

With the paperwork completed, look for more than just funding from your venture capital people. Every venture capitalist says they provide management assistance, direction, important contacts and relationship assistance. Make sure yours actually can and does.

Expect your VCs to want a seat on your board of directors. With the right individuals on your board they can do wonders in guiding you, open doors and keep you from making costly mistakes. The venture capital firm should not only take a board position; they should have an active board position. Use your venture capitalist firm as a valuable information and experience resource. Learn from their past mistakes rather than making the same costly mistakes yourself. Rely on them for professional and business guidance.

The bloom is off the rose for the venture capital industry. Today, they are working just as hard as the ventures they fund to protect their investments and produce a return for investors. At the same time, they are increasingly guarded and protective of their existing capital. They are now willing to limit their losses more quickly by abandoning young firms or forcing them into mergers to they can recover some of their investment.

As a result young firms find it extremely difficult to get first-round funding. And when they do get funding, they find they have to give up more of their equity to obtain the necessary capital. While most entrepreneurs do this begrudgingly, we do point out to them that 100% of nothing is worth far less than 20% of a $100 million firm.

The power of financing can't be underestimated. There are common problems shared by firms that are in financial difficulty today. It is too simplistic to say that their difficulty lies in being labeled a dotcom because every segment of the computer and communications industry is having a tough time. Some of the dotcom firms are profitable or well on the way to profitability.

The first problem is that many of these firms sought too little money at the outset.
Second, they tended to be overly optimistic as to when they would turn the corner to profitability. Or as we have seen with dotcoms most felt they would burn through the VC money, go through an IPO and use the private investors’ money for three-four years until they magically turned the profitability corner.

Finally, the venture community caused many of the current problems themselves by giving too much money, too freely without sufficient checks and balance guidance. They simply abdicated control to people who were totally unprepared to deal with their new found "wealth."

But at the end of the day, venture capitalists are business people. They invest in young firms to make money when the company goes public or is acquired. They invest in those companies they feel will provide optimum return for their investors and them.

Unfortunately, the flood of successes over the past three years pushed venture capital firms into the same position as some of the rapidly growing firms in which they invested. The IPOs went at fantastically – often ridiculous –inflated prices. Hundreds of private investors and VC firms gained millions in paper overnight.

Flush with their own success and reports of their success, money that needed to be invested was coming in from everywhere. The VCs did what any company would do. They hired people to make the investments and supervise them.

Unfortunately, many of these young MBAs were not prepared to guide and assist young struggling companies. They quickly learned that much of the assistance the firms needed wasn't gained from books, but rather by getting bruised in the marketplace.

By the same token, the start-up management teams didn’t have the seasoned gray hair experience they needed. Classes and case studies didn’t equip them to handle the myriad of mundane business details. These included such fundamental business activities as building leases, leasehold improvements, setting up distribution networks, fiscal control, communications, production planning, QC/test, market research, company/product positioning, staffing and training and a myriad of other ingredients that spell success...or failure.

In situations like these money doesn’t cure the ills…it only masks them.

R&D Partnerships
In this new environment, a number of well established firms and private investors/investment groups are creating research and development partnerships. It is a way for small firms to gain financing without giving up ownership. In addition, investors receive some tax shelter benefits.

The limited partnership is formed to finance the development of a product. The partnership then owns the rights to the technology and the company(ies) contract to sell the technology on a royalty basis to the partnership.

The limited partners get their write-offs plus (hopefully) significant long-term returns. The start-up organization gets its technology without having to give up equity.
The Very Few
While names like Steve Jobs, Bill Gates, Larry Ellison, Jeff Bezos, Michael Dell and others have become as well known as screen stars to aspiring entrepreneurs, it is a fact of life that the successful entrepreneur is a rare individual.

He or she will go into battle severely outnumbered and be battered unmercifully. But he or she will bounce back again and again--to the entrepreneur; the game is as much fun as the victory.

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Re: HOw to market a B2B consulting company - Great IDEA! Thanks
You have what it takes to succeed! - I just wanted to remind you that if you have a business idea or some kind of dream you would like to pursue, you already have what it takes to succeed at it. If a business idea has come to you, the way to accomplish it must also exist. How do you think other women have achieved such great levels of success? They had an idea AND THEN ACTED ON IT. The most important person who needs to believe in what you can do is YOU! When you accept that truth and make the decision to act on it, all sorts of practical ideas will begin coming to you on how to do it. The reason you are reading this is because deep down you know it is possible to be really successful. Yes, you are smart enough for YOUR IDEA. Yes, you have special abilities. Yes, you can actually do what you love to do and create a business around it. It's pretty hard to take the entrepreneurial leap of faith unless you choose to believe in yourself and your idea. Once you do, you just might discover an invisible bridge beneath you and wonder why you waited so long to jump. You know you are already a business woman at heart. I invite you to show her to yourself and then the world.


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