B. Blue Star Start-up Strategy for Entrepreneurs (the leap!)
Part A - Points of Departure
I. A Leap - and Two Introductory Questions
II. Inspiration versus Procrastination
III. The Passion
IV. The Idea
V. The Business Plan
VI. Forget the Business Plan!
VII. The Other Prerequisites
Part B - Show Me the Money!
Part C - What Makes for Success
Part D - Resources, Educating Yourself
The leap! *
You have the drive. You have the passion. You know you have a great solution. (1) You are about to make that leap! Incidentally, if you are making a web-based leap, be sure to look at the subpage 6. in this section, "Internet Start-ups: The Berkeley/Stanford Genome Reports."
1 (2) Alternatively, no matter what you´ve tried, progress is slow. Things aren´t quite coming together. You are getting more and more frustrated.
If either (1) or (2) sounds like you, Bridges may have the answer. Take a serious look at our website. Do you see a good fit? Are you ready to do something exciting in your business? Telephone/e-mail for an exploratory appointment, or consider the Q3-Strategy Co-Audit explained at the lead page of Services. In either case, we look forward to hearing from you!
A – Points of Departure
I. Two introductory questions
Do you have what it takes to be an entrepreneur? Go to the subpage "Entrepreneur´s Test" and try it.
Are you stuck? Then try beginning with a little encouragement, Inspiration versus Procrastination below. If that doesn´t do it for you, then go to the subpage "Don´t Start This Business!"
II. Inspiration versus Procrastination
With a nod to William James,* procrastination is the assassin who kills inspiration. In this case the assassin is an ugly frog -- and inspiration a nice kettle of boiling water to make your flower tea.** The first three minute video, "212o - The Extra Degree" is about boiling the water -- and a little more. The follow-on one-and-a-half minute video, "Eat that frog" is about keeping the assassin at bay. Just drop him into boiling water?
Eating boiled frogs is all well and good, but to move from inspiration to income takes more than a strong stomach and persistence. It takes systematic persistence, on which we elaborate at "Will marry, can´t dance!" the last of the ventures discussed on the subpage "Don´t Start This Business!"
* William James (1842 - 1910), who was trained as a physician, was a professor of psychology and also of philosophy at Harvard. He made a similar statement about the assassin of a (good) attitude.
** Flower tea consists of small hand-made (in China) bulbs, about the size of, and similar in appearance to, a large Brussels sprout (Rosenkohl). One drops the bulb into boiling water and it slowly unfolds into a flower, making for an elegant and unusual tea ceremony.
III. The Passion
What do you absolutely have to have to start a business successfully? Passion! If you are not sure you have that passion, than obtain a recent edition of What Color Is Your Parachute, A Practical Manual for Job-Hunters and Career-Changers, by Nelson Bolles, a classic (over 8 million copies in print), which is annually updated. The official site is www.jobhuntersbible.com. For those on a really, really tight budget, there is a ten-page summary of it (to encourage you to check it out at a library, or better, to buy it) at Business Summaries.
Bolles studied chemical engineering at M.I.T. and transferred to Harvard for a Bachelors in Physics. He then earned a Masters from the General Theological Seminary in New York City and, after being ordained, served several churches. As enjoyable as his book is to read, you are doing yourself a disservice if you do so casually. It merits the intense undivided attention you would give any other classic textbook. (Parachute also appears in German editions, but the U.S. ones are preferable.)
IV. The Idea
You have the passion. Do you have the idea? To have merit in the marketplace, for an idea to be creative, unusual and pleasing is not enough. It must solve a problem, present an advantage, which customers will value. Therefore generating ideas for a new business often begins with a search for the right problem to solve for the intended customers.
That in turn is a function of innovation. Two standard approaches for innovation are (1) brainstorming and (2) taking a given, and applying to its elements the four steps of: add, subtract, create, delete. Innovation leads to considering the patent process and deciding its relevance, a proposed future article at "Concept Papers" at "Papers."
V. The Business Plan
You have the passion. You have the idea. What next?
A business plan is the common next step. These range from an outline jotted down on the back of a napkin during a restaurant meeting to the formal submission of a plan with projected financial statements to an angel investor, venture capitalist, or a business plan competition, such as the Munich Business Plan Wettbwerb, www.mbpw.de Submitting a business plan and making a presentation force one to think issues through. They make for intellectual rigor and clarity of thought (unless, of course, your business plan is a mess).
Unfortunately, there is no business plan book that has defined the category. Three of the better ones follow, in the $25 to $35 range, unless otherwise noted.
1) Successful Business Plan Secrets and Strategies by Ronda M. Abrams, 2010.
2) Writing a Convincing Business Plan, Barron's Business Library, 3rd ed., by Arthur DeThomas, Stephanie Derammelaere, 2008, available for $10 - $15.
3) How to Write a Business Plan, Nolo Press, with a CD, 9th ed., by Mike Mckeever, 2010.
Supplemental reading is “How to Write a Great Business Plan” by William A. Sahlman in Harvard Business Review, July/Aug. 1997. William Sahlman is a professor at Harvard Business School who, at the time of writing the article, had already been involved in over 50 start-ups as an adviser, investor or director. A re-print or pdf download of the 11 page article may be ordered at the link above, or his concise (64 small pages) paperback booklet of the same title, published by Harvard University Press Books, 2008, (about $10).The booklet is an expanded version of the magazine article. William Sahlman points out that investors examine an business plan on the basis of four criteria:
1. The People (the founding team – and the advisors)
2. The Opportunity (the market niche – and the competitors)
3. The Context (the big picture, the regulatory environment, demographics)
4. Risk and Reward (the return on investment - and the exit strategy)
Two bolded statements in the 1997 article are well worth repeating:
“Whatever the reason, better-mousetrap businesses have an uncanny way of malfunctioning.”
“One of the greatest myths about entrepreneurs is that they are risk seekers. All sane people want to avoid risk.”
Besides concisely delivering terrific information, the article also demonstrates a refreshing sense of humor. A sidebar gives, for example, a glossary of business plan terms. Three definitions (of 14) are excerpted here:
What They Say. . . and What They Really Mean.
The project is 98% complete. . . To complete the remaining 2% will take as long as it took to create the 98%, but will cost twice as much.
Customers are clamoring for our product. We have not asked them to pay for it
yet. Also, all of our current customers are relatives.
If you invest on our terms, you will earn If everything that could ever a 68% internal rate of return. conceivably go right does go right, you might get your money back.
VI. Forget the Business Plan!
"Forget Business Plans: Instead of laboring over your business plan, labor over your business. If you do work intensely on your business plan, assume that you are the only person who will ever read it. Even your mom and your spouse won't read it. Potential investors will definitely not read it."
So states Dharmash Shah in a blog on his website Onstartups.com (11 Aug. 2011) (Unfortunately that blog somehow seemed to have disappeared from the site the day after I read it, so the link is not to it directly.) He knows whereof he speaks. He started Pyramid Software Solutions at the age of 34, selling it for a few million 11 years later. He is the co-founder and CTO of Hubspot, which assists its ca. 5,000 client firms with on-line marketing. Along the way Dharmash Shah has also earned a Masters from M.I.T. and written a solid book on marketing in the digital world, Inbound Marketing.
Actually, do go ahead and write a business plan, better a business outline, but do not waste too much time on it. The exception is if you are making a serious effort to win a business plan competition. There are two business plan catches. Business plans describe business models. The first catch is that a start-up is in search of a viable business model. Assumptions about the market, the targeted customers and the product are constantly changing. Therefore, and this is the second catch, no business plan is going to remain unscathed after serious customer contacts are made, let alone after sales are made.
The second reason is that, the above notwithstanding, there are not just mountains, but entire moutain ranges of business plans on the desks of bankers, business angels, VCs and private equity partners. Do you have any idea of how many business plans hit a typical VC's desk every day?
A commonly cited statistic is that of all those plans, about one in four hundred (1/400) gets funded. Actually the four here is a "Nigerian four." Nigeria has about 500 languages and sometimes there the number four is used to mean "many." When someone states that a farm has, for instance, 444 sheep, cows or cattle the reference is not to a count, but rather that there are a lot of animals on it. Similarly the percentage of business plans recommended for funding will vary dramatically from one partner to another, the ones getting funded vary from one firm to another.
To stand out in this crowd of applicants, one needs to attract, and hold, attention. Two videos are well worth your watching. The first is Sally Hogshead's TED1 presentation on YouTube "How to Fascinate." Nowadays the average Internet surfer has about the attention span of a goldfish. The average VC partner has the attention span of a bored, stressed out, impatient goldfish. Steve Blank, a Silicon Valley icon who has founded eight companies and teaches entrepreneurship at Berkeley (its Haas School of Business) commented in a blog2 in 2011:
"The bad news is that (VC) partners behavior has become incredibly unprofessional, in a way that I'm just astonished. . . Today you sit in a board meeting and people are on iPhones and Blackberrys. . . There are times I have seen VCs do this to entrepreneurs. . ."
To combat this kind of conduct, a presentation needs to be compelling, to fascinate.
The second video (5 minutes) is an interesting suggestion by Jeffery Gitomer, probably the leading sales trainer in the U.S. (The link is to further information about him at "Eminent Referrals" at About Us.) In the following YouTube link, he suggests using a video of key sales calls instead of a business plan. The idea has merit. However if one goes to the trouble of organizing it as he suggests, then one should shoot it a little more professionally than with a smart phone. For further information see the subpage Aladdin at "Strategy Audit & Website Audit" of Services.
VII. The Other Prerequisites
You have the passion, the idea, have started writing a business plan. What else do you need? A better place to work? Education? The energy and drive of youth, or the wisdom of experience? Money?
Passion is a must.
A workplace is also needed. If you don´t have any place at all, go to www.workatjelly.com. Either an existing network can solve that problem for you, or you can consider starting a jelly site yourself. The next step would be to piggyback at at the offices of local company, or to consider a business incubator. For some examples see 1.1) Business Incubators in the next section.
Education is not a must. You can always hire educated people to work for you. Bill Gates, who dropped out of Harvard his freshman year to found Microsoft, is just one of a number of "drop-out" billionaires with myriad PhDs working for them. However education does not hurt either. There are also PhDs who have founded billion dollar companies. The best entrepreneurially oriented formal education is in the U.S. (at the risk of academic chauvinism,* as the author was mostly educated there). To read more about entrepreneurial education, see that subpage.
Persistent energy is the other prerequisite. You should be relentless. An example of the right attitude is given in German, "der glückliche Unternehmer," as an Appendix to the subpage "Entrepreneur´s Test."
Money may not be an immediate prerequisite because of sweat equity, bootstraping, barter and then self-financing through sales. However it certainly counts.
Age is also irrelevant. There are three good times to be part of a start-up team: (1) at age six, before too much time with school is taken up, (2) after 65, when you are retired and again have more free time, and (3) anytime in between.
1) At six
Elmer is an independent contractor and construction site overseer in Munich who runs small crews of workers, sometimes up to 30 or 40. Elmer is 39 years old and has 33 years work experience. Of course not all of that is in construction. The first time he was on a start-up team was from the ages of six to nine. The start-up was his mother's “two-man” cosmetic company in El Salvador. She handled the production. He did the sales. The two of them lived from those earnings.
She would give him a bag full of cosmetic creams every morning, seven days a week. He would walk up to people on the street and smear some cream on their hand or arm. Rubbing it in, he would tell them how good it smelled. If you could not afford to buy the tube right away, he would explain that you could make three separate payments. He would not return home until the bag was empty. On a bad day that meant he worked pretty late into the night. Fortunately that did not happen too often.
At the age of nine he left the start-up to work less demanding hours in a bakery because of the exigencies of attending 1st grade (which had been postponed because of his key sales role). Eventually there was a "friendly acquisition" of the cosmetics start-up in that a German married his mother and the family moved to Munich. Needless to say, Elmer has continued his entrepreneurial journey.
2) At sixty-five
“Sanders took to franchising Kentucky Fried Chicken restaurants, starting at age 65, using $105 from his first Social Security check to fund visits to potential franchisees.” (Wikipedia, 2009).
Harland David Sanders (1890 -1980), renowned as Colonel Sanders, dropped out of school in seventh grade. After an adventurous career that included military service in Cuba and stints as a steamboat pilot, an insurance salesman, a railroad fireman and a farmer, Sanders eventually wound up with a service station in Kentucky.
The construction of a major interstate highway badly hurt the service station's restaurant. In response to this ominous threat to his livelihood, Sanders went on the road to franchise his way of pressure cooking chicken.
In 1964 Sanders (then 74 years old) sold the U.S. part of the business for $2 million to a partnership of Kentucky businessmen. In 1965 Sanders moved to Ontario to oversee his Canadian franchises. In his late 70s he established the Colonel Harland Sanders Trust and Colonel Harland Sanders Charitable Organization. He continued energetically to support the KFC brand, wearing his "Colonel" attire, until his death at ninety of pneumonia.
B-Show Me the Money
add the content from bridges-info back-up
C – What Makes for Success?
An interesting PIMS study of the Strategic Planning Institute2 was conducted about 117 start-up ventures in North America, Europe and Australia in the 1980s. These ventures were manufacturers of both industrial and consumer products and had both standard and new technology. They were entering:
• both stagnant and dynamic markets
• both fragmented and concentrated markets
The distinction between "winning" and "losing" start-ups was determined on the basis of the market share achieved by the fourth year of operations. Successful operations tended to turn the corner to a positive return on investment (ROI) in year five. Below is a summary of the findings of this study. More likely to succeed were start-ups with:
1) a goal of achieving a high share of a rapidly growing market
2) and the production capacity to support that goal.
To comment on these two points:
1) Marketing: Achieving high market share is a critical driver to profitability. The more important the product is, in terms of its share of the customer's disposable income, the harder it is to gain market share. Customers are less likely to try a new product or switch suppliers on big ticket items than on relatively minor purchases. The fastest way to achieve significant market share is to sell to key major customers. In other words, carefully aiming a sniper's rifle on a major retailer, such as a Wallmart´s with its huge multiplier effect, is more effective than going after the general public with a shotgun.
Winners spend heavily and early on marketing. However by year four, their marketing spending has come down to the "normal" level of their competitors.
2) Production: Having good quality in of itself is not enough, as the quality offered by competitors may also be good. You have to be perceived as significantly better. Quality refers, of course, to the total customer experience including payment terms, timely delivery (no stock-outs) and after sales service. The reward for the perceived "quality gap" of the winners was a chance to charge premium prices while being regarded as providing value.
The resulting healthy cash flow enabled the winners to spend heavily on developing even better products (R&D). The above points confirm conventional marketing wisdom. The next two points are a little more surprising.
3) Start-ups were more likely to suceed when faced with tough competition, ideally a dominant, market-leading competitor, a sort of David versus Goliath scenario.
4) High sales force expenses did not lead to high market share. Specifically, start-ups which spent 3/4 of their marketing budget on the sales force and related expenses and 1/4 on advertising, promotion and other marketing did significantly worse than those which spent less than 1/2 on the sales force.
From these four points one may make a bullet point "winners check-list." Winners tend to:
- enter a rapidly growing market (Which regional or customer market segments show the highest growth rates?)
- face strong competition (Is there a dominant competitor and if so why?)
- have stretch market share objectives (Demanding, but achievable, ones need to be set, by market niche.)
- provide products that do not make up a large percentage of the customer's purchases (Target successful customers.)
- budget heavy marketing expenses for the first two years (Hit the ground running.)
- support the product with outstanding service (Service is key for customer loyalty.)
- charge a premium price (Provide corresponding value.)
- have sufficient production capacity (Potential bottlenecks?)
- budget heavily for R&D (Innovation needs to be on-going.)
C – Resources, Educating Yourself
summarize from the page on entrepreneurial education, which you hide as part of E-book
Speakers are given 18 minutes to present "ideas worth spreading." Among them have been Bill Clinton, Bill Gates, Al Gore, Google founders Larry Page and Sergey Brin, and a slew of Nobel Prize winners. The events are held in Long Beach and Palm Springs in the U.S., as well as in Europe and Asia. Over 700 speeches are available for viewing on-line. These have been seen more than 500 million times (June, 2011).