20 © besiness Plone thot Work Jobs, a Fred Smith .. and bet on the superb trac records ofthe ma e sapitalis John Doers reat rent team working 38g Fems the father of American venture capital General George Dorit’ dic rade B idea t0.8 tum I prefr grade A enteprencdr and tam with s grace B team witha grade A idea. Doerr stared, “In the world roday, there's plenty of technology, pleney of entreprencurs, plenty of money, plenty of venture capital. Waar's inshore supply is great teams. Your or Arh 0, puting biggest challenge willbe building a great team."2 The in Rock articulated the importance of the tear over a decade a it this way: “If you ean find good people, they can always change the product. Neatly every mistake ve made has been when I picked the wrong people, not the weong ides." Finally, as we saw eacie, ven~ tures with more than 20 employees end $2 milion ro $3 million in sales are much moe likely to survive and prosper Inthe vast majority of ease, itis very dltfcue to grow beyond she point without a team of two ot more key contributors, xhibie 14 depets the imporart aspects of the team. These teams invariably are formed and led by a very capable entrepreneurial leader whose eae record exhibits both accomplishments and several qualities the tam must posses. A pa ulture creator, the lad entee- peeneuiscental to the eeam as both a player and a coach. The ability and skill in attracting exher key management members and then build ing the team is one of the most vahed capabilites investors look for ‘The founder who becomes the leer does so by building heroes in the sum, A lender adaprs # philawplhy that rewards success and suppor it and see honest failure, shazes the weslth wit) those who help ste high standards for both performance and conduct. Inportance of Fit and Bolance Rounding out the model ofthe three driving forces i che concept of fit and balance between and among thse forces. Note that the tam is po sitioned atthe bottom of che erange in the Timmons Model (Exhibit 1.1. Imagine dhe founder, the enteprencural ender ofthe venture, stand iD. Bygave ad ete A. Timmons, Venti Capita the Conrad ooo Hart Basins Shoo Ps 139, ‘Company, Febesr rch “Satay ve Tacs fom a Ventre Capi,” Haar Busines Fatreprencers Create the Future ® 21 Exhibit 1.4 An Entrepreneurial Tean Is the Key Ingredient for Success EAN egy, sen + Buds enzepercural eure se arizaton * Pons she gale ler n Zach Star of Sica ‘Qualey of eam 1 Rahn egarince aed ack cord + Canine: btn and parce + crenvy Ate ing on a lege ball, grasping the triangle ver her head. The challen to halance the triangle without toppling off This imagery i help i appreciating the balancing acc since leader, eam, and resources rat ‘march, When envisioning company's future using this imag trepreneur can ask herself, What pitfalls will | encounter to get t0 che ough, oF wil next boundary of success? Wil my current tam be lag 1d f the company grows 30 percent over the next 860 nples of swe he over our years? Are my cesoutcesslficint (or too abundane? Vivid ex 3 everywhere, such as when f a weak, poorly defined opportunity Failuce to maintain a balance a panies throw to0 many For example, Lucent Technologies misplaced hets, and slowness to eeac to bandwidth demand resulted in more than 90 percent reduction in its marker capitalization The business plan helps you te togeche che three spheres ofthe mons Model. The planaing process helps you shape the opportunity and understand its full poreaial. Then the lead entrepreneur has a sense of ‘are necded to fill out the wentore’s skill sex what other team member1B * Business Plons thet Werk Exhibit 1.2 The Entrepreneuriol Process Is Opportunity-Driven Hertec tice a Bee nary talor fread? —>) 50 lon or more, th 1 bles po * eoperiy tars 9 ey rt saa bs dire m poy on a Low cotprovidr (40 prearp arg? properties of the product a sevice; the markers size and 20 percent or ‘more growth potential the economic ofthe business, particulary robust ross margins (40 percent or more); and fee cash flow characteristics Arives che value creation potential In short, che greater the growth, size, durability, snd robustness of the marks, the greater che opportnity. The tunity. The more imperfect treater the rate of change, the discortinuices, and the oppoccuniry. The grester the inconsistencies in existing service and ‘quality and in lead times and lag cies and the greater the vacuums and taps in information and knowlede, the greater the ope Resources: Creotive ond Porsixonious ‘One ofthe most common misconceptions among untried entrepreneurs is that you have to have all the resources in place, especially the money, ‘ii doy of wn porn isa willy indcrmod concep In etepe urs dara when te vente ps hr macy back pls aah or bet Entrepreneurs Create the Futare * 19 Exhibit 4.3 Understond ond Horshol] Resources; Don’t Be Driven by Then inne aed Contra — asi and Owe Byer rating re Franc resources Prope to succeed in e venture, Thinking money frst isa big mistake. Mone follows high-porential opportunities conceived of and led by a strong management ream, Investors have bemoaned for yeas the fact dat there istoo mach money chasing too few deals. In athe words, there is shor age of quality enteepreneurs and opportunities, not of money. Successful centreprensics devise ingeniously creative and stingy strategies to marshal and guin contol of resources (Exhibit 1.3), Investors and successfl en ‘reprenears often say that one ofthe worst things chat ean happen to an entrepreneur isto have too much mouey 100 early Bootstrapping is way of life in entrepreneurial companies and can «reatea significant competitive advancage- Doing more with les isa pow. ceful competitive weapon. Successful entrepreneurs try to minimize and sarily own them. Whether ii asses For the control resources not nes busi they Hrink key people, the business plan, or start-up and growth capital lost. Such strategies have a wondrous effct on the com pany in ewo ways: a discipline of leanaes is established where everyone knows that every dolar counts throughout te frm, and the principle of conserve your equity (CYE} becomes a way ro maximize shareholder value The Entrepreneurial Team There is lise dispute today thatthe entcepreneucal ream is «Key ingre dient in higher potential ventures, Investors are captivated “by the cre ative brilliance ofa company’s head entrepreneur: Mitch Kapor St16 © besiness Plans thet Mork Exhibit 1.1 The Tinsons Nadel of the Entrepreneurial Process (opestiny See Cea say (te) the risks and determine what changes can be made tur’s chances of stoces, is capital requirements, the pace of growth, henge the Odés: Fix It, Shape It, Hold It, Hoke It The driving forces underlying the eration of a saccessful new vente ae illustrated in Exhibie 1.1. The proces starts with opportunity, not rwork®y a tant ce the busines plan. Most ‘opportunities are much bigger than the talent oF the capa the ‘or the initial resources available tothe team, The role of the lead entre- proneur and te team is to juggle all these key elements in a cha Jer bouncing up and down on a trampoline that ie moving ona conveyor bee at wapredictale speeds a while teying co keep all dee ball inthe ar. Tha isthe dynamic nature of an eacly stage star-up. The busines plan provides the I code for communicating the quality of the three driving Timmons Model and thie ft and balan Exhibit 1.1 depiew the entrepreneurial process in the Timmons he opportunity establish the re Model The shape, size and depth of wi th ofboth the resources and the tam. We found chat many people ate a sit uncomfortable viewing the op Fatreprencers Creete the Future © 17 Iris especially disconcerting to some hecause we show the dl sens ofthe entrepreneurial process as circles, making the balance a pear tenuous. These reactions are justified, accurate and realistic. The centeepeencural process is dynamic, Those who recognize the risks aan ‘age the proces beter and garner a bi The lead entceprenears job is simple enough He must carry the deal by taking ch Diguiey and risk ar your fiends. Cent In shis dynamic context, arm othe homework, creative prob eof the success equatio lem solving end strategizing, and due diligence that lie head is analyz the fits and gaps thae exist in the venture: What is wrong with thi oppornity? Whs happen, as well as adverse ones? What has to happen tom tive and a ft for me? What market, technology, competiie, manage ‘and financial rss can be reduced or eliminated? What can be Who can change ie? What are the mini is missing? Whar good news and favorable events can changed to make this bape smal resources necessary ro geow the business the fates? I his the right, team? By implication, if one ean determine these answers and make the nseessary changes by figuring out how to Sill dhe gaps, improve the fi and atracs key players who ean add such vale, the odds for succes ise significantly. In essence, the entepreneur' role is to manage and cede Fine the riskereward equation ‘The Opportenity AL the heat uf te proves is the opporunicy. Successful entepreneurs and investors know that a good iden is not necesarily « good oppor nity. In fcr, for every 100 ideas presented to investors inthe form of « busines plan or a proposal, usually only 1 o¢ sometimes 2 oF funded, Over 80 percent of those rejections oscur in the est few min ures; anather 10 to 15 percent occur after investors have read the bus ness pln carefully. Fewer than 10 percent teract enough intezest to meri, thorough due diligence and investigation over several weeks and even nonths. These are very slim odds. Would-be entrepreneurs chasing ideas that are going nowhere waste countless hours and days. Aa important skill therefore, as an entrepreneur or an investor isto beable to eval ate quickly whether serious potential exists and decide how much time and effor to invest. rod Exhibit 12 summarizes the mor important characteristics of ‘opportunities, Underlying market demand—because of the value-added14 © besiness Plons thet Hork ‘of your network and often spurs those people to act on your behalf, The ight conieet you with an investor or customer without your direc soliciting che help. As you start this business planning proces, tlk tO as maay people as you caa and keep them informed of your progres. Energy Building knowledge and networking tke energy. As Dennis Kimbo, best selling author of Think and Grow Rich: A Black Choice, cold faculty members and students when he vsted Babson in 1999, “Suecessll peo ple make the 40-hour workweek look like child's play.” He later added, Mf your work is your play and your play is your wos you will aever work a day in your life." Launching a business takes a tremendous amount of energy. The typical enrepreneur can expect to work om a¥- Ta reality, most entrepreneurs Find that erage 60 hours a week oF mor ey never Teave the job, Even when they are in bed of on vacation, en reprencucs are thinking about the business, The business planning pro- cass also takes energy. A good plan skes 200 hours to complete, and ‘hats just forthe fs working draft. This energy is somewhat sel-sus f you also have the final ew points on the str: commitment and passion, Connitnent To sustain energy ane needs commitment because everyone wll face di Ful times. Launching a busines ie an emotional rollercoaster. The highs are higher and the lows are lower, and they come at breakneck speed. IF you ate not cammired ro your opportunity, to your vision, it is all too easy to quit when the firs low hits, You have if you have to belive in your vision, Without that definiteness of purpose, you will abandon the vencive when things look tough, and things will look tough at several points on the journey, Thes, you also need the final poine to help sustain you The lst and most important poine of the star is pussiow. Reeuening vo the selEsctualization theme, you need to know what drives you. What ons? As Dennis Kimbro says, “IE four professional and nobody paid you, whae would you defor free IF you are pursing en Fatreprencars Create the Future © 15 ‘eeprencurship only co make money, you will lack che commitment and ‘energy to be suecessfl. Before starting the business plan process, dig deep and find what motivates you, what fulfills you. In other words, define your passion and male sare your proposed business incorporates that passion. The points on the sar represent a way of life for a successful entrepreneur. We urge you to consider those points and incorporate into your life The Noture of Opportunity ‘Once you understand your career and entrepreneurial goals, as well as your passion iti often easy to generate a ist of several business ide However, not every idea (in fac, most ideas) rep nts a viable oppor tunity. By a opportnity we mean a business that ean generate profits and provide attractive ruins to the entepreneutial team and the in vestors. Many flues can be attributed to great enthusiasm for ideas that don't have opportunity potential. Therefore, i is imperative to a5: ss the potential characteristics ofthe opportunity before launching ito the business plan or saring the business. The simplest, most robust rmeans of understanding your opporrunity isthe Timmons? Model The Tinnons Hodel Bosics Susesnable auecens in creating 2 new venture is driven by 2 fw themes that dominate this highly dynamic entrepreneurial proces: Ins opportunity driven leis driven by * Ie is resourceparsimonions and c lad entrepreneur and an entreprencurial term, Ie depends on the fit and balance among t eis tegrated and bo These a e controllable components ofthe entrepreneuril proces that ean be assesed influenced, and altered, Founders and investors fo- cus on these forces during thei careful due diligence process to analyze Tale desu, pase ele to J, Tnmmans an S. Spinel, New Vex Creation, 2 eBono wn Gra, 2003.12 © besincss Ploas thet Mork Finally, business planning will help you identify what skills ace ne sazy 1 implement the business succesfully. You probably will ot pos- ated earlier, most successful ventures are sess all those skills, As was launched by teams meaning that other il he gaps in your skills. How skills ro be ereible ae ever, you ne lead entrepreneur. Yo need to have something special, whether ite cechnical wizadry or busi- ness acumen, that ean draw others to jin you in your quest. One of the Il entrepreneurs confront is whether they can arteact ther core team members to join chem, Again, the business plan will help you define what attributes those people should posses. As we have worked with entrepreseurs over the years, we have no ticed an internal drive that successflertepreneurs poses. For that mat tert seems cha people wha are succssfal in any context possess er tain atributes, One ofthe authors has pulled out five key ones that he shares with all tbe stadents and encepreneurs he works with, called Zach's Star of Success Zach's Stor of Success Zach's Star of Success caprures many of ETERS] the atributes that lead to enteprenete HSSAN ial succes. The sar progresses clockwise, starting with “knowledge.” Whether 0% ain Iu we ee sets oe eae need to develop or possess in order to Knowledge “To he succesful, people nocd knowledge. As the late Herbert Simon, No bet Prize winner from Carnegie Mellon University noted i takes 10 years and 50,000 chunks of knowledge to become expere in any area. Ac cording to Simon, experts recognize raters that can be transformed TGA, Simon, "Whar We Know abou the Creve Prose” tn RK (0), ntrepreneers Create the Future © 13 {com one situation to another. Their unigue ability to combine those pa tive ways gives them an advantage in any domain in which they participae, For example, an expert chess player identifies patterns based on the cuttent board setup and knows wha moves to make next Likewise, expert entrepreneurs see pattems in the envigonment and iden: tify combinscions that allow them to enter and compete in @ matker place Ieis not surprising, then, ro sce that many entrepreneurs lunch bis esses in domains where they have experience. For example, Jeff Hawkins and Donna Dubinsky worked cogether az Palm Computing, the compa that developed the Palin Pilot. Hawkins and Dubinsky subsequently lef tnd founded Handspring, acompetior that quickly gained marketshare ‘What happens if you don't have directly televane experience? What if you are young or are changing industries? In such cases, iis eiial to build a ream to complement the earepreneu’s skill st Network A powerfal way ro gain that knowledge is chrough networking, The broader one's netwerie i, the more knowledge one can tap. This may e form of adding people to your team or building what is elled vietal eam. If we think of the entrepreneurial process, many sareaps require external financing. Often that money comes from family mem bers, fiends, and ang ating experience in your marketplace. Other members ofthe virtual team Is. Thase investors can add to your knowledge ly i you have steaeg might include your accountent, your lawyer, suppliers, and even cu tomers, All of them add to your knowledge and can help in other ways a well. For instance, your investors may provide leads ‘your accountant and lawyer may provide leads to other investors. The key ro success isa larger network. The more people you know, the greater the add ae that you can tp into che right knowledge source, ‘To that end, entrepreneurs should have goal of meeting five oF more new people week. Furthermore, you need t maintain contact with your network on both a personal and a professional basis. People within your network are much more apt to respond quickly when you contact ther ‘On a professional bass iti important for entrepreneurs to vend 9 pe siodie newslete detailing the state of shee progress to all eueent and potential stakeholders, This keeps yo and your efforts Fresh in che ind10 © Besiness Plans thot Work isthe restaurants founder. Sure, the fod is excellenr, bor Ming Tsai as 8 reputation that i strengthened by hs television shove and by constant and national media. Feople want robe part ofthe Ming The goal of this book isto improve your adds chrough deep learn ing. The place to begin i your personal goals Understanding Yourself ‘The first sep in the entrepreneurial proces is to understand your goals and aspirations. Ask yourself che f lowing questions 1. What are my carer goals? 2. How dacs an entspreneutial endeavor help me achieve these 3. Whar skills do L need to develop to succesful? Entrepreneurship isn't about making money (although thae often comes} its about achieving se actuazaton, Entrepreneurs view their entures as their “babies.” The analogy is strong and powerful. Ente preneurs nurture thsi basineses in che early years, hing them grow cl mature, often with the goal of having the business oudive cher. In i form of immorality. Many ofthe largest bu are privately held family businesses shat pass from sense, 2 busi teneration so generation. Caors Bee, Perdve Chicken, and the Lego Com pany ace just a sampling of family-owned firms that survived :heir ounders. So what does i a “The fist sep isco assess what to be successful? in the long ron We all have to work to support ourslves and our faites. Encrepre- neuship can be an attractive alternative ro the traditional job. Bu jst 188 you see goals ina traditional job (znnual performance reviews), you should see goals for an entrepreneurial carer, The goals should be both personal and professional, and you need ro understand the trade-offs ‘wo, For example, many people csi that they are pursuing ship to be dir own boss Entrepreneurs are fa from inde pendent and have eo serve many masters and constituencies, including Partoers, ivestors customers, supplies, creditors, employers, families, Entrepreneurs Creote the Fotere © 11 and those involved in social and community obligations. Entrepreneurs, ¢ free choices of whether, when, and whae they care ri extremely difficult, and rare, to build a singlehandedly. Thus, the trade-off i that tbe succesful you have eo eecognire who are the to respond to. Moreov. hrsiness beyond $1 million to 82 million in important stakeholders, akhough you do have final sa Other underlying implication is that you ean work fewer than the standard 40, hours a weck that you mighe ha job. The ce ality s thar to stare a successful, growing vente (one that has tential to be a sustainable ongoing concern} you probably will exceed 40 hours a week every week. The typical mantes of entcepreneurs is that 10 “work any 80 hours 2 week they want.” You must under people pursue entrepreneurship ro se their own hours. The work in a corpo seand the e ceneral eset, because if you re surprised by the level of commitment eaired, you'r moze likely to fail, Susprisingly, the primary motive that drives mort ps ship isn't che opportunity to become incredibly wealthy. Entre preneurs secking high-porental ventares are driven more by building ‘ecprises and rearing long-term capital gains chan by instant gratification through high salaries and perks, A sense of personal achievement and ae complishment eling in control of heir own destinies end realizing their Visions and dreams are also powerful motivators. Money is viewed a8 a tool and a way to keep sor these motivators rng rue be the way to achieve your goals. Irmay he hard to envision how an entrepreneur ial endeavor will help you achieve your goals unless you have been in olved in previous startups. Business planning can help you visualize hove entrepreneurship may help you achieve those goals. Business plan- ning is aothing more than sophisticated scenario analysis. You will work, through identifying the opportnigy, understanding who your customer is, and figuring aut how to reach thar customer. Furthermore, you will see what ean be. IE you succeed in implementing your vision, business planning will help you imagine che furure. You wil ger a sense of how the business might geow. Specifically, your financial pro forma statements will uaggest the upside porental of 2 successful ventuce.!* ini snd ‘Re wil covee fan bur they can gvea sue of wh wei you ey an8 © bosiness Plors thot Work deals Expected to spend thar money, many Internet entrepreneurs spent forts to capture matket share. Boo.com spent $130 foolishly in vai nillion in seven months to launch a fashion website and failed. Webvan blew over $8 ‘companies from the marker test for a while. With huge war ch ash, those companies culd sell thei products or provide thet ally know if they could command a price bi at lose and never enough to generate a profit, Marker share was all thar mattered because there was going co be some investor (asally the public market) who ‘would pay more than the company was worth Then, conceivably, the ors coud get ther money out, plus huge nies destroyed wealth and few entre entrepreneur and the early inw recurs. Ultimstely, those eo ‘preneurs enjoyed the highly publicized shor-term gains. Toby Lenk the founder of eToys, wes worth $850 millon (on paper} the day after his ‘company went public. In part vo set an example and in pare because sll ing a large chonk of his shares would have hurt the overall value of his ‘company, Lenk held almost all his shaves unl che company went bank: opt.) The key isto get enough money to get stacted ut not so much that you business i insulated from market tests. Its critical co learn eacly profits. Your ‘whether your product or service has the potential 29 venture needs ro answer several quesions in the early iterations of growth: Will the csstomer pay enough fr the product so that the fem tan be profitable? Wil the customer stay loyal zo your company or shop for the best pris? How much will io nthe fiat place? If your entrepreneurial venture ison a ight bud the answers to these questions quickly. You then have time 1 adape che ‘business so that ie answers those questions in the affirmative. Business planning helps you define milestones you need to achieve o8 your jour fy these milestones, ‘ey toward a susttinable busines. Onee you i busines planaing helps you asses hove ch capital you azed co achieve ‘copital, Devive your funding stat- them and when you sho ‘egy around chose key milestones. For example, in developing 2 proto type, you may be able to finance it wth your own resources, such as your time and small infusions of your personal cash. After you have a prototype, the next milestone may be > produce ad sell your product Takalove, "How go Love $850 ition—and Not Really Car” Now York Tine Magan, Je 8, 2000, pp 5457 Entrepreneurs Greate the Future * 9 ‘or service. This may require geting investment from frends and family members, Tying your capital needs ro milestones helps you fest the con: ap se if ic passes, and then move toward the next milestone 3. The Fixst Hover’s Rivontoge Is on Usbon Legend Having worked wich numerous entrepreneurs and student entrepreneur wwe heat over and over that “ou company will havea frst movers ad vantage." Often that isthe sole extcal assumption on which the ener proneurs base their competitive advantage. The teuth is that rmover's advantage rarely works in isolation feom other competitive ad aneages. Example upon example illestrates thatthe fist to market i rarely the industry leader in che long cun. Apple had the first PDA, the Newton. Viscale had the frst spreadsheet but was supplanted by Locus 123, which was supplanted by Microsoft Excel. Being fist to market doesn’t mean you will own the marke. True competitive advantage can be summed up asa combination of faster, per, and beret. Most often this occurs within a niche in a laeger industry. Take Hore Depot fe revolutionized the hardwce in dastry by offering a warehouse of goods. That allowed Home Depot to offer beter prices because it could get volume discounts fram its suppl crs, That power increased as supplies realized that they could move a lot of produce though the Home Depot diseibarion channel. The sup- pliers accepted lower margins on their products. Home Depor suppl tented thar advantage by hi i-yourelfers questions. Free clinics om common projecty such a8 building 2 deck oF installing a ceiling fan, supplemented that expertise “That gave Flome Depot a “better product. Finally, customers knew that Home Depot would have what they needed when they wanted it. Hom Depot enabled its customers to do their projects “aster.” Thus, Home Depot bul a powerful competitive advantage based on beter, cheaper, and fase. Not every entepreneur aspires to the size and scale of Home Depot ven smaller companies seed to think about thei comperitive advance For example, if you plan to s rant, you might earger higher ‘quality food and atmosphere as your advantage, Based on the trafic the competition, and other factors in your geographic target, you may build «a sustainable competitive advantage. Te Blue Ginger in Wellesley, Mas achusers, has uch an advantage. Ming Tesi, the nationally known chef,6 © business Plens thet Work ssc compelling figures have led some to conclude that there is > 1S percent of new companies that wil threshold core of 10 percent become the winners in terms of se, jod creation, profitable, innova tion, and porential for harvesting and txereby elie a capital gai). As you plan your busines, think of ways to attain these threshold mile ones. Does this mean you have to bea venture captal-backed firm to Succeed an eeate wealth? We think nos, However, the lesions delivered formar, and presenta tion that venture capital firms requir. By understanding dv dig intimate involvement in planning, and he intricacies of your deal, you sustaining & new venture inthis book reflect the high standards cf con will inczease your odds of launchin Lessons fron the Dot-Con Heltdown Although failure rates seem to be relaively stable, there are instances ‘where they become more severe. Furthe-more, ignoring the fundamental lessons of entrepreneurship cam lea o ‘lure even if a venture achieves ‘many of the treshold criteria dscusseé above. Take the Internet boom and subsequent bust. The cretion rate during the laze 1990s was phe 100 che failure rate Fad exploded. Through the third nomenal, bt by awarter of 2002, nearly 900 lnveenet companies had shut down or de cared bankeupscy Several lessons can be learned from the Inceee de 1. Entrepreneurship Ie Hard Wonk thot Requizes Both Creativity ond Rigor During the boom, enteprencurs had visions of easy money and quick succes, Television, newspapers, and magazine highlighted sores of in- scant billionaires, feseemed that all that was necessary was co be young create a concepe wich the term liter ini, and go ovt and seek star ‘up capita. The idea didn't have to be original (how many Internet toy pet supply companies, and dlectonic dget companies were id hope that yal was to spend as mach money as possible et share. Fast growth in Tn it ed to an impenetesbe ms to public offerings tha creaed instant paper billionsiges and funneled more capital fora company to spend foolishly Soeeeaom, "QB Repore: Shutdewss Down Sharply from 2001 Entrepreneurs Create the Future * 7 ‘What we leaned (or ele ned) is that entrepreneurship isn’t about market shar; ic is ahoue a stong business model. That means profits You car buy your customers forever or expect undying loyalty just be cause you gave customers a good deal. You need to have a product or hing for which they will pay a her words, your product and suppoxting service need to be some combination of beter, cheaper, and faster, We should pause for a moment and explain what we mean by “cheaper.” Some readers might premven, In misconstue this as meaning chat your product should be priced lower than the competition. While this might be a sound sraegy in some cas most new companies don't have the economics to deliver a lower produce effectively. Instead, “cheaper” may mean that you have @ cost, advantage chat adds value for your customers. For instance, Dell's pro lution proces is cheaper than that of many of is competitors because Dell doesnt build up large inventories that are stockpiled at retailers in advance ofa sale, Inst 1, Dell adds tremendous value to end users be cause it can configure @ computer the way customers want and have it delivered 10 theie homes oF busineses in a matter of days. Dell effec tively eliminates the middleman, To develop an advantage that is some Jn of beter, faster, and cheaper, entrepreneurs need «0 under stand enstomers and be able to adapt thei businesses co serve customers beter or chey will fee quick extintion, The business planning process is one of learning. lei «disciplined ;pprozch in which you ask questions, eek answers, and plan for in seatingly demanding macker tests. Deep u Jertanding and the ability to adap improve your chances of success. The business planning process helps you move beyond the nascen encepreneurial stage and survive the new business ownership phase 2. Too Huch Honey Ts as Dangerous os Too Little Failed entrepreneurs often cite lack of capital as the primary reason for «firm's demise. The oppesite was true in the lnternet boom. Venta apitaliss eager eo inves lage sums of money with the prospects of quick lig via IPOs poured more money int Interet companies than those companies could digest. A the peak in eatly 2000, venture capitalists were pumping $8 milion to $15 million per round of investment into sage deals and a whopping $22 million’ pee round into later stage4 Gusiness Plone that ferk the sills necessary o be successful, and so you may postpone your dream while you sec jabe hat will build cha bill set. Enepeneus iv ably find it dificult ease the necessary capital, and lest determined dale will abandon their plans “The critical thing is the learning curve. New and old businesses make failure, bur succesful entepreneurs mistakes, some of which may ead ‘manage mistakes berter. Successful entrepreneurs recognize hat learaing vents help them reshape the opporeunty so that i berer meets cus tomers’ aces, The business planning process can help you compress and create those learning curves and move frem nascent entrepreneur to busi fess owner, Busines planning wil save you considerable amounts of ime ate the obstacles that sind money by helping you understand and an all entrepreneurs face in launching a busines In aciculating inthe busi ness plan the nature of the oppostunty and the way you wil exploit i you have to answer many ofthe real-ile questions you ulimacely will in writing great business plan face in practice. Indeed, your immersion ‘over into the exccution ofthe plan. You will build a cextured will awareness of the market and ways to ack it. In esence, writing 8 prone, bu the plan is plan provides che momentum to be gee en not the busines. Even if you launch your business successfully, nor all new business businesses has 52 percent fail within four years, and 63 percent fil within six years. Although these becs hold ove time, they vary by industry and company type. We believe that you ean move those percentages in your favor by gsining & deep understanding of your capabilites as leader founder, what ie wil take for the business fo succeed, and how co ezate ways to make chis happen, Business planning is part of that process, Ite a wsefl to! for understanding the potential he risks, andthe payolf fora particular op covinets will survive, Traditionally, the flare eate for progressed as follows: 23 percent fil within wo porcuniy Sustainable Orgonizations Who are the survivors? What new businesses ulkimately make t sition inca the sustainable business mod? The odds for survival and & higher level of success change dramatically the ven a cri ieal mass of at least 10 to 20 people with $2 million so $3 milion ince tenes and is pursuing opporsunities with growth potential, One year sie Entrepreneurs Creote the Futore * 5 vival rates for new firms jump from approximately 78 percent for fe with up to 9 employees to approxima 35 percent for fim with, £0 99 employess. After four year, the survival rate jumps from approx: imately 35 o 40 percent fr fiems wit fewer than 5S percent for firme with 20 1049 employes, ‘Growth is impli in entreprencutship. The entrepreneut’s goal of ten incledes expansion and the building of ongterm value and dicable cash flow seeams. However, it rakes along time for new companies become established and grow. Historically, wo of every five sal ims founded survived six or more years but few achieved growth during the firs four years.* That study also fund that sry ble for firms char grow, and the earlier in che life ofthe by osness thar 2003 zine 500 exemplifies this, with an average growth rate of 131 frowtin occurs, the higher the chance of survival is, Th spice a slow economy. The lesson from these studies is that entrepreneurs need to chink big. Don’ ereate a job build a business “Another notable exception tothe failure rule involves businesses that have attracted start-up financing from successful private ventut pital companies. While ventare-backed firms account for a very small per centage of new firms each year (in 2000 only 5,557 companies received 8 of 414 inical public oferings (IPOs) in 2000, or Petcent, had venture backing. An IPO is an imporeant milestone in the development of a company as it gives i the capital to grow into a major industry player. Clearly, ven lip: Among the compasiss that made the 2003 le. mn 2 percent eaised venture capital.” However, companies with venture cap ital support fai beter overall. Only 46 companies with ventuce capital declared bankruptey or became defunct in 2000." This is less than T percent of companies chat received venture capital in tha yee. Trac DPilps a Bese A. Kil, “An Anse of New Fon Survival nd row a Fronts nr Rese 1988, py 266-26 this eats the exception vo the ure ele noted above an it te oil i ‘tke Hotimin, “The Big Mest” Incy all 2005 vol 25, se 1 Jay 30,200 “< Aicnnkee a a Glance” IPO Reporter, December 10 "Mike Hoffman, “The ig Picture,” Inc, 2003, vol. 25, ise 1, p89. eneuneXpert, Thomsen inal Dac Servier, 2007se may be pow. You are nor alone in your entrepreneurial dreams. in the process Tweary-1we million of your fellow Americans a sunching a business or own a business less than four years old. Ul rately, che most rewarding and satisfying caesrs are those which are company rather dhan a je Bahson College, along with the London Business School, has spe headed the Global Entrepreneurship Monitor (GEM) project, which teacks the race of entrepreneurship across 40 countries, Entrepreneurship i defined as any attempt to create a new busines. The best estimates of the eatepreneurial activity rate for adults age 18 to 74 in 1993 was around 4 percent, After peaking at around 16.7 percent! daring the In remet boom in 2000, the rae dropped 1010.5 percent in 2002, which was stil over twice the level of activity sace 1983. In 2003, che activity rate improved to 11.9%? However, not every entrepreneur succeeds in launching business, and only 40 percen: of launched business survive Tonge than si years. This book is desigied to help you get beyond the prelaunch stage, navigate the new busines stage, ané ultimately grow into a sustainable enterprise that is both personally and financillyce- This chapter provides « background onthe state of entrepreneurship inthe United Seats, showing which firms beat the failure rule and why” The chapter continves with an overview of acributes that succesful peo ple possess. Next, che chaperillatrater when ideas and provides fimework (the Timmons Model opportunities Entrepreneurship in Anerica To understand what warks and what dees’ work, i is wseful (0 ex e. We can think of enteprencurs as Falling lon the stage of development oftheir has amine who entrepreneurs into different categories be ascent entrepreneurs are individuals in the prelaunch mode. They have yet to pay themseves or any employees a salary. New bush ness owners are entrepreneurs who have pai salaries and whose busi resis less than foue years old—a eit I phase in entrepreneurship. Once 199 ened nee ev ah 1896 ea ol To learn more about the GEM project aod read past reports, go to hepulw gem Entrepreneurs Create the Future * 3 he business has survived and reached positive eash flow—usally by the fourth year atthe lavest—the business is closing in on being a sustain able enterprise and che entepzenet's task moves toward building on he foundation she bas lid Nascent Entrepreneurs Nascent entrepreneurs ate individuals who report thar hey are taking stepsS coward launching a business but have nor yet paid themselves ot anybody else in the ox ination a salary or wages, In 2002, 7 percent of the adult popslation (or Lin 14 adults) was in the process of launch: ing a business. Men are more likely to be nascent entrepreneurs than ‘women are (1.5 men for every woman}, but the rate of wornen becon ing entrepreneurs has been aeeeeratng in the last decade. Entrepreneurs are people of al ages, but most are herween 18 and 44. They tend to be colle ds bur there are many who have at finished high school As you can see from the demographics, entrepreneurship isnt confined tohighly edacated men bueis an encompassing phenomenon inthe United States. Thee a sims in a persons life when itis more likely that he will pursue entcepreneurship (che midthicies), bur exceptions tothe ele hound (Colonel Sanders was in his sates when he Iaunchea Keneacky Fried Chicken, and Bill Gates was a teenager when he launched Mi rosot), We often describe entrepreneurship as the art and craft of the «eative, che unexpected, and the exceptional. The inspiration, i you wil ar a pen fo sein new at aay tne i your life a long as you a opportunities Not all nascent entrepreneurs launch theie businesses succesfully Many discover in cis prelaunch stage thatthe business isnt via for any number of reasons. For instance, che opportunisy may oot be lege enough for a person to leave an existing jb. You need to be confident that the business can grow toa level where you willbe able to pay yout self a good selary compared with what you are making now. More ow must ecognize that it eypically takes two or more years to approach revenut figures chat make thar earning potential possible, There are oP- portunity costs to pursuing an entrepreneurial venture, Other flaws hay ppareat inthe prelaunch phase. You may lear that you lack funding, loation,o suppl snd wsting batviii + Prefoce planning process Also, each chapter wililustrate the concepts by high lighting FieFly Toys, an actual compant in the launch stage, The key ture ofthis section is che comments in the margins chat poin out va ious aspects ofthe plan that are good and others that need work. As you ad through the book, you will Become ‘amiliar not only with the pro ‘ess but also with FceFly Toys. A word of ution: Your business plan wil vary fom che FzeFly plan in many ares. Each compaay has a enigue story, and while there isa consistent core to the business plan process, your proces will vary in terms of emphasis and the length of the var ‘8s components. Ta drive this poine home and provide another exam- ple, Appendix 3 has a dehydeated plan fora diferent type of company ina dif 0 Fossa Industries is medical device company currently in the US. Food and Drug Administration (FDA) approval pha ent cype of industry that might be sent to a potential invest “The company has ‘been succesful in rising capital during a very diffcule period (ater the {or-com bomb). Appendix 4 shows Powersoint sides that are wsed when pitching to investors, As with the FireFly example, we use marginal con ‘ments to point eu various features of the Fossa plan As you begin this excising adventare in the world of entrepreneus ship or as you take a second lok a your current busines, we hope you (ook at this as a proces. The Final produit, a completed business plen, ‘more steps, and many more business plans willbe completes the impertent thing to take away from is one step in the journey. There are ma this book isthe idea thar che business plan proves is one of lestning Going through the procom helps you anckipate the fare ad sete save time and money. This s2 high-yield mvestment in your Fatute sue ‘es. Inernaliz tis way of thinking and you will move beyond the fil lure rule and hit the thresholds that lea to ultimate suocess and return, ‘We hope you will find this book wsefu as you embark on you jou ney. Good ENTREPRENEURS CREATE THE FUTURE We are in the midst of a silent revolutién-a triumph of the creative and entrepreneurial spirit of humankind throughout the world. I believe its impact on the zast Century will equal or exceed that of the Industrial Revolution on the 19th and 2oth. Jeffry A, Tisnons The Entrepreneurial Mind, 1989 sepreneurship runs deep in the American poyche day's heroes are celebrated for there Bill Gates, Steven Jobs, Sam Walton, and Arthor Blank, among ‘others, have erated businesses that are household names (Microsoft, Ap Computer, Wal-Mart, ond Home Depat). Wheseas people entering the woekforce in the 19608 and 1970s sought large rations and job securiy, people entering the workforce today are seeking younger, tentrepreneusal firms or launching theie own ventares. If America has learned anything in he last 20 yeas its that job security sa myth, To succeed, people need to be creative in designing their carers, That means scking obs tht build your skill se and postion you to start your own business at some furure point. For those of you reading this book, the 1