Monday, October 27, 2008

How? How Long? How Much?

Many entrepreneurs, when they write their business plan, do a great job of elaborating what they want to do. They have a dream. Some of their business plans have a vision statement nearly as long as the marketing section. (This is not due to an overly long vision statement!)

If you've ever heard someone call someone else a "dreamer," you know that this is usually not a compliment.

If you want to succeed, you must have a plan. The difference between a dream and a plan hangs on determining the answer to one question: How?

For everything you say you want to accomplish, you must lay out, in great detail, how you will do it.

Then you must execute that plan. The difference between planning and execution hangs on determining the answers two questions: How long? and How much?

How long will it take? How much will it cost? How much revenue will it bring in?

Often the problem is not that entrepreneurs ignore these critical questions. It is that they answer them literally on a whim.

You surely know that being an entrepreneur will be hard work. But you should realize that the hard work starts with properly determing the actual answers to these questions by conducting proper research. This research must go beyond the typical "market research." It must be far more all-encompassing "business research."

More on this later...

Friday, October 17, 2008

Venture Capital Feedback

You never know what you'll hear back after you give your pitch to a venture capitalist. VCs have a much deeper and more expansive view of the business landscape than most entrepreneurs. Sometimes, what the entrepreneur perceives as a strength, the VC perceives as a weakness.

I recently hosted a venture capital forum, during which a panel of three venture capitalists received investment pitches from three entrepreneurs. One young company had achieved annual revenues of $500,000. In his pitch, this entrepreneur stated that he was seeking $2 million in funding. He pointed out how efficient his company had been to date, getting to its current stage with only $1.25 million in capital. Continuing this efficiency, he projected the need for an additional $2 million going forward.

In contrast, the entrepreneur pointed out, a California-based competitor had raised $40 million in VC funding and still had not achieved the technological or market success of his own company.

This fact was presented as a strong point for the entrepreneur and his company.

However, one VC in particular did not see it that way. This VC saw the $40 million as a "war chest" that the competitor could tap to overcome its current weak position. As this was an unexpected response from the VC, the entrepreneur was not prepared with an adequate answer to this concern. This entrepreneur had heard through the grapevine that the bulk of the $40 million had been wasted and the competitor did not have much of a "war chest" remaining. But at the time of his presentation to the VCs, he did not have strong enough support of this rumor to state this in response to the VC's concern.

Of course, after the event, the entrepreneur is working to verify those rumors so that he will be able to adequately address such concerns in the future.

The lesson learned is that it is always good to look at your presentation and plans from all angles... could something that you perceive as a strong point be perceived by others as a weak point, and vice versa. If you do this analysis before approaching investors and have your responses prepared for either perception, you will not only make a better presentation, but you will have a more complete view of your business opportunity.

In defense of the entrepreneur, I must admit that I assisted him in preparing his presentation and the VC's perception caught me off guard as well! After the fact it seems so obvious. This is one reason that it is good to get feedback from as many people as possible when preparing such presentations. Usually, one person cannot think of everything.

Wednesday, October 01, 2008

It's a Flawed World After All

As an entrepreneur, you are forced to create success within a flawed world. The fact is that most entities and people that you will deal with are only average or are below average (this is by definition of the mathematical concept of "average.")

Success comes from realizing this fact and getting up each morning expecting it. You can help others that you deal with to rise above their limitations.

I have seen entrepreneurs grow frustrated by the flawed system they have to deal with and then become self-limited by that frustration. Don't let this happen to you. Dealing with a flawed system is what you signed up for when you became an entrepreneur.