Counseling Startup Entrepreneurs

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Ranking Your Business Idea

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Better “Mousetrap”

• An idea is not necessarily an opportunity• Building a viable business is our objective• This requires identification, understanding and

satisfaction of customers

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Find a market need and fill it.

• Does the market need a product or service that is not currently being provided?

• Is there a needed product or service currently being provided in a less than satisfactory way?

• Is some particular market being underserved due to capacity shortages or location gaps?

• Can I serve any of these needs with some competitive advantage?

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Opportunity Checklist

• Business must be anchored in a product or service that creates or adds value for the user

• Entry is feasible, and the window of opportunity will be open long enough

• The management team must be capable • The economics rewarding and forgiving• There is significant profit and growth potential

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Some Basic Questions

• Can you live without a regular paycheck, a predictable work schedule, and for a while without vacations and other benefits?

• Are you missing any skills that are needed for success? Do you need partners?

• Will there be a need for loans or outside investments?

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Startup Alternatives

• Are chances for success greatest by:– starting a venture "from scratch?" – buying a franchise? – buying an existing business?

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Qualities of a Successful Business

• Strong business concept – Comes from understanding the market– In a healthy industry

• Clear strategic position• Capable management– Leading motivated employees– In control of company finances – Adaptive toward change

• Values and integrity

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“Unique Selling Proposition"

• Competitive edge, or USP is critical. – Put yourself in your customer's shoes; satisfy their needs,

not yours.– Know what motivates behavior and buying decisions.– Find the real reasons people buy your product instead of a

competitor's. Ask them!– "Shop" the competition, be open-minded about your

product, and never stop looking for ways to make your product stand out.

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Business Plan Basics

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Why a Business Plan?

• Sharpen the concept through a comprehensive business plan, with its major components being – the marketing "mix", – the strategic plan, – operational and logistical structures, and – the financial proposal.

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Business Plan Purpose

• The purpose of a business plan is to: – recognize and define a business opportunity, – describe how that opportunity will be seized by the

management team, and – demonstrate that the business is feasible and worth

the effort. • Where outside financing is required:– Plan conveys how much you need, what kind of return

investors/lenders can expect, and how they can be paid back.

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Marketing Issues

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The Marketing Mix

• Differentiate the product or service from the competition through the marketing mix - the "four P's." – product, – price, – place, – promotion

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Market Analysis

• Appeal to entire market or a segment?• Target a geographic area, demography, population

and trends• Is the market large enough to make the venture

profitable? • Survey/measure/estimate– Consumer shopping/spending patterns– Relative importance of price, service, quality

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Target Market Must Be:

• Definable – specific characteristics that define your customers

• Meaningful – characteristics relate meaningfully to buying decisions

• Sizable – market must be large enough to sustain the business

• Reachable – methods (e.g., media outlets or sales channels) must exist to effectively reach market

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Target Market

• Clearly delineate niche, and distinctive competence. • Define the target market. – What business are we in? What are we selling?

How well positioned are we to provide it? – Who are our customers (age, income, etc.)? How

many of them are there? Is the number growing?

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More targeting

– Where are our customers? How much do they buy? What are their motivators?

– How well does our product meet their needs? From whom do they buy now? How are they best reached? How will we get our product to the customer? How will we advertise and promote it? Is the market seasonal?

– Will we price our product as price leader, value leader, or prestige product?

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Information Sources

• US Census Bureau www.census.gov:• Economic Census• County Business Patterns• Current Industrial Reports

• State data centers www.census.gov/sdc/www• Trade associations

www.asaenet.org (“Gateway to Associations”)

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Strategic Issues

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State your strategic focus

• Your perception of the opportunity, and what convinced you that it is real and achievable. – Your competitive advantage or unique

strength, – the company's "value adding" process, and –market share expectations.

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Some Strategic Positions and Differentiators

• Customer perception factors• Market segment• Market share• Operational/technological advantages• Proprietary products• Sales channels • “Better, faster, cheaper”

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Barriers

• Are there any barriers to entry: patents, sources of supply, distribution channels, etc.? Are there barriers to exit?

• How strong is brand loyalty? How are prices set? Can a small independent company compete?

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Buying Sensitivities

• Price• Convenience• Service• Reliability• Brand name• Credit terms• Ratings, recommendations

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Strategic Factors

• Product development– Patent or trademark applicable?– Outsource manufacturing?

• Product life cycle– Development, growth, maturity, decline

• Product distribution– Direct – company sales force– Agents, distributors, retailers

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Competitive Factors

• Major competitors? Their major strengths and weaknesses?

• Their strategies - four P’s?• Product lines? Overlap? Gaps?• Customer image?• Recent “dropouts?” Consolidation?

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Taking on big companies

• They are slow to change strategy• Slower to change the culture enough to

operate differently• Lag behind smaller firms in technological

innovation

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Questions most likely to be asked by readers of your plan

• Is the idea solid?• Is the market large enough?• Are the financial projections realistic and

positive?• Is management experienced and capable?• How will I get my money back?

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Financial Projections

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The Financial Plan

• The financial plan develops an estimate of the amount of money needed – to start the venture, – to absorb losses during the start-up period, and – to provide sufficient working capital to avoid cash

shortages.

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Guidelines for Preparing Financials

• Be honest, conservative, consistent• Don’t be creative• Follow industry practices• Get accountant’s advice• Things take longer

and cost more than planned

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Financial Statements

• Balance Sheet – snapshot in time of assets, liabilities and equity

• Income Statement – measurement of business performance over a period

• Statement of Cash Flows – impact of operations on cash

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Breakeven Analysis

• Determine what level of sales is required to allow the venture to generate just enough "margin dollars" to cover its expenses. – Margin is the amount of money left over after the

cost of the goods sold (CGS) is deducted.

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Economic Indicators

• Breakeven and better sales levels at 1-1/2 to 2 years

• 25+% ROI potential• Capital requirements are low to moderate • Asset intensity low relative to sales• 40+% gross margins• 10+% after-tax profits

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Online Resources

• Business Plans – About BP, BP Format (ODU), Bplans.com, – CCH Sample BP, Colorado University, – Growthink, PlanWare , SBDC Net.

• Excel Files – Manufacturer's business plan financials– Service provider's business plan financials– Financial Projections Model

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