June 9, 2008 at 01:16Startup business development
In this article, I want to highlight issues the importance of which startup creators underestimate. The vast majority of failures that entrepreneurs who have raised their first startup have been connected with are precisely issues of building and developing a business.
Warning 1 . I apologize in advance to the proponents of the Russian language for using English words. Most of them have standards in this business, and, being translated into Russian, distort (or make it incomprehensible or difficult to understand) the text of the article (see here ). If there are questions on terminology, I will answer in the comments. I also apologize for the bulletins - there is not much time and that the spelcheker did not catch, everything fell into the latest edition.
Warning 2. The article is aimed at entrepreneurs who are building a startup for sale in the future and plan to assemble a strong team and attract an investor. Entrepreneurs who build small startups on their knees or see in a startup a “business of their whole life” can safely not read further.
Warning 3 . I tried to write an article that would be interesting for novice entrepreneurs, so I apologize to experienced entrepreneurs, for whom many things will be commonplace. On the other hand, I would love to see additions to this article in the comments.
Typically, entrepreneurs set as their goal the earnings from selling a startup to another company (99%) or accessing one of the stock exchanges (IPO). Very rare are startups who set as their goal to generate cash flows and live with a net profit.
Thus, we see that the startup life cycle is usually from a year to 7 and depends on the scale of the project, the goals set, the markets on which the startup operates, and the cyclical nature of the economy.
Traditionally, entrepreneurs are trying to attract money from venture investors. In the venture capital business, investor experience and connections are valued significantly higher than the money itself. We will talk about this below.
Who is such an entrepreneur. I propose the following definition:
Entrepreneur- this is a person who is looking for market opportunities, monetizes (earns money) them, bears risks and delegates functions that are not peculiar to him as much as possible.
I would like to dwell separately on how the idea differs from market opportunity . Most often, a good idea comes to a person who has extensive experience in any field and at some point he comes up with something that is fundamentally different from what exists on the market. Usually, such ideas come to engineers or
to developers. Market Opportunity comes from a deep understanding of the market to a person who knows these markets well, the needs of customers in this market, and the shortcomings of the players. As practice shows, the lion's share of successful projects is born precisely from market opportunities. Turning an idea into a successful, from a financial point of view, startup is still a matter of chance.
If we have decided that we are building a systematic company, then regardless of whether we attract investor money or develop a startup on our own, an entrepreneur needs to do certain things that, firstly, increase confidence that a startup will become a successful company, and secondly, it will be easily sold, because its business processes, internal management and business structure are transparent and understandable.
I would also like to draw attention to the fact that even if the entrepreneur decided not to raise money from outside, he is strongly recommended to go through certain steps. The fact is that investment is not only money. An entrepreneur invests his time, and time is an irreplaceable resource. If the project does not add up, 2-3 years that are spent on the project will not be returned. Key employees who have a stake in the project will work more efficiently
if they see approximately when, for how much to whom and why the company will be sold. If in this case the risks are small and manageable, then the entrepreneur can save a lot on the salaries of such employees.
Thus, before deciding to create a startup, an entrepreneur must do some work, which is already a business development (business development, business development).
1. Explore the markets. Markets are characterized by only a few parameters: annual turnover, profitability, number of sellers, number of consumers (preferably with segmentation), annual growth over the past few years and forecasts for several years to come. It is very good when there is a global market problem that slows down the development of this market, in solving which market growth will increase sharply (say from 3-4% per year to 20-30%)
2. Explore competitors. You need to start the study of competitors by studying the products of competitors. It is necessary to make a list of key product parameters and compare competitors precisely in the context of such parameters. Thus, you can always see the flaws and calculate the combination of what parameters will be perceived positively by the market. After that, compare the products of competitors with what the entrepreneur plans to do and try to guess what market share he can
take and in what period. If an entrepreneur writes that he has no competitors, then he simply does not see them. If there is a need, then people somehow satisfy it.
3. Intellectual property. Protecting any startup from competitors is based on protecting intellectual property. If we believe that our startup is highly technological, then any innovation must be protected. You can protect in two main ways or a combination of both. The first is obtaining a patent (a lot can be written about this), the second is Know How, this is when any person can theoretically repeat the technology, but this requires either specific knowledge, or a large investment, or a lot of development time. Believe me, if an entrepreneur has guessed with the market and the product, then competitors will try to respond very quickly to this. The last option is a "rocket." A rocket is nothing more than an exponent in growth. Look at the growth schedule of such a project, and everything will become clear. When competitors see Since the project is developing very quickly, from the moment a decision is made to launch a similar project until its launch. The first project can no longer be stopped + the base of unreached potential users is constantly decreasing. And luring users from another company is always more expensive. Thus, if we see a market of 1 million users, the pioneer company has 50k
users and it steadily increases this number by one and a half times every month, then with a time cost of 6 months to launch a competing product, even with a conditionally unlimited budget, competitors simply have no chance. Before starting a startup, you need to clearly see
which of the schemes the startup will use. Estimate what IP Startegy will be in the startup (how intellectual property will be created and protected).
4. Describe our customers. In order to successfully position yourself, you always need to know who will use our product. To do this, clearly segment the target audience and select one or more segments that respond very quickly to the proposal. It is always difficult to do. One of the entrepreneurs ’favorite mistakes is creating a product that is equally attractive to everyone, trying to cover the widest possible layers of the target audience (usually there is a strong competitor in each segment, and if you fight with several competitors at once, you have to fight on several flanks, it’s much easier to start with a small segment where there are no direct competitors, or weak competitors and from there to launch an offensive)
5. Business model. I tried to disclose this crown in an article
6. Calculate the costs. It is necessary to assume approximately how much it will cost to create a product, launch a production or a site for the provision of services, and build a company. As practice shows, in order to get a practical figure from a theoretical one, you need to multiply it by 2, or even by 3.
7. Calculate the planned income. If we studied the markets, then we know the annual volume of markets. Knowing the products of competitors and our product with all its competitive advantages, we can assume the growth dynamics of our market share, and hence income.
8. The team. At the planning stage, if you don’t agree, then at least assume who could make up the backbone of the team. Typically, a team needs people who can close the following functions - product development (STO), marketing (SMO), Product developmet, sales (VP of Sale) and finance (CFO). To start there is no need to recruit all, but there must be people who close these issues. You can take part time CFOs or even outsource this feature. The entrepreneur himself usually plays the role of CEO or president.
The first stage is over. When the information is collected, the entrepreneur decides to launch the project.
And the first item on the agenda should be a strategy. To develop a strategy, the first thing to do is set a goal. What do we want?
Example 1:
We want to sell in five years for $ 100m. In order to sell for that kind of money, we need to have a turnover of at least $ 40m per year. This means that we need to occupy 20% of the market, which employs 5 major players, 20 medium and a hundred small ones.
Example 2. We want to collect a user base, which will be our main asset and sell it to company X, for $ 20 from the bow. Potentially, we can gain 10m of such users.
Example 3. We came up with a technology that when used in mobile phones will be very necessary for users. We want 10 cents for each phone sold with this technology, and we believe that we can capture 40% of the phone market (330 million a year). Our annual income is $ 12 million, and we believe Erickson can buy us for 30 million dollars.
A plan to achieve these results is a strategy. The strategy may involve both direct sales and work through partners. In the case of social networks, participants in the social network (usually) cannot generate large cash flows, which means that we need to think about how to sell advertising or other services to third parties.
When a strategy is developed, you need to sit down for a business plan. A business plan is a time-deployed business model superimposed on a company's cost plan. Thus, profit and loss forecasts appear.
PAYING ATTENTION TO EXECUTIVE SUMMARY, PRESENTATION TO INVESTOR AND BUSINESS PLAN THIS IS ONLY ONE REFLECTION OF UNDERSTANDING BUSINESS AND LITERATURE STRATEGY. The phrase “I’ll write a business plan quickly now” simply does not make sense in this context. An investor never makes decisions on the basis of formal documents, but always tries to answer the question “can this entrepreneur build this business”?
As part of the implementation of the strategy, you must always put mailstones and flags.
These are points at which the implementation of the business plan is monitored.
An example of such flags:
December 2008 - launch of betta
March 2009 - receipt of the first test orders
July 2009 - yield on income of 10k dollars per month
August 2009 - the conclusion of the first distribution agreement that will
provide a net income of 50k per year
September 2009 - open an office in Brussels
Given the startup’s specifics, we understand that a business plan and strategy is not a dogma. We are following an uncharted path and the strength of a startup in its flexibility. But it is not necessary that such flexibility turn into shy from side to side.
At the start of the project, along with developing a strategy, the entrepreneur faces the following business development tasks:
- assemble a team
- make a decision on the form of ownership of the company and the jurisdiction where it will be registered
- make a decision which tasks will be solved within the company and which ones will be outsourced
- protect intellectual property
- if necessary, then start negotiations with investors
- start contacting potential key customers to study their needs
- try to establish a dialogue with industry experts
At the product launch stage, the entrepreneur should
- look for partners who could become additional sales channels
- personally participate in transactions with key customers (this is not necessarily a big contract, but it’s no secret that any sale to a company from Fortune500 increases trust among small customers, and if an entrepreneur manages to make a azhu at IBM, then the weight of the company and product in the eyes of the smaller consumers will increase many times)
At the stage of growth of the company the entrepreneur must
- monitor the development of the team. It is no secret that in a fast-growing company it is not always possible to keep up with the personnel qualifications for those tasks that have to be solved. This means that it is necessary either to improve the qualifications of employees or to supplement the team or replace employees with more qualified ones.
- gradually introduce corporate rules of the game, flexibility and speed in decision making are good when the company employs 10 people, but not 100. Then this is uncontrolled chaos.
Unfortunately, most of our (from the former USSR) entrepreneurs do not assume that they will have to deal with the solution of such problems. From here I see two standard reactions to the development of the situation. The first is hands down. There are a lot of materials on the Internet how to build and develop startups and a lot can be learned from there. The second - I am the smartest, I have a brilliant idea, it itself will pave the way to life. This is the worst option, with him a lot of people who are involved in a startup take a friendly step towards the abyss. Result - time spent, money, damaged reputation.
Very few start-up entrepreneurs (even with great managerial experience) are able to do everything on their own. Usually, you still need help.
What are entrepreneurs doing, on the one hand, who want to build a startup, but at the same time realize that their experience is clearly not enough to raise such a project.
There are several ways
: 1. To assemble a team that will bridge those gaps in the entrepreneur’s experience that he has found in himself.
2. Connect a company that is engaged in assistance in business development for startups. As practice shows, such a company has already worked with several startups, the company's employees have sufficient experience
3. Let the right investor. As I wrote, in the venture capital business, investor money is not his most valuable asset. A serious investor has the knowledge, experience and connections that he makes with his investments.
Separately, I would like to warn that you should always separate a third-party business developer from the packer. A business developer always actively helps a company build a business. Packers only prepare the required documents based on the data that the entrepreneur
provides. You should always separate a third-party business developer from an investment broker who simply “sells” the project to the investor, earning himself a commission.
I will be glad to receive feedback, my other articles can be read here
Warning 1 . I apologize in advance to the proponents of the Russian language for using English words. Most of them have standards in this business, and, being translated into Russian, distort (or make it incomprehensible or difficult to understand) the text of the article (see here ). If there are questions on terminology, I will answer in the comments. I also apologize for the bulletins - there is not much time and that the spelcheker did not catch, everything fell into the latest edition.
Warning 2. The article is aimed at entrepreneurs who are building a startup for sale in the future and plan to assemble a strong team and attract an investor. Entrepreneurs who build small startups on their knees or see in a startup a “business of their whole life” can safely not read further.
Warning 3 . I tried to write an article that would be interesting for novice entrepreneurs, so I apologize to experienced entrepreneurs, for whom many things will be commonplace. On the other hand, I would love to see additions to this article in the comments.
Typically, entrepreneurs set as their goal the earnings from selling a startup to another company (99%) or accessing one of the stock exchanges (IPO). Very rare are startups who set as their goal to generate cash flows and live with a net profit.
Thus, we see that the startup life cycle is usually from a year to 7 and depends on the scale of the project, the goals set, the markets on which the startup operates, and the cyclical nature of the economy.
Traditionally, entrepreneurs are trying to attract money from venture investors. In the venture capital business, investor experience and connections are valued significantly higher than the money itself. We will talk about this below.
Who is such an entrepreneur. I propose the following definition:
Entrepreneur- this is a person who is looking for market opportunities, monetizes (earns money) them, bears risks and delegates functions that are not peculiar to him as much as possible.
I would like to dwell separately on how the idea differs from market opportunity . Most often, a good idea comes to a person who has extensive experience in any field and at some point he comes up with something that is fundamentally different from what exists on the market. Usually, such ideas come to engineers or
to developers. Market Opportunity comes from a deep understanding of the market to a person who knows these markets well, the needs of customers in this market, and the shortcomings of the players. As practice shows, the lion's share of successful projects is born precisely from market opportunities. Turning an idea into a successful, from a financial point of view, startup is still a matter of chance.
If we have decided that we are building a systematic company, then regardless of whether we attract investor money or develop a startup on our own, an entrepreneur needs to do certain things that, firstly, increase confidence that a startup will become a successful company, and secondly, it will be easily sold, because its business processes, internal management and business structure are transparent and understandable.
I would also like to draw attention to the fact that even if the entrepreneur decided not to raise money from outside, he is strongly recommended to go through certain steps. The fact is that investment is not only money. An entrepreneur invests his time, and time is an irreplaceable resource. If the project does not add up, 2-3 years that are spent on the project will not be returned. Key employees who have a stake in the project will work more efficiently
if they see approximately when, for how much to whom and why the company will be sold. If in this case the risks are small and manageable, then the entrepreneur can save a lot on the salaries of such employees.
Thus, before deciding to create a startup, an entrepreneur must do some work, which is already a business development (business development, business development).
1. Explore the markets. Markets are characterized by only a few parameters: annual turnover, profitability, number of sellers, number of consumers (preferably with segmentation), annual growth over the past few years and forecasts for several years to come. It is very good when there is a global market problem that slows down the development of this market, in solving which market growth will increase sharply (say from 3-4% per year to 20-30%)
2. Explore competitors. You need to start the study of competitors by studying the products of competitors. It is necessary to make a list of key product parameters and compare competitors precisely in the context of such parameters. Thus, you can always see the flaws and calculate the combination of what parameters will be perceived positively by the market. After that, compare the products of competitors with what the entrepreneur plans to do and try to guess what market share he can
take and in what period. If an entrepreneur writes that he has no competitors, then he simply does not see them. If there is a need, then people somehow satisfy it.
3. Intellectual property. Protecting any startup from competitors is based on protecting intellectual property. If we believe that our startup is highly technological, then any innovation must be protected. You can protect in two main ways or a combination of both. The first is obtaining a patent (a lot can be written about this), the second is Know How, this is when any person can theoretically repeat the technology, but this requires either specific knowledge, or a large investment, or a lot of development time. Believe me, if an entrepreneur has guessed with the market and the product, then competitors will try to respond very quickly to this. The last option is a "rocket." A rocket is nothing more than an exponent in growth. Look at the growth schedule of such a project, and everything will become clear. When competitors see Since the project is developing very quickly, from the moment a decision is made to launch a similar project until its launch. The first project can no longer be stopped + the base of unreached potential users is constantly decreasing. And luring users from another company is always more expensive. Thus, if we see a market of 1 million users, the pioneer company has 50k
users and it steadily increases this number by one and a half times every month, then with a time cost of 6 months to launch a competing product, even with a conditionally unlimited budget, competitors simply have no chance. Before starting a startup, you need to clearly see
which of the schemes the startup will use. Estimate what IP Startegy will be in the startup (how intellectual property will be created and protected).
4. Describe our customers. In order to successfully position yourself, you always need to know who will use our product. To do this, clearly segment the target audience and select one or more segments that respond very quickly to the proposal. It is always difficult to do. One of the entrepreneurs ’favorite mistakes is creating a product that is equally attractive to everyone, trying to cover the widest possible layers of the target audience (usually there is a strong competitor in each segment, and if you fight with several competitors at once, you have to fight on several flanks, it’s much easier to start with a small segment where there are no direct competitors, or weak competitors and from there to launch an offensive)
5. Business model. I tried to disclose this crown in an article
6. Calculate the costs. It is necessary to assume approximately how much it will cost to create a product, launch a production or a site for the provision of services, and build a company. As practice shows, in order to get a practical figure from a theoretical one, you need to multiply it by 2, or even by 3.
7. Calculate the planned income. If we studied the markets, then we know the annual volume of markets. Knowing the products of competitors and our product with all its competitive advantages, we can assume the growth dynamics of our market share, and hence income.
8. The team. At the planning stage, if you don’t agree, then at least assume who could make up the backbone of the team. Typically, a team needs people who can close the following functions - product development (STO), marketing (SMO), Product developmet, sales (VP of Sale) and finance (CFO). To start there is no need to recruit all, but there must be people who close these issues. You can take part time CFOs or even outsource this feature. The entrepreneur himself usually plays the role of CEO or president.
The first stage is over. When the information is collected, the entrepreneur decides to launch the project.
And the first item on the agenda should be a strategy. To develop a strategy, the first thing to do is set a goal. What do we want?
Example 1:
We want to sell in five years for $ 100m. In order to sell for that kind of money, we need to have a turnover of at least $ 40m per year. This means that we need to occupy 20% of the market, which employs 5 major players, 20 medium and a hundred small ones.
Example 2. We want to collect a user base, which will be our main asset and sell it to company X, for $ 20 from the bow. Potentially, we can gain 10m of such users.
Example 3. We came up with a technology that when used in mobile phones will be very necessary for users. We want 10 cents for each phone sold with this technology, and we believe that we can capture 40% of the phone market (330 million a year). Our annual income is $ 12 million, and we believe Erickson can buy us for 30 million dollars.
A plan to achieve these results is a strategy. The strategy may involve both direct sales and work through partners. In the case of social networks, participants in the social network (usually) cannot generate large cash flows, which means that we need to think about how to sell advertising or other services to third parties.
When a strategy is developed, you need to sit down for a business plan. A business plan is a time-deployed business model superimposed on a company's cost plan. Thus, profit and loss forecasts appear.
PAYING ATTENTION TO EXECUTIVE SUMMARY, PRESENTATION TO INVESTOR AND BUSINESS PLAN THIS IS ONLY ONE REFLECTION OF UNDERSTANDING BUSINESS AND LITERATURE STRATEGY. The phrase “I’ll write a business plan quickly now” simply does not make sense in this context. An investor never makes decisions on the basis of formal documents, but always tries to answer the question “can this entrepreneur build this business”?
As part of the implementation of the strategy, you must always put mailstones and flags.
These are points at which the implementation of the business plan is monitored.
An example of such flags:
December 2008 - launch of betta
March 2009 - receipt of the first test orders
July 2009 - yield on income of 10k dollars per month
August 2009 - the conclusion of the first distribution agreement that will
provide a net income of 50k per year
September 2009 - open an office in Brussels
Given the startup’s specifics, we understand that a business plan and strategy is not a dogma. We are following an uncharted path and the strength of a startup in its flexibility. But it is not necessary that such flexibility turn into shy from side to side.
At the start of the project, along with developing a strategy, the entrepreneur faces the following business development tasks:
- assemble a team
- make a decision on the form of ownership of the company and the jurisdiction where it will be registered
- make a decision which tasks will be solved within the company and which ones will be outsourced
- protect intellectual property
- if necessary, then start negotiations with investors
- start contacting potential key customers to study their needs
- try to establish a dialogue with industry experts
At the product launch stage, the entrepreneur should
- look for partners who could become additional sales channels
- personally participate in transactions with key customers (this is not necessarily a big contract, but it’s no secret that any sale to a company from Fortune500 increases trust among small customers, and if an entrepreneur manages to make a azhu at IBM, then the weight of the company and product in the eyes of the smaller consumers will increase many times)
At the stage of growth of the company the entrepreneur must
- monitor the development of the team. It is no secret that in a fast-growing company it is not always possible to keep up with the personnel qualifications for those tasks that have to be solved. This means that it is necessary either to improve the qualifications of employees or to supplement the team or replace employees with more qualified ones.
- gradually introduce corporate rules of the game, flexibility and speed in decision making are good when the company employs 10 people, but not 100. Then this is uncontrolled chaos.
Unfortunately, most of our (from the former USSR) entrepreneurs do not assume that they will have to deal with the solution of such problems. From here I see two standard reactions to the development of the situation. The first is hands down. There are a lot of materials on the Internet how to build and develop startups and a lot can be learned from there. The second - I am the smartest, I have a brilliant idea, it itself will pave the way to life. This is the worst option, with him a lot of people who are involved in a startup take a friendly step towards the abyss. Result - time spent, money, damaged reputation.
Very few start-up entrepreneurs (even with great managerial experience) are able to do everything on their own. Usually, you still need help.
What are entrepreneurs doing, on the one hand, who want to build a startup, but at the same time realize that their experience is clearly not enough to raise such a project.
There are several ways
: 1. To assemble a team that will bridge those gaps in the entrepreneur’s experience that he has found in himself.
2. Connect a company that is engaged in assistance in business development for startups. As practice shows, such a company has already worked with several startups, the company's employees have sufficient experience
3. Let the right investor. As I wrote, in the venture capital business, investor money is not his most valuable asset. A serious investor has the knowledge, experience and connections that he makes with his investments.
Separately, I would like to warn that you should always separate a third-party business developer from the packer. A business developer always actively helps a company build a business. Packers only prepare the required documents based on the data that the entrepreneur
provides. You should always separate a third-party business developer from an investment broker who simply “sells” the project to the investor, earning himself a commission.
I will be glad to receive feedback, my other articles can be read here