Becoming an entrepreneur An introduction to the challenges and rewards.

Becoming an entrepreneur

An introduction to the challenges and rewards.

Feb 23, 2012 Haven: Hardware Antivirus Engineered Systems Inc 2

Agenda

• Are you an entrepreneur?• You have an idea• What else you need• What is a business plan• Money• Investors• Intellectual property• Sources of money• Accounting issues• The trap of the better mousetrap• Customer needs and customer wants• Sales and Marketing. • Sales channels • Communicating with your customers. • Who’s minding the shop?• The challenge of suppliers.• Lawyers and accountants• Team creating• Making it all come together• The pleasure of building a successful business


Are you an entrepreneur?

• Can you survive several years with no income?– Do you have family commitments?– Are your family and friends supportive?

• Can you sell?• Are you a “man/woman with a mission”?

– Single minded and passionate?• Are you a team member or a loner?

– A team gives you a poll of opinions and support– Many businesses fail because of differences between team members

• You need to be– a salesperson– a product line manager– a leader– a manager


You have an idea.

• You have an idea, a product or an innovation– What is distinctive about your product or idea?

• This is called a value proposition.

– You must be able to explain this in one phrase or sentence• “cheaper” or “better” should be avoided!

– People only buy from an unknown supplier when they have no choice.

• How do you turn it into a business?• Can you describe your idea and the problem it solves in a few sentences?

– This is known as the “elevator speech”.

• Don’t solve a problem that doesn’t exist– Example:

• high compression versus low delay codec, made things worse, not better

• You need a business plan will explain how you will do this• This is a prospectus for the company• It is not an operational document but you will be held to account to it


The trap of the better mousetrap

• Ralph Waldo Emerson is quoted as having said:

“If a man can write a better book, preach a better sermon, or make a better mousetrap than his neighbour, though he build his house in the woods, the world will make a beaten path to his door.”

– He could not have been more wrong.

• It is more true to say

“The path to the bankruptcy court is littered with better mousetraps”• How do you decide whether your mousetrap will succeed where others have

failed?– Checklist

• Clear functionality• Uniquely solves a problem• Usability• Enables something to be done that could not be done before


What else you need

• Money– Even if you don’t pay yourself you need to pay for supplies and your staff– You need a bank account

• An entity– Typically a corporation– To register a company will cost you about $200– Office supplies, computers, software.

• A website– Costs about $20 a year to register – but you must maintain it

• Premises– You can develop the product in your basement but don’t expect to sell any– You need an address. Generally a PO number will not do.

• You cannot register a company at a PO number.

• A phone number– You cannot do business from your residence phone or personal cellular phone.

• Intellectual property– Everything you write, design or draw is yours. Some of it will need to be protected.– Beware of the Open Source trap


What is a business plan?

• A document for investors, partners etc.• It must contain:

– The problem being solved– Why your approach will succeed (unique or novel features)

• Do not include sensitive intellectual property

– A description of your product or innovation– How you will sell it– Competition

• Either methods or products that also solve the problem• How you can successfully compete

– Your team and their experience– Sources of investment

• Explain how the business will survive until your revenue stream begins

– Cash flow spreadsheets• Remember you cannot borrow so it cannot go negative

– Realistic time lines.• Do not overpromise and under deliver.


What is a Product Line Manager?

Define product– Features and functionality– Differentiators– Look and feel– Create value statements– Create awareness programs

• Define market size– TAM and SAM (Total and Served Available Market)– Competition– Pricing

• Define warranty and support services.

• Identify channels to market.

Companies fail or succeed on their PLM ability


Money

• Not paying yourself you will still need:– Company/business registration (a few hundred dollars)– A website (a few thousand dollars)– Computers and software (a thousand or so)

• You cannot use an academic software licence!

– Phone and communication costs – Patent filing costs– Legal costs– Accountant’s fees

• Where from:– Savings– Investors– Public funds

• IRAP etc.• Tax credits (only after you make money)• Register your business – all of your HST will be refunded to you at YE.


A caution on investors

• The bankers rule is:– “Don’t lend less than the customer needs”

• If an investor offers less than you need you must walk away– They will offer more when you need it but at a much higher price

• Suppliers might want a personal commitment, even if your business is limited or incorporated.

– If you need premises, this is standard practise

• Investors are less forgiving than customers• Don’t overpromise

– Investors are not impressed by short lead times. They know how long things take. They will value realism over optimism.

– Don’t give them the shortest time, give them the expected time.– When scheduling you should always provide 3 estimates:

• Best possible (never happens!)• Realistic (assume some things go wrong, invariably out of your control)• Worst case (assume several things go wrong)

• Being realistic on schedules and resources needed is a key to success.


Intellectual property

• Patents– Expect to pay $20,000 to file a patent.

• You can spend part of this and still choose not to file• This is only the start – you have to be able to defend your patent

• Trade secrets– Costs nothing. – Hard to contain once you have employees.

• Copyright– Everything you write is yours.

• Brochures, advertisements, white papers etc.

– Software can be protected by copyright in some jurisdictions (Canada is one)• Some rights remain with the author even if he/she is an employee• Software is usually protected by an End User Licence Agreement• If your software contains any open source code, you probably cannot protect it.


Accounting issues

• Cash flow can kill your business

• If you sell to businesses, expect to get paid 3 months after you ship, at best.

– You might not get paid at all– Are you organized to collect money?– If you need to sue expect it to cost $20K unless in small claims court.

• You will need to pay your staff long before you pay yourself!– Typically for a couple of years or more.

• Bank borrowing– Once you are established the max advance you can get is 75% of secured

receivables.

Cash flow is the biggest cause of small business failure.


Failed better mousetraps

• Apple Newton– Neither a PDA nor a tablet computer. Only became a PDA late in product development.

• Betamax– Failed because the competitor (JVC) encouraged multiple OEMs.

• OS/2– A better OS than Windows, but failed.

• Macintosh– Succeeded once it adopted BSD Unix OS on Intel architecture

• Supersonic transport– Too small – original concept was 400 seat, 12000 mile range– Protectionism from U.S.

“These days, building the best server isn’t enough. That’s the price of entry.”Ann Livermore, Hewlett-Packard


Look and feel of a product

• Industrial design– A product lives or dies by its industrial design

• The perception of quality– Weight (really!)

• Nortel phones had a weight in the handset!• Stereo amplifiers – heavier sells better.• Car doors (solid “clunk” sells cars!)

• Ford Focus and “crank time to start”– Increasing warm weather crank time, so that it was the same as cold crank time

created a perception of better quality.


Customer needs and customer wantsListening (but only selectively) to your customer

• “If I had listened to my customer they would have told me they want a faster horse”• Henry Ford

• “Listen to your customer, but don’t listen too carefully”• W Edwards Deming

• “The customer is a rear view mirror”Tom Peters

• …by addressing the half-formed needs in our customers’ heads. By uncovering these needs, we, in essence, fill in the blanks. We convert ‘needs’ into ‘dreams.’ Sales are the inevitable result.”

Judy George, Domain Home Fashions

• Precisely because these firms listened to their customers, invested aggressively in technologies that would provide their customers more and better products of the sort they wanted, and because they carefully studied market trends and systematically allocated investment capital to innovations that promised the best returns, they lost their positions of leadership.”

Clayton Christensen, The Innovator’s Dilemma

If you only listen to your customer you will become a supplier to only one customer


Customer needs and customer wants

• You run your business, not your customer

• Your customer wants– You to hold lots of inventory.

• You want– Long, accurate, stable forecasts

• Your customer wants– Lots of competitors for your product or service

• You want– Few competitors

Nortel told its customers proudly that it was only going to build high margin products.

Nortel requeted bankruptcy protection in 2009


Communicating with your customers.

• Proposals - don’t lead with:– How good you are as a supplier – this should be at the end of a proposal– “reduce costs and be more efficient”, even if it is true.

• Lead with their problem you are solving– This reassures them that you understand their problem

• Always tell them what they need to hear, not what they want to hear– If your delivery is going to be late, tell them as soon as possible.– The concept of “overhang”, promising early and missing, in order to secure an order, is

an ultimately fatal practice.• You get the first order – future orders will elude you

• Do what you say you will do.– A reputation for delivery on schedule is invaluable – even if the customer does not like

your schedule.

• Communicate often, this will do more to make them feel important than anything else.

• Every customer communication is an opportunity to show how good you are.


Sales and MarketingWhat is the difference?

• Sales and Marketing are different.• Marketing is the fitting of the product to the product space. It is generic, in

that it is not related to specific customers.– Marketing encompasses

• Branding• Awareness• Literature• Generic communication • Pricing

• Sales is the identification and relating to specific customers.– Sales encompasses

• Identifying and qualifying prospects• Relationship building• Negotiating, primarily overcoming objections• Scheduling and managing delivery commitments• Follow through and after sales relationship continuation• Handling satisfaction and dissatisfaction.• Price is rarely the reason customers do not buy

Price is rarely the reason customers do not buy


Sales channels

• Possibilities:– Sell directly to the public– Create an “app” and sell through Apple or similar– Sell product to a large company– Partner so that you get associated sales.– Licence– Sell your business

• Big corporations, governments, public utilities, not-for-profits are reluctant to buy from non-established companies.

– Decision makers in those companies need to protect those decisions, meaning their reputations and careers.

• They will buy the known mousetrap from the known supplier in favour of the better mousetrap.

– Overcome this by partnering and selecting established sales channels• Distributors• Value added resellers• OEM license arrangements

• Governments like to specify in preference to COTS (Commercial Off the Shelf)


Who’s minding the shop?

• If the CEO makes customer visits it does not reassure the customer that the customer is important - it tells him that the company concentrates on getting the order at the expense of fulfilling it.

• CEO making customer visits gives the message of not empowering the sales person.

– Sales person needs to be the company’s ambassador.

• If the CEO isn’t minding the shop, who is?


The challenge of suppliers

• Don’t expect your suppliers to treat you as well as you treat your customers

– His late delivery is your problem.– Treat him well. When he has a product shortage, you will get it.

• Pay promptly• Give him reliable forecasts and good lead times.


Lawyers and accountants

• Companies fail because they let their lawyers tell them what they cannot do

– A lawyer will always err on the side of caution.– You run the business, not your lawyer

• Finance– Budgets

• Budgets are not pre allocated cookie jars of money; they are a means of balancing resources across the organization

• Spend what you must, irrespective of whether it is in the budget

– Cost reduction programs are an admission of lack of control.• They almost always end up having the opposite of the intended effect• They take management time off the true challenges.• If your business does not turn around in the time it takes for cost reduction to flow through, you are in

real trouble.


Team creating

• Hire for attitude, train for skills is a good philosophy• You need a visionary, as well as someone who gets things done.

– Are you both, or do you need a partner?– Hire a variety of personality types.

• Picking people like yourself is more likely to fail• Some people are paranoid about dates, others about accuracy. You need both.


Making it all come together

• A business is a living interplay of single minded cooperative entities.

• Ensure the reward program is “company wins, individual wins”

• Do not fear competitors, respect them– Never bad mouth competitors, internally or externally

• Take pride in every action, however mundane

• Details are important– Spelling or grammatical mistakes in brochures, white papers etc. do you untold

harm– Technical mistakes are disastrous.

• Do not half supply– Don’t sell a car without tires and tell the customer to go to the tire dealer.– Customers like a single entity that takes ownership of their product.


Is it for you?

• If it is for you, it is very rewarding.– “Don’t let the noise of other’s opinions drown out your own inner voice.

And most importantly, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.”

» Steve Jobs (1955–2011)Co-founder of Apple and Pixar

• If you decide it’s not for you, know when to quit.

• Many entrepreneurs fail before they succeed.– If you withdraw, close your business gracefully

• Don’t leave customers stranded but don’t feel obligated to provide long term support either.• If you try it and it fails, it often isn’t your fault.• Don’t feel bad. Better to try and lose than not having tried.


The pleasure of creating a business

• There will be days when you wish you just had a steady job– Customers are unhappy

– Suppliers are late

– Banks are being difficult

– There is no money for the payroll

– You need to be here late and at weekends

• There will be days when– The customer is delighted

– You win awards

– You can hire people

– Your employees appreciate what you have done for them

– You see your product making a difference

– You are having fun.

• “I never, ever thought of myself as a businessman. I was interested in creating things I would be proud of.”

Richard Branson

When you have made a difference – it makes it all worthwhile

Becoming an entrepreneur An introduction to the challenges and rewards.

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