Top 10 Mistakes Entrepreneurs Make. 1 “I don’t care about the product, I just want to make loads...
-
Upload
griffin-briggs -
Category
Documents
-
view
213 -
download
0
Transcript of Top 10 Mistakes Entrepreneurs Make. 1 “I don’t care about the product, I just want to make loads...
1“I don’t care about the
product, I just want to make loads of money”
NO REAL PASSION FOR THE BUSINESS
Linking Market Demand with passion, skills and resources to create an entrepreneurial opportunity
Market Demand
Passion
Skills
Resources
The Key Elements in Creating an Entrepreneurial Opportunity
OpportunityMarket Demand
Passion Skills Resources
Entrepreneur
Key questions to sourcing the right opportunity
• What do people need? Who will buy it? Why do they want it? How can I reach them?
• What am I (are we) deeply passionate about?
• How can I leverage my (our) unique skills?
• Where can I (we) get the resources to make it happen?
Researching an IdeaWhat needs to be researched? How can one gather the
information?
Customers Market size. Growth The needs pf customers The buying decision of customers
Trade journals, market reports and industry associations.
Interviewing experts in the industry. Interviewing, observing or surveying
potential customers.
Competitors Number of competitors Product or service offerings of
competitors Where the competitors are situated. The strengths and weaknesses of
competitors
Become a customer of the competition.
Visit competitor websites, stores and read their promotional material.
Interview competitors customers
Collaborators Suppliers Funders Partners
Visit suppliers Discuss funding options with other
entrepreneurs Discuss funding options with the
banks Obtain and read the national venture
capital association handbook Search the web
The Company Model
Revenue Cost drivers Investment Critical success factors
Consider different revenue models: Evaluate the costs and the costs
drivers. Distinguish between fixed, variable and semi variable costs. Consider the source of costs:
Do cash flow projections Speak to industry experts
Assessing an Opportunity
10
9
8
7
6
5
4
3
2
1
[VENTURE]
Concept Attractiveness
Competitive Advantage
[ENTREPRENERIAL TEAM]
Low
Low
High
High
1 2 3 4 5 6 7 8 9 10
Market Size Market Growth DifferentiationCustomer Need
Skills Resources Passion / EnergyNetwork
Response
10
9
8
7
6
5
4
3
2
1
[VENTURE]
Concept Attractiveness
Competitive Advantage
[ENTREPRENERIAL TEAM]
Low
Low
High
High
1 2 3 4 5 6 7 8 9 10
Avoid / Wait & Reassess in Future
Build / hire / develop the
required capabilities
Identify / exploit a specific under served niche
Revise product or business model
Invest and pursue the opportunity
Why do we exist?
PurposeWhat are our personal
objectives
Whom do we serve?
What value do we deliver?
Why do we matter?
Where are we at?
Current statusWhat are our strengths?
What are our weaknesses?
What are the opportunities for the business?
What are the threats for the
business?
How do we create value?
Business RecipeWhat is our org sustainability
model?
What is our value
proposition?
What makes us different?
How will we evolve as a business?
What is our organizational character? Organis-ational
CharacterWhat
assumptions guide us?
What turns us on?
What is not negotiable?
How do we behave?
What must we do and how will we make it happen?
Goals, Action & PrioritiesWhat are our 3
year goals?What are our 1
year goals?
What needs to happen in the next 30 days?
Who is responsible?
Strategy Formulation Questions
FACTORMy
BusinessStrength Weakness
Competitor A
Competitor B
Competitor C
Importance to
Customer
Products
Price
Quality
Selection
Service
Reliability
Stability
Expertise
Company Reputation
Location
Appearance
Sales Method
Credit Policies
Advertising
Image
Competitor Analysis
Business Model
Income Stream 1
Income Stream 2
Income Stream 3
Source of Revenue
Costs
Investment
Critical Success Factors
Key questions for building a business model
• What are the sources of revenue for the business? – Single or multiple revenue streams? – Payment terms – upfront, over a period of time or post delivery?
• What are the cost drivers for the new business? – Major costs incurred to generate revenue? – Nature of costs – fixed, variable or semi-variable? – Payment terms – upfront, over a period of time or post delivery?
• What size capital investment is required to launch and sustain the business? – To sustain a positive cash balance? – To make profit?
• What are the critical success factors for this business? – Identify the issues that will determine the success or failure of the
business?
New Busines
s
Inputs Required(Cost Drivers)
PeopleProduct
PremisesMarketing
etc.
BuyersWhat they buying
Range of products or servicesVolumes; Frequency
How they payTiming of payment
Up Front InvestmentEquipmentPremisesBranding Training
Working CapitalEtc
Input
Output
Input
$
$
$Critical Success Factors
What are the factors that are required to ensure that this model works?
Revenue
Costs
Investment
Business Model Diagram
0
Rands
Revenue
Investment
Extremist Revolutionary
Growth Entrepreneur
Lifestyle Entrepreneur
SurvivalistBreadline
Time
Types of Entrepreneurs
The Entrepreneurial Team
Inventor
Entrepreneurial Team
PromoterManager,
administrator
Creativity and Innovation
General management skills, business know-how and networks
Low
High
High
Source: Timmons & Spinelli. New Venture Creation.2004. McGraw Hill.
Quality of the team
Entrepreneurial Attributes1. Commitment and
Determination 2. Opportunity Obsession 3. Tolerance for Risk,
Ambiguity and Uncertainty
4. Creativity, Self-Reliance and Ability to Adapt
5. Motivation to Excel 6. Leadership
Management Attributes1. Marketing2. Operations / Production 3. Finance 4. Administration 5. Interpersonal / Team 6. Law
Source: Timmons & Spinelli. New Venture Creation.2004. McGraw Hill.
Financial Plan
• Sales forecast • Startup expenses• 12 Month profit and loss statement (monthly) • 12 Month cash flow statement (monthly) • 3 – 5 Year profit & loss (high level – quarterly)• 3 – 5 Year cash flow (high level – quarterly)• Opening balance sheet• Projected balance sheet • Breakeven analysis
Financial Plan
• Sales forecast • Startup expenses• 12 Month profit and loss statement (monthly) • 12 Month cash flow statement (monthly) • 3 – 5 Year profit & loss (high level – quarterly)• 3 – 5 Year cash flow (high level – quarterly)• Opening balance sheet• Projected balance sheet • Breakeven analysis
Cash Flow Forecast (NB)
M1 Budget
M2 Budget
M3 Budget
M4 Budget
M5 Budget
M6 Budget …
M12 Budget
Total Budget
Units Sold
Opening Cash Balance
+ + + + + + +
Cash Inflows
+ + + + + + +
Fixed Cash Outflows
_ _ _ _ _ _ _
Variable Cash Outflows
_ _ _ _ _ _ _
Closing Cash Balance
= = = = = = =
Sales Forecast
M1 Budget
M2 Budget
M3 Budget
M4 Budget
M5 Budget
M6 Budget …
M12 Budget
Total Budget
Cat 1 Units Sold* a
Sales Price Per Unit* b
Category 1 TOTAL axb=Z
Cat 2 Units Sold* c
Sales Price Per Unit* d
Category 2 TOTAL cxd=Y
Monthly Total
Z + Y
* State the assumptions on which these numbers are based
Start Up Expenses
Start Up Expenses
Real estate XXX
Capital equipment XXX
Location and admin XXX
Opening inventory XXX
Advertising and promotions XXX
Other expenses XXX
Reserve for contingencies XXX
Working capital XXX
TOTAL XXXX
Sources of Capital
Owners investment XXX
Bank loans XXX
Other loans XXX
TOTAL XXXX
P & L Forecast
M1 Budget
M2 Budget
M3 Budget
M4 Budget
M5 Budget
M6 Budget …
M12 Budget
Total Budget
Revenue + + + + + + +
Cost of Sales
_ _ _ _ _ _ _
Gross Profit
= = = = = = =
Expenses _ _ _ _ _ _ _
Profit before tax
= = = = = = =
Tax Expense
_ _ _ _ _ _ _
Profit after tax
= = = = = = =
P & L Forecast
M1 Budget
M2 Budget
M3 Budget
M4 Budget
M5 Budget
M6 Budget …
M12 Budget
Total Budget
Revenue + + + + + + +
Cost of Sales
_ _ _ _ _ _ _
Gross Profit
= = = = = = =
Expenses _ _ _ _ _ _ _
Profit before tax
= = = = = = =
Tax Expense
_ _ _ _ _ _ _
Profit after tax
= = = = = = =
EXAMPLESSalaries & wages Other operating expenses Interest payments Depreciation
EXAMPLESDirect cost of goods sold
Cash Flow Forecast (NB)
M1 Budget
M2 Budget
M3 Budget
M4 Budget
M5 Budget
M6 Budget …
M12 Budget
Total Budget
Units Sold
Opening Cash Balance
+ + + + + + +
Cash Inflows
+ + + + + + +
Fixed Cash Outflows
_ _ _ _ _ _ _
Variable Cash Outflows
_ _ _ _ _ _ _
Closing Cash Balance
= = = = = = =
Cash Flow Forecast
M1 Budget
M2 Budget
M3 Budget
M4 Budget
M5 Budget
M6 Budget …
M12 Budget
Total Budget
Units Sold
Opening Cash Balance
+ + + + + + +
Cash Inflows
+ + + + + + +
Fixed Cash Outflows
_ _ _ _ _ _ _
Variable Cash Outflows
_ _ _ _ _ _ _
Closing Cash Balance
= = = = = = =
EXAMPLESCash sales of goods or servicesCollection of accounts receivableInterest earnedSales of fixed assets or investmentsCapital from investorLoan received
EXAMPLESPayment of cash expensesPayment to creditorsPayment of salaries and wagesPurchase of inventory for cashPurchase of fixed assets or investmentsPayback loansPayout dividends
Balance SheetsOpening End Y1 End Y2 End Y3
Assets
Current Assets Cash
Inventory
Acc receivable
Fixed Assets Property
Equipment
Furniture
Vehicles
TOTAL ASSETS
Liabilities & Equity
Current Liabilities Accounts payable
Long Term Liab. Loans
Owners Equity Capital
Retain earnings
TOTAL LIAB & EQUITY
Balance SheetsOpening End Y1 End Y2 End Y3
Assets
Current Assets Cash
Inventory
Acc receivable
Fixed Assets Property
Equipment
Furniture
Vehicles
TOTAL ASSETS
Liabilities & Equity
Current Liabilities Accounts payable
Long Term Liab. Loans
Owners Equity Capital
Retain earnings
TOTAL LIAB & EQUITY
Goods or resources owned by the business to be transformed utilized / realized in 1 year
Goods or resources owned by the business that have a life span exceeding 1 year
Amounts owed by the business to be paid back within 12 months
Amounts owed by the business to be paid back after 12 months
Portion of the business attributable to the owners
Total amount OWNED by the business
Total amount OWED by the business to lenders or owners
New venture financing and the equity gap
Stage
Source
Demand
Supply
Pre-seed Seed / Start-Up Early Later
Founders FamilyFriends
Angels / Angel Alliances
Venture Funds
Private Equity
100k 500k R5-10 mil R20 mil
Government Funds
Equity Gap
Adapted from a model proposed designed by Jeffery E Sohl – Center for Venture Research, University of New Hampshire
Equity Funding Sources Debt Funding Sources
Personal savings Family and friends Informal individual investors Venture capitalists Government agencies Partnerships / strategic alliances with
corporations Private equity investors (for established
businesses) Listing on stock exchange
o Alt-Xo Main Board
Loans from family and friends Loans from government agencies or NGO’s
supporting entrepreneurs Bank loans
Advantages Disadvantages Advantages Disadvantages
Often comes with useful management input and advice.
Equity investors can give access to a network of useful contacts
No immediate strain on cash flow in terms of repayments of the capital
Lose a portion of the ownership of the business.
Equity owners can be controlling which can cause friction with the founders
Difficult to value an entrepreneurial business when allocating shareholdings
Founder maintains full ownership of the business.
Founder can manage and run the business as he/she sees fit
Loan must be paid back which can create strain on cash flow for the new business.
Bank is unlikely to assist in opening doors, giving advice or introducing founders to useful contacts.
Sources of finance for a business
The Art of Bootstrapping
1. Focus on cash flow, not profitability2. Forecast from the bottom up 3. Ship, then test 4. Forget the “proven” team 5. Start as a service business 6. Focus on function, not form 7. Pick your battles 8. Understaff 9. Go direct10.Position against the leader 11.Take the “red pill.”
Source: Kawasaki, G. The Art of the Start. 2004. Portfolio.
Funding Realities
• More likely sources of funding for startup: – Bootstrapping – Personal funds – Close connections
• Some chance of getting funds for a startup:– Corporate investor – Government enterprise creation funds
• Low chance of getting funds – Bank loan – Venture capital
9“We have hired offices in
Sandton, acquired Hummer’s for the directors and will pay the most to get
the best”
NO FRUGALITY
BUDGETING
MONITORING
REPORTING
1.Budget for CASH FLOW2.Build your OWN models3.Its not just about HOW MUCH but also about
WHEN. 4.Know the NATURE of different cash flows 5.SHORT TERM = DETAIL; long term = big picture
6.Your BANK BALANCE is your truth7.Know your BASELINE (breakeven) 8.Keep UP TO DATE9.Balance off being overly PEDANTIC versus
dangerously LACKADAISICAL
10.Report results with PURPOSE
Entrepreneurial Financial Management
10
“Our marketing plan will be a combination of print, TV and internet advertising”
MISGUIDED MARKETING PLAN
Marketing mix component
Description of the component
Key questions to be answered by the entrepreneur
Considerations
Product Good marketing begins with a good product or service.
Does it meet a specific need? What is that need? Must we customize our product or service? Do we deliver the appropriate quality for the customer?
Product varietyQuality Design FeaturesPackaging Services WarrantiesReturns
Price You need to find a balance between attracting customers and making profits.
What does it cost us to produce the good or service? What are the competition charging for similar goods or services? Why are we charging more or less than the competition? How would revenue and profits be affected if we increased or decreased the price?
List price Discounts Allowances Payment period Credit terms
Simple Marketing Plan
Marketing mix component
Description of the component
Key questions to be answered by the entrepreneur
Considerations
Place This is about getting the product or service to the customer. Customers will only buy products or services that they have access to, thus it is critical to have distribution channels that reach the customer.
Are we going to sell locally, regionally, nationally or globally? How will we reach the customer? Do we need more than one channel for reaching the customer? Should we create our own distribution channel or partner with an established distributor?
Channels CoverageTransport
Promotion Promotion is about communicating the merits of the product or service to target customers and persuading them to buy.
How will we make customers aware of the benefits of buying our product or service?
Advertising Sales forcePublic relations Direct marketing
Simple Marketing Plan
OPPORTUNITYDemandPassionSkillsResources
STRUCUTREBusiness ModelLegal FormTools / FacilitiesTeam
FUNDINGTraditional financingBootstrapping Cash flow
SALESProduct Price Promotion Place Word of mouth
GrowthResearch
New Venture Creation Model
BUSINESS PLAN
Focus points in a business plan
• The People. The men and woman starting and running the venture, as well as outside parties providing key services or important resources for it such as suppliers, lawyers and advisors.
• The Opportunity. The need in the market for the proposed product or service. The size and growth of the potential market and the attractiveness of the industry in which the business will operate.
• The Business Model. A summation of the core business decisions and trade offs employed by a company to earn a profit. The decisions and trade offs include revenue sources, key expenses, investment size and critical success factors
• The Strategy. The methods and means of creating sustainable competitive advantage for the new business.
• The Context. The big picture – the regulatory environment, interest rates, demographic trends, inflation and the like – factors that inevitably change but cannot be controlled by the entrepreneur.
• Risk and Reward. An assessment of everything that can go wrong and right, and a discussion of how the entrepreneurial team can respond.