What’s New in the Sixth Edition…

The business world is constantly evolving, and this edition of Successful Business Plan: Secrets & Strategies takes into account many of the latest trends of today’s changing business world.

New in this edition, you’ll find:
■ Crowdfunding and Other New Ways to Raise Money for Your Venture — Crowdfunding is dramatically changing the fund-raising landscape for new companies and new products.

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This edition helps you determine whether your company is a good candidate for crowdfunding and provides tips on how to conduct a successful crowdfunding campaign.

This edition also includes new information on another increasingly popular source of funding innovative new companies — corporate venture capital.

■ New Social Media Platforms — Social media continues to change and evolve, with new social media sites and tools emerging on a sometimes-overwhelmingly-fast basis.

This edition includes updated information on these essential marketing tools.

■ Sample PowerPoint Slide Presentation — Most investors, especially the most sophisticated ones such as venture capitalists, want to see a PowerPoint overview of your business plan before they look at the whole plan.

This edition provides a complete Sample PowerPoint presentation for you to use as
a guide when developing your own electronic presentation.

■ Lean Start-Up — New approaches, as well as new technologies, make it easier for you
to start faster, using fewer resources.

This edition outlines what types of companies lend themselves to this approach
and how to start faster.

This edition also discusses the “Business Model Canvas” — a method for sketching
out an overview of a business concept.

■ The Cloud — Running critical business services over the Internet, rather than on-premise
or on-computer, has created a fundamental shift in business operations, often dramatically lowering costs and increasing a company’s speed and power.

This edition provides guidance on running crucial business processes in the cloud.

■ Updated Resources — Successful Business Plan provides resources to help you find the information you need to complete your plan quickly, from U.S. and international resources for the latest statistics, to funding sources, to resources that support entrepreneurs.

■ A New Look and Infographics — This latest edition includes a fresh layout, graphics throughout to help you digest important concepts easily, and icons to direct you to the specific worksheets you’ll use to quickly complete every segment of your business plan.

This design will make it easier — and more enjoyable — to create your business plan.
Icons The following icons appear throughout the book in the margins.

Look for a page number in the text near the icon to find the corresponding worksheet, sample plan, or sample electronic presentation.

Worksheet When this icon appears in the margin next to text, it signals a nearby worksheet related to the topic under discussion.

Sample Plan & Plan Preparation Form
This icon indicates both the sample plan sections of the fictitious company ComputerEase and the Plan Preparation Forms you will fill out for the various sections of your own business plan (Executive Summary, Company Description, Target Market, and so on).

Use the sample plan as a guide to help you fill out the Plan Preparation Forms.

These completed forms will become the basis of your business plan.
Flow-Through Financial Worksheet

This icon indicates a Flow-Through Financial worksheet
(which is also marked with a dollar-sign logo).

Transfer the figures from each of these completed worksheets to their appropriate line(s)
on the financial forms in Chapter 16.
For more information on using the Flow-Through Financial Worksheets, see page 287.

PowerPoint Presentation
This icon indicates a sample PowerPoint Presentation.

Foreword to the Fifth Edition By John Doerr Partner, Kleiner Perkins Caufield & Bryers Ideas Are Easy, but Execution Is Everything and “Teams Win” Ideas Are (Relatively)

Easy I love innovation, great new ideas and businesses,
and the entrepreneurs who create them.

Probably you do, too.
Innovation is the source of America’s great wealth and leadership position, and the way lives are improving around the world.

Innovation can be everywhere.
It is a high-tech, magical iPad, or a break-through life-saving drug.

Or innovation can be a better local yogurt store, or helping Realtors list homes, or one of hundreds of thousands of programs in a smartphone app store.

Now, more than ever, we need the power of new ideas, new businesses,
and the resulting new jobs.

But, relatively speaking, new ideas are easy.
New ideas are necessary, but insufficient.
What’s more difficult and even more important is execution.

Execution Is Everything Thomas Edison is one of the great innovators of all time.
He invented the light bulb, the phonograph, and the motion picture camera.

But just as important, Edison understood well the importance of execution.
He famously said, “Vision without execution is hallucination.”
On this topic my friend Bill (Coach) Campbell is blunt and direct:

“John, we’ve gotta focus to achieve operational excellence.
Execution is everything.”
The best entrepreneurs are the ones who really go the distance with their companies,
who are always learning.

They don’t know what they don’t know, so they attempt to do the impossible.
And they often succeed.

Entrepreneurs do more than anyone thinks possible, with less than anyone thinks possible. Teams Win Unless you are Einstein, or an author, your work is not alone.

Most ideas worth pursuing take a Team to Win.
Great entrepreneurs are great team leaders.

They motivate their teams with the promise of more than money.
They inspire their teams with their plan for winning.

The plan clearly says who and how the team wins (what) — how who wins what.
The Plan Why write a business plan ?
Particularly in this age of 24/7 tweeting, friending, and blogging ?
Won’t PowerPoint and a smooth elevator pitch work just as well ?
You may think business plans are fund-raising documents for investors,
and indeed they are. But the best plans are much more.

They are the road map so your team can execute with excellence.
Writing them disciplines your thinking, and establishes priorities.

Your plan clearly, concisely defines the mission, values, strategy,
and measurables — objectives and key results.

If you don’t know where you’re going, and how, and why, you won’t get there.

Your plan is for more than investors. In 1974, my partners Gene Kleiner, Tom Perkins,
and Brook Byers invested in Tandem Computers.

Tandem’s business plan was written in Kleiner’s offices by a junior partner, Jim Treybig.
Jim became the CEO and grew the business to great global success.
(Compaq acquired Tandem for $3 billion in 1997.)
Treybig was a great communicator.

Every Friday he held popular “beer busts,” which were actually company meetings.
And once a year Jim gathered all of Tandem’s employees, spouses, and families for a picnic with beers and burgers.

He presented Tandem’s business plan, in its entirety, to all of them.

Jim said, “I don’t care if my competition knows our plans.
I want to be sure our executives and families get it.”
Plan to Win There’s never been a better time than now to start a new business.

Innovation is everywhere — in how we communicate, how we buy things,
how we sell things, how we learn, how we live.

Now is a great time to be an entrepreneur.
And this book can help you take your good idea and make it great business.
Good luck. Plan on it.

Foreword to a Previous Edition By Eugene Kleiner Founding Partner, Kleiner Perkins Caufield & Byers In today’s environment, a business plan is an entrepreneur’s most crucial
business document.

No company can expect to articulate its goals or to secure financing without
a well-conceived and well-presented business plan.
Without a convincing business plan, no one will seriously consider your business idea.

This wasn’t always the case.
The first business plan I ever wrote as an entrepreneur was not a business plan
at all; it was just a letter.

Eight of us from Shockley Laboratories for various reasons wanted to start a semiconductor company on our own, and we needed the money to make it possible.

We drafted a letter, perhaps four or five pages long, describing what we proposed to do and sent that letter along with our resumes to an investment banker.

Fortunately for us, that letter found its way to the desk of a young business school graduate named Arthur Rock who felt that we might have promise.

As a result, we were able to get our funding, and Fairchild Semiconductor was born.

From Fairchild, the eight of us branched out and went on to form or fund such companies
as Intel, Tandem Computer, and many other leading Silicon Valley firms.

Today, our letter might never be completely read.
Investors now are far more structured and expect a far higher level of expertise and preparation from the entrepreneurs they choose to fund.

When examining a proposal, they want to see much more than just a good idea and a bright young man or woman;

they want to see a business plan showing that the concept has been rigorously assessed and that the entrepreneur has carefully thought through the issues for steps necessary to take the idea and fashion it into a successful company.

At Kleiner Perkins Caufield & Byers, the venture capital firm I cofounded in 1972,
we had a diligent system of evaluating business plans.

A plan had to stand up to the most exacting scrutiny and toughest standards.
Most plans, of course, never made it past the initial screening phases.

Only the most interesting and well-conceived plans warranted the allocation of resources necessary for a more thorough examination.

From that group, we narrowed our selection down even further, spending a great deal of time investigating each plan’s merits.

Finally, before deciding to invest in a company, part of the staff would serve as “devil’s advocate,” suggesting all the pitfalls.

Only the plans that made it through that process were considered for final funding. In this book, Rhonda Abrams has given you the tools you need to create a successful business plan.

Working with Rhonda over the years, I’ve developed a strong appreciation
and respect for her grasp of the business planning process.

We have had many sessions evaluating what it takes to make a successful company,
and I’ve seen her take what I’ve shared with her about longterm and strategic
planning and expand upon that knowledge, bringing to bear her own experience
with clients and her intelligent, practical approach to the entrepreneurial process.

About the Contributors John Doerr Partner, Kleiner Perkins Caufield & Byers Famed venture capitalist John Doerr is a Partner at Kleiner Perkins Caufield & Byers,
the nation’s premier venture capital firm.

Doerr began his career with a summer job in 1974 at what was then a small chipmaker, Intel, and in 1980 he joined KPCB. With KPCB, Doerr has funded some of the world’s most innovative companies, including Google, Amazon, Intuit, Twitter, Symantec, and Zynga.

Passionate about sustainability and social issues, Doerr has backed entrepreneurs
working to combat global warming, poverty, and health issues.

He is active in public policy, covering issues from public school funding to preparedness
for pandemic flu. Doerr serves on the President’s Council on Jobs and Competitiveness.

He also serves on several company boards, including Coursera, Flipbook, and Google.

Eugene Kleiner Founding Partner, Kleiner Perkins Caufield & Byers Eugene Kleiner
was a legend — in venture capital and in Silicon Valley.

Kleiner was one of the country’s first venture capitalists: In 1972, he founded what would become the country’s foremost venture capital firm, Kleiner Perkins Caufield & Byers.
He was an early investor in companies such as Intel and Genentech.

Kleiner was one of the so-called “Traitorous Eight” — the eight young men who broke away from Nobel Prize winner William Shockley to form the first silicon semiconductor company,

Fairchild Electronics, in 1957, and who are considered to be the “fathers” of Silicon Valley. Andrew Anker CEO, Tugboat Yards A veteran of several start-ups,
Andrew Anker is the CEO of Tugboat Yards and the executive chairman of PandoMedia.

As an angel investor, Anker has invested in a wide range of companies, including LinkedIn, TCHO Ventures, and Ebates.

He was the cofounder and CEO of Wired Digital, Inc., a pioneering Internet news and media organization that launched the first advertising-supported website,

Anker led Wired Digital from its founding through 1998 and built it into what was one of
the 20 largest networks of websites at the time.

After leaving Wired Digital, he was a Partner at August Capital — one of the nation’s most respected venture capital firms — and then served as vice president of corporate development at Six Apart.

Damon Doe Vice President, Technology Banking Group, U.S. Bank A former Partner at Montage Capital, Damon Doe has extensive experience in financial services, corporate banking, fund management, corporate finance, and equity investment.

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Prior to working in a senior-level capacity for several banks in the San Francisco
Bay Area, Doe cofounded Sand Hill Capital, a $150 million venture debt and equity fund locatedin Menlo Park, California, where he managed a large part of the venture
firm’s portfolio and also served as CFO.

Before that, Doe financed early-stage and middle market high-tech companies
at both Silicon Valley Bank and Bank of the West.

Doe’s past clients include Advanced Fiber Communications and JDS Uniphase.

Lauren Flanagan Angel Investor, BELLE Capital USA Lauren Flanagan is cofounder and Managing Director of BELLE Capital USA, an early-stage angel investment fund,
located in the Greater Chicago area.

Belle invests solely in companies with women in leadership positions.

Flanagan has more than 25 years’ experience founding and operating technology companies, and she was the founder of four technology companies.

She is also cofounder and Managing Director of the Phenomenelle Angels Fund.
In 2010, BusinessWeek named her one of the top 25 angels in technology.
She is Executive Chairman of the Current Motor Company.

Nancy Glaser Management Consultant, The Glaser Group Nancy Glaser is founder and President of The Glaser Group, a consulting firm specializing in early-stage business strategies and turn-arounds for troubled companies.

Her focus is in specialty retailing and in consumer-based and service businesses.
Previously, Glaser was a Partner at the venture capital firm U.S. Venture Partners.

Some of the companies she has invested in and helps direct are Gymboree, Fresh Choice, and PetsMart. Earlier in her career, Glaser helped take

The Gap from a 35-store chain to 350 stores in less than five years, and served with Macy’s and Lord & Taylor. Glaser was active in international venture capital, both in Poland and as a founder of the Apparel Innovation Center in St. Petersburg, Russia.

Seth Goldman President and CEO, Honest Tea With his partner and former Yale School of Management professor, Barry Nalebuff, Seth Goldman cofounded Honest Tea in 1997.

He began his entrepreneurial career at the age of six by retrieving stray golf balls from a course near his home, and selling them back to golfers along with lemonade.

Honest Tea was acquired by the Coca-Cola Company in 2011 and today, more than 100,000 retail outlets carry the company’s beverages.

In addition to his role as President and CEO of Honest Tea,
Goldman also serves on several boards, such as Bethesda Green, Beyond Meat, the Yale School of Management, the American Beverage Association, and the Maryland Economic Development Commission.

Mark Gorenberg Founder and Managing Director, Zetta Venture Partners Mark Gorenberg
has the rare distinction of having been a judge in three of the country’s leading university business plan competitions, at MIT, Stanford University, and the Haas School of Business
at the University of California, Berkeley.

As founder and Managing Director of Zetta Venture Partners,
Gorenberg invests in the fast-growing analytics market.

Prior to launching Zetta Venture Partners, he served as Managing Director at
Hummer Winblad.

He has over 20 years’ experience in venture capital and serves on the boards of
start-up and public companies.

Gorenberg also serves on the President’s Council of Advisors on Science and Technology (PCAST), the Board of Trustees for MIT, the National Venture Capital Association, and the FCC’s Technological Advisory Council.

Kay Koplovitz Chair, Kate Spade When Kay Koplovitz founded USA Network, she became the first female network president in television history. She served as Chairperson and Chief Executive of the network until it was sold in 1998 for $4.5 billion.

President Bill Clinton appointed Koplovitz to head the National Women’s Business Council, after which she helped found Springboard Enterprises in 2000 to showcase women-led entrepreneurial ventures.

Since its founding, Springboard has helped women entrepreneurs raise more than $6 billion in venture capital, creating tens of thousands of jobs.

To further encourage women entrepreneurs, Koplovitz also cowrote Bold Women,
Big Ideas. In 2007, Koplovitz joined the board of what was then Liz Claiborne Inc.
(now Kate Spade & Company) and long served as Chairperson of the Board.

She is the Chairperson and CEO of Koplovitz & Company, and serves
on several other boards.

Larry Leigon President, Leigon Associates As President of Leigon Associates,
Larry Leigon is a corporate trainer and executive coach.

He consulted with Hewlett-Packard globally for six years, during which time the company merged with Compaq.

Previously, Leigon cofounded Ariel Vineyards in 1985 to produce and market premium
de-alcoholized wines.

In its first four years of operation, Ariel grew to be larger than 95% of all the wineries
in the United States.

Leigon was one of the four founding principals of Ariel and served as its first President,
with primary responsibility for all marketing and distribution strategies — a unique challenge since Ariel was creating a new product category.

By the time it had been acquired,
Leigon had grown Ariel Vineyards to a valuation of $15 million.

Robert M. Mahoney Former Executive Director of Corporate Banking, Bank of Boston
In this leadership position,

Robert Mahoney was responsible for commercial lending services throughout the New England states for the Bank of Boston, a bank that earned a reputation as one
of the nation’s most receptive to entrepreneurial companies.

During his two decades with the bank, Mahoney served as President of Massachusetts Banking and Vice President for corporate banking in the United Kingdom. F. Gibson “Gib” Myers, Jr. Venture Capitalist,

The Mayfield Fund Gib Myers is well known as a General Partner (Emeritus) of the prestigious Mayfield Fund,
a venture capital firm with over $1.5 billion of capital under management.

Myers joined Mayfield in 1970 and has participated in virtually all of the firm’s portfolio company investments, including 3Com Corporation.

He has nurtured companies in diverse areas of technology through every phase of growth, from start-up to maturity.

In 1997 Myers and Mayfield Fund created the Entrepreneurs’ Foundation, dedicated to bringing the entrepreneurial spirit and commitment to societal and community activities.

The Entrepreneurs’ Foundation is a nonprofit organization that assists entrepreneurs
and young companies in developing a community involvement plan and
in participating in unique philanthropic giving programs.

Bill Rancic Entrepreneur and Inaugural Winner of The Apprentice
By the time he won the first season of the reality TV show The Apprentice, Bill Rancic was already a seasoned entrepreneur.

After he graduated from college, he founded the Cigar of the Month Club.
Today, Rancic travels across the U.S. and around the world as motivational
and business speaker.

He has written two business books, develops real estate, runs restaurants, and makes guest appearances on shows such as Today, The Tonight Show,

The View, and various CNBC programs.
A television producer, Rancic appears with his wife on their weekly reality TV show,
Giuliana & Bill.

Premal Shah President, Kiva Premal Shah first began dreaming of “Internet microfinance” while working at PayPal, the online payments company.

In late 2004, Shah took a three-month leave from PayPal to develop and test
the Internet microfinance concept in India.

When he returned to Silicon Valley, he met other like-minded dreamers and quit his job at PayPal to help bring the Kiva concept to
life and eventually to scale.

Kiva today raises over $1 million each week for the working poor in over 50 countries worldwide and was named a Top 50 Website by Time Magazine in 2009.

For his work as a social entrepreneur, Shah was named a Young Global Leader by the World Economic Forum and selected for Fortune magazine’s “Top 40 under 40” list in 2009.

Shah began his career as a management consultant. Andre S. Tatibouet Founder and
Former Owner, Aston Hotels and Resorts Andre S. Tatibouet’s first exposure to the hotel business in Hawaii began in his parents’ 14-room hotel in Waikiki in the 1940s.

At the age of 19, Tatibouet developed his first hotel and has been a force
in the hospitality industry ever since.
He built the largest condominium resort and hotel chain in Hawaii, which also included properties in California and Mexico.

He was named one of the top five entrepreneurs in the hotel industry and is active in numerous philanthropic and civic organizations.

Today, he works with other hotel owners as a consultant. Bill Walsh Former Coach and President, San Francisco 49ers When Bill Walsh was hired as head coach of the San Francisco 49ers football franchise in 1979, the team was hardly taken seriously.

But within three years, under his innovative management, the 49ers had won a Super Bowl. He went on to win two additional world championships and was named “Coach of the Eighties.

” His management style was marked by intelligent, strategic planning of every detail and contingency. Formerly a commentator on NBC Television, he was a frequent speaker
to business audiences.

Ann Winblad Partner, Hummer Winblad Venture Partners In high-technology circles,
Ann Winblad is a well-known software entrepreneur and venture capitalist. In 1976,
she cofounded Open Systems with a $500 investment and sold the company
in 1983 for $15.1 million.

Prior to starting her venture capital firm with partner John Hummer, she served as a consultant to clients such as IBM, Microsoft, Apple, Price Waterhouse, and numerous
start-up companies. Hummer Winblad has invested in companies such as Central Point Software, Powersoft, and Liquid Audio.

Introduction If you don’t know where you are going,
how will you know when you are lost ?
Over the past two decades,
Successful Business Plan: Secrets & Strategies has been used by entrepreneurs to launch hundreds of thousands of businesses.

I am incredibly proud of helping entrepreneurs to achieve their dreams — and,
as importantly, create new jobs. It is my life’s work.
It’s led to some wonderful moments in my life.

Like the time I was speaking at a conference in Pittsburgh and a man, surrounded
by a gaggle of his employees, told me that he had been homeless, found this book
in his local library, and used it to help start a small business, which eventually grew
to having more than 100 employees.

Or the time a woman came rushing out of a store in Boise, Idaho.
She had somehow recognized me, and pulled me into her beautiful home goods store.

“I built this store following your book — just look around.
” And I did — not only at the lovely products she was selling and the employees she had working, but at the immense pride she had in her accomplishment.

Or meeting some of the hundreds of thousands of students who have used this book to better understand the possibilities and opportunities of entrepreneurship.

Many have used what started as a class assignment to actually launch their own businesses. It’s been immensely gratifying to hear from entrepreneurs from all walks of life, from all over the globe, about the businesses they’ve started,

the money they’ve raised, the jobs they’ve created — and knowing that this book
has been a part of that.

“With the first edition of your plan, you shouldn’t even think about getting money.
Use the planning process to decide if the business is really as good as you think it is.

Ask yourself if you want to spend five years of your life doing this.

Remember, that’s about 10% of your active working life, so seriously examine whether the enterprise could really be worthwhile to you.” Eugene Kleiner Venture Capitalist “

The intensity in football incorporates, in one season, what a corporation must have over five years or so. You deal with people under stress; performance is measured by the bottom line; success is what the group accomplishes.

To succeed, you must set goals, define roles, recognize excellence, acknowledge failure, recover from disappointment, and stay abreast of the competition.

You must always be evolving systematically, improving the mechanisms for developing progress, and bringing along younger players.”

Bill Walsh Former Coach and President, San Francisco 49ers Creating
a business plan helps you:

■ Think through your entire business
■ Better understand your true financial needs
■ Secure funding
■ Attract key management
■ Develop marketing messages and materials
■ Identify key strategic partners and customers Remember,

it’s the PLANNING and not the PLAN that’s really important.

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The process of developing a business plan is what helps you succeed.
The greatest benefits come from examining all the critical aspects of your business,
looking at the factors and trends that can affect your success or threaten your livelihood,
and then asking yourself the tough questions.

During the process of developing a business plan, you’re almost certainly going
to change several facets of your business — perhaps even some major components of it.

It’s far better to make your mistakes on paper instead of with your real money and precious time. I sincerely hope this book helps you achieve your dreams. —Rhonda Abrams,
Palo Alto, California.

SECTION I Starting the Process Chapter
1: The Successful Business Chapter
2: Getting Your Plan Started Chapter
3: Making Your Plan Compelling

CHAPTER 1 The Successful Business Factors of a Successful Business
The Business Concept Understanding the Market Industry Health and Trends
Clear Strategic Position and Consistent Business Focus Capable Management
Ability to Attract,

Motivate, and Retain Employees Financial Control Anticipating Change and
Adaptability A Company’s Values and Integrity Responding to Global Opportunities and Trends What Motivates You ?
Personal Satisfaction:
The Four Cs Control Challenge Creativity Cash Chapter Summary
It is not enough merely to survive; the goal is to succeed.

Factors of a Successful Business
The ultimate purpose of developing a business plan is to have a successful business.
In the long run, it is fruitless to write a business plan that can raise the funds you seek
if your enterprise is so poorly conceived it is bound to fail.

So, as you create your plan, be certain to address the long-term needs of your business
and devise strategies that enhance both the overall performance of your company and
your personal satisfaction. “Even if you have all the money you need,
you still need a business plan.

A plan shows how you’ll run your business.

Without a plan, you don’t know where you’re going, and you can’t measure your progress. Sometimes, after writing a business plan, you may change your approach, or even decide not to go into a certain business at this time.” Eugene Kleiner Venture Capitalist

The following factors, discussed in detail in this chapter, contribute most to business
success and should guide your planning process:
■ The Business Concept
■ Understanding the Market
■ Industry Health and Trends
■ Clear Strategic Position and Consistent Business Focus
■ Capable Management
■ Ability to Attract, Motivate, and Retain Employees
■ Financial Control
■ Anticipating Change and Adaptability
■ Company’s Values and Integrity
■ Responding to Global Opportunities and Trends

The Business Concept Meeting needs is the basis of all business.

You can devise a wonderful new machine, but if it doesn’t address some real and important need or desire, people won’t buy it, and your business will fail.

Even Thomas Edison recognized this fact when he said, “Anything that won’t sell,
I don’t want to invent.” “In judging a business concept,
by far the easiest and first place to start is,

‘Do I want to use this myself ?’
If I’m not sold that I would want to use it — if I can’t look at my partners and say,
‘I know this fills a need because I know no one else does this;

I would use it myself’ — it’s not going to go anywhere.” Andrew Anker Venture Capitalist Typically, entrepreneurs get their original business inspiration from one of four sources:
1) previous work experience;
2) education or training;
3) hobbies, talents, or other personal interests; or
4) recognition of an unanswered need or market opportunity.

Occasionally, the impetus comes from the business experience of a relative or friend.

As you refine your business concept, keep in mind that successful businesses incorporate
at least one of these elements: something new, something better,
underserved or new market, new delivery or distribution, and increased integration.

Include at least one of these as you refine your business concept.
Your business should incorporate at least one of these factors — more than one if possible.

Ideally, you can bring a new or better product or service to an identifiable but underserved market, perhaps using a more efficient distribution channel.
Evaluate the ways your business concept addresses the elements described above.

Your concept should be strong in at least one area.
If not, you should ask yourself how your company will be truly competitive.

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The Basic Business Concept worksheet on page 6 helps you evaluate the strengths and weaknesses of your basic business idea.

Understanding the Market It is not enough to have a great idea or new invention
as the basis of your business; you must also have a market that is sufficiently large,
accessible, and responsive.

If your market isn’t large enough, you can’t reach it efficiently, or it isn’t ready for you.
Your business will fail, no matter how good your business concept.

Consider the automatic teller machine (ATM) seen on virtually every street corner.
It was invented more than 10 years before it became popular, but the company that
initially marketed the ATM was unsuccessful — people weren’t yet willing to trust their banking to machines.

First, evaluate whether market demand is adequate to support your company.

For instance, if you are opening a flower shop in a neighborhood where none
currently exists, what indications are there that the neighborhood residents
are interested in buying flowers ?
Do they currently purchase flowers at a nearby supermarket ?

Does national data on the demographics of flower purchasers coincide
with neighborhood demographics ?
Perhaps you should conduct a survey of the neighborhood’s residents, asking about their flower-buying habits and preferences.

Next, if you are creating a new product or service, what indications are there that the
market will be receptive to you ?

Market readiness is one of the most difficult and most unpredictable aspects to measure.

That is why companies spend substantial amounts of money on market research before launching a new product.

Success key terms
Barriers to Entry Those conditions that make it difficult or impossible
for new competitors to enter the market:
Two barriers to entry are patents and high start-up costs.

Cash Flow The movement of money into and out of a company;
actual income received and actual payments made out.

Strategic Position A company’s distinct identity that separates it from the competition
and helps it focus on its activities.

Basic Business Concept Using this worksheet as a guide, outline your business concept
as you presently conceive it.

List your competitive advantages, if any, in each area listed below.
You may not have the funds to undertake extensive market research, but even a small amount of analysis can help you gauge the receptivity of a particular market to your idea.

Methods of conducting market research and evaluation in a practical,
economical fashionare discussed in Chapter 2.

When gathering information for your business plan, spend considerable time learning
about your market.

The more you understand the various factors that affect your market,
the more likely you are to succeed.

“The main thing is to keep going back and talking to the people who actually
use what you’re making.
See if what you’re making is truly helpful to your customers.”

Larry Leigon Founder, Ariel Vineyards Industry Health and Trends Your business does not operate in a vacuum; generally, your company is subject to the same conditions that affect your overall industry.

If consumer spending declines nationally,
there’s a good chance your retail business — whether a neighborhood boutique or an online shopping mall — will also experience poor sales.

As you develop your plan, you need to respond to the industry-wide factors affecting
your own company’s performance.

While it is certainly possible to make money in an industry that is experiencing hard times, you can only do so if you make a conscious effort to position your company appropriately.

For example, if you are in the construction business and the number of new-home starts
is down, you may want to target the remodeling market or the commercial real estate
market rather than the new-home construction market.

Investors and lenders are particularly sensitive to issues of industry health.
It is much harder to raise money to start or expand businesses in troubled industries.

Even though opportunities exist in such fields, investors and bankers are concerned
about the increased risks an enterprise faces in an unhealthy industry.

Conversely, if your business is in a healthy and expanding industry, investors are likely
to be more receptive.

What direction is your industry going ?
It is important to look at the major trends that will influence industry health in the future
as well as examining its current condition.

Is the industry consolidating as big companies merge into huge businesses ?
What is happening with pricing pressures, consumer demand, availability of parts and supplies, and global competition?

Several worksheets included in Chapter 6 help you identify and anticipate trends
in your industry.

If you are seeking outside funds, your business plan must reassure investors or bankers that you understand the industry factors affecting your company’s health and that you have taken those factors into consideration when developing your business strategy.

Clear Strategic Position and Consistent Business Focus A crucial factor for a successful business is the development of a clear strategic position that differentiates you from
your competition — and then maintaining focus on that position.

All too often businesses fail because management loses sight of the central
character of the enterprise.

Defining a clear strategic position enables you to capture a particular place in the market
and distinguish yourself from your competitors.

Different companies may sell a similar product, but each may have a very different sense
of what its business is really all about.
For example, suppose four companies are making jeans.

Company A defines itself as selling work clothes;
Company B sees itself as a sportswear manufacturer; and Company C defines itself as being in the business of selling youth and sex appeal.
But Company D has never clarified its mission — it just sells jeans.

These different positions affect the way each company markets itself, how it designs its jeans, what subsequent products it produces, and even the employees it hires.
The first three companies may all succeed and rarely be in competition with one another.

But Company D, which misses the big picture, is almost certain to fail over time as it flounders in its attempts to compete with all of the other, more-focused companies.

“What tips me off that a business will be successful is that they have a narrow focus of what they want to do, and they plan a sufficient amount of effort and money to do it.

Focus is essential; there can be the possibility of the business branching out later, but the first phase of a company should be quite narrowly defined.”

Eugene Kleiner Venture Capitalist A second aspect of positioning your company and maintaining focus is the development of a company style or corporate culture.

By creating a consistent style that permeates every aspect of your enterprise, from the design of your stationery to personnel policies, you give your customers and employees a sense of trust in your company.

Imagine two different restaurants on the same street, both with basically the same business mission: providing good, fast food, priced at only a few dollars a meal.

The first restaurant is a national burger chain. Its style is characterized by consistency, cleanliness, and impersonal friendliness.

A strong corporate image is important, which is reinforced through the restaurant’s decor,
the food’s packaging, and the employees’ uniforms.

The meals are prepared by standardized routines, and every customer is given
the same greeting.

The second restaurant is a diner. Management characterizes its corporate culture
as that of a friendly neighbor.

To help make sure that employees know customers’ names and food preferences, management aims to retain employees for many years.

A bulletin board features notices of local events.
This restaurant’s target market is the neighborhood regulars who know they will
feel at home there.

With a strong company style, each restaurant clearly distinguishes itself from its competitors and gives its target customers a precise understanding of what to expect.

Every business needs to consider its style as it relates to the company’s overall mission,
and then infuse that style into virtually all its undertakings.

To help clarify your company’s position and focus as part of the business plan process,
you should define a Statement of Mission.

This Mission Statement should guide your company’s short-term activities and long-term strategy, position your marketing, and influence your internal policies.

A Statement of Mission worksheet is in Chapter 5.

Capable Management Perhaps more than any other factor, competent management stands out as the most important ingredientin business success.

The people in key positions are crucial in determining the health and viability
of your business.

Moreover, because of the importance of capable management to business success,
many investors and venture capital firms place the single greatest emphasis on this factor when evaluating business plans and deciding on loans or investments.

They’ll review the management section of a business plan with special scrutiny.

Your business plan must inspire confidence in the capabilities of your management,
and you should put your management team together carefully.

Before submitting your business plan to investors, conduct your own analysis
of your management team.

Evaluate each individual (and yourself) to see if he or she fits the profile
of a successful manager.

Some of the traits shared by successful managers are:

■ Experience.
They have a long work history in their company’s industry and/or they have
a solid management background that translates well to the specifics of any business
in which they become involved.

■ Realism.
They understand the many needs and challenges of their business and honestly
assess their own limitations.
They recognize the need for careful planning and hard work.

■ Flexibility. They know things go wrong or change over time, and they are able to adapt without losing focus.

■ Ability to Work Well with People.
They are leaders and motivators with the patience necessary to deal with a variety
of people. They may be demanding, but they are fair.

“The most successful entrepreneurs tell you they have a great team, but lots of small business owners let ego get in the way.
Many people helped me along the path.

You’ve got to remember the people who were loyal to you.

Don’t forget them when you become successful.” Bill Rancic Serial Entrepreneur In developing your business plan, determine whether key members of your management team possess these characteristics.

If not, perhaps you can increase training, add staff, or take other measures to enhance your management’s effectiveness.

For instance, if you have little or no experience in your chosen field, perhaps you should first take a job with an existing company in that field before opening your own business.

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In addition to evaluating the traits of each individual, look at the overall balance
of your management team.

Do you have people who are capable and experienced in the various aspects of your business — marketing, operations, technology, finance, and so on? Are some managers better at dealing with internal issues and others at handling external relations?

Or do the talents and traits of your managers duplicate each other ?
Ability to Attract, Motivate, and Retain Employees A company is only as good as its people.

The ability to find, attract, and keep outstanding employees and managers is crucial to a company’s longterm viability and competitiveness.

Demographic trends indicate a tight labor market in the United States well through the early part of the 21st century.

Companies will have a difficult time competing for the relatively limited number of outstanding job applicants.

Your company’s reputation for treating employees well directly enhances both the number and the quality of job applicants and your company’s ability to retain employees once hired.

Employee morale also has a significant impact on a company’s productivity, the quality of its products or services, and its ability to provide outstanding customer service.

Unhappy employees are less motivated to do excellent work.

Satisfied employees are far more likely to want to see their company succeed, and they can dramatically alter a company’s bottom line.

Examine your management style and policies as part of your overall business
planning process.

Develop management practices that treat employees fairly, offer opportunities
for advancement, afford reasonable job security, and provide fair pay and benefits.
“We don’t just want to make secure loans; we want to make good loans.

A good loan is a loan with a high probability of being repaid from the primary source, such as the business, without interrupting the lifestyle of the borrower.

Collateral makes a loan ‘safe,’ not necessarily good.
It’s not fair to make a loan if the collateral is good BUT the business plan is shaky.

We’re not interested in getting people’s homes;
we’re interested in successful businesses.” Robert Mahoney Corporate Banker Financial Control Key to any business is how it handles money.

Not fully anticipating start-up costs can immediately place impossible pressures on a new business. Poor cash flow management can bring down even a seemingly thriving business.

One of “Rhonda’s Rules” is “Things take longer and cost more than anticipated.”
Build financial cushions in your plan to allow for unanticipated expenses and delays.

As you develop your business plan, make sure you have the information to understand your financial picture on an ongoing basis.

What does it take to open your doors each month ?
Where is your real profit center ?
How much expansion do you need to maintain growth ?
What are the hidden costs of marketing your company ?
What are the consequences of your credit policies ?

Build in mechanisms to keep you continually informed as your business develops.
It is easier to establish good financial procedures right from the start than to wait until
you face a financial crisis.

How frequently will you do your billing ?
What kinds of credit policies will your business follow ?
How will you keep informed on inventory ?
Make certain you receive detailed financial statements at least monthly and that you understand them thoroughly.

Examine financial reports for any deviations from your plan or any indications of impending cash flow problems. Controlling and understanding your finances makes decisions easier. And you’ll sleep better at night.

Anticipating Change and Adaptability Change is inevitable, and the rate of change gets ever faster. In today’s world, your company needs to anticipate and respond to change quickly and train its employees to be adaptable.

Nimble companies that can quickly evaluate and respond to changing conditions are most likely to be successful.

In planning for change, keep in mind the kinds of conditions that will affect your business’ future. They include:

■ Technological Changes. It’s impossible to predict the exact technological developments that will affect your industry, but you can be sure that you will be faced with such changes.

Even if you make old-fashioned chocolate chip cookies, you’ll find that advancements
in oven design, food storage, or inventory control software will place
competitive pressures on your business.

Competitors’ technological advances may cause significant downward pricing
pressures on you.

■ Sociological Changes. Evaluate demographic and lifestyle trends in light of their potential influence on your business.

In the cookie business, for example, consumer interest in natural foods or the number of school-age children in the population may influence the number
and kinds of cookies you sell.

What sociological factors have the greatest impact on your company ?
Keep your eye on trends that represent true change; be careful not to build a business
on passing fads.

■ Competitive Changes. New businesses start every day.

How hard is it for a new competitor to enter the market, and what are the barriers to entry ?

The Internet makes it possible for companies all over the world to compete against
each other, increasing the number and type of competitors you may face.
“You need to be able to fail fast and fail forward.

At PayPal, our business started out as sending money between Palm Pilots, then we had the idea of sending money over email.

We saw the need for electronic payments, but we weren’t wedded to the idea of something that wasn’t working.” Premal Shah President, Kiva When developing your business plan, consider how your company deals with these outside changes.

Also anticipate major internal changes, such as growth, the arrival or departure of key personnel, and new products or services.

No business is static.
Planning a company responsive to change will make the inevitable changes easier.

See Chapter 6, for more on anticipating change.
A Company’s Values and Integrity Every company must make money.

You can’t stay in business unless you eventually earn a profit.

However, studies of business success over time have shown that companies that emphasize goals in addition to making money succeed better and survive longer than companies whose sole motivation is monetary.

As you develop your business plan, keep in mind those values you wish to have characterize the company you are creating or expanding.

These values can be aimed externally (at achieving some business, social, or environmental goal) or they can be aimed internally (at achieving a certain type of workplace or quality
of product or service) or both.

Articulating your company’s values to employees, suppliers, and even your customers can strengthen their commitment to your business.

Valuesdriven companies often have greater success in attracting and retaining good employees, and they can usually better weather short-term financial setbacks because employees and management share a commitment to goals in addition to financial rewards. “Passion is a prerequisite.

If you don’t have passion, you’re not going to be successful.
Entrepreneurship is not purely a numbers game.

But you can’t be stupidly passionate, you have to do your homework.” Damon Doe Managing Partner Montage Capital A company is likewise strengthened by maintaining integrity in all aspects of its dealings — with employees, customers, suppliers, and the community.

Certainly, you will face situations where it appears that you will be at a disadvantage
if you are more honest than your competitors or more fair than other employers.

However, the long-term benefits of earning and keeping a reputation for integrity outweigh
the perceived immediate disadvantages.

A clear policy of honesty and fairness makes decision-making in difficult situations easier, inspires customer and employee loyalty, and helps avoid costly lawsuits and regulatory fines. It’s also the right thing to do.

Responding to Global Opportunities and Trends Today’s business world is a global world.
In all aspects of your business, you may find it possible to be working internationally.

Even a small company with an online presence may be selling its products internationally. Certainly, your raw materials or inventory may come from global sources.
You may have competitors, suppliers, employees, contractors, and partners worldwide.

A successful business in this environment must at least evaluate international opportunities and consider international threats when constructing a business plan.

Some of the global considerations to keep in mind as you develop your business plan are:

■ Target market. Because of the electronically connected world, it’s possible to target
a market even halfway around the globe, and that can be a way to significantly expand
your market opportunities.

If you have a highly niche product, your customers may be widely scattered internationally, and you may need to or want to serve a wide geographic area.

Even if you plan to concentrate on a local or domestic market, you must address how you’ll serve international customers who find you online.

Successful companies today at least evaluate international market opportunities when choosing which markets to target.

■ Competitors. It’s far easier than ever for global competition to enter local markets.

Certainly, if you are selling a product — even a fairly mundane one — you may find yourself competing with online international companies.

■ Suppliers. Whether for raw materials for production/manufacturing or inventory for sale,
it is likely that at least some of your supplies will come from countries other than your own.

You should certainly be considering sourcing material and inventory globally
as you grow your company.

■ Labor. It is no longer necessary for your employees or contractors to be located in the same office, same city, or even same country as you.

Finding workers — especially technology or manufacturing labor — in other countries may offer significant labor cost reduction. It is now typical for companies to “offshore” many tasks, and flexible companies evaluate some of those opportunities.

Of course, managing a far-distant labor supply has significant challenges, and you must think those through as you plan the global aspects of your business.

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“Getting sufficient supplies can be challenging.

When we launched our Honest Kids organic drink pouch, we had to buy half the world’s supply of organic, kosher grape juice.” Seth Goldman Cofounder, Honest Tea

■ Legal issues. Whether protecting your intellectual property, ensuring that you are following all necessary laws and regulations, or dealing with international tax or finance issues, you will certainly need to understand the legal issues affecting you as you work globally.

■ Partners. As you think about expanding your business internationally, one approach is to find existing companies “on the ground” in those markets to partner with.

This can make your entry far easier, help you understand local business customs and practices, and better serve your market.
■ Social responsibility. The best international companies are good global citizens.

As you work globally, make certain that you are always acting in a socially responsible manner — whether dealing with labor issues, human rights, the environment, bribery,
or corruption. “First and foremost you have to have passion.

You’ve got to understand why you’re in the business, you have to understand why you’re going to be wildly successful, and you have to be able to sell it to people.

It’s very easy to write a business plan with lots of pretty charts and graphs and research quotes, and if you can’t present it to coworkers, employees, investors, and ultimately
to the customer, you’re not going anywhere.

You always have to have the passionate person who lives and breathes, eats and sleeps the idea.” Andrew Anker Venture Capitalist What Motivates You ?

Personal Satisfaction: The Four Cs For smaller enterprises, sole proprietorships,
or businesses in which one or two key members of management have primary control, issues of personal satisfaction can be a central element in determining long-term success.

Some businesses fail, and others flounder, because their founders, owners, or key managers are uncertain what they really want to achieve or because they did not structure the company and their responsibilities in ways that satisfy their personal needs and ambitions.

It is useful to evaluate and consider your personal goals when deciding on the nature
of your business development.

For most entrepreneurs, these goals can be summed up by the Four Cs: Control,
Challenge, Creativity, and Cash.

Control How much control you need to exercise on a day-to-day basis influences
how large your company can be.

If you prefer to be involved in every business decision or are uncomfortable delegating or sharing authority, your business should be designed to stay small.

Likewise, if you need a great deal of control over your time (because of family or personal demands), a smaller business without rapid expansion is more appropriate.

In a large company, you will have less immediate control over many decisions,
and others will share in decision-making.

Structure your management reporting systems to ensure that as the company grows, you continue to have sufficient information about and direction over developments to give you personal satisfaction.

If you are seeking outside funding, understand the nature of control your funders will have and be certain you are comfortable with these arrangements.

Challenge If you are starting or expanding a business, you are likely to be a problem-solver and risk-taker, enjoying the task of figuring out solutions to problems or devising
new undertakings.

It is important to recognize the extent of your need for new challenges and develop positive means to meet this need, especially once your company is established and the initial challenge of starting a company is met.

Otherwise, you may find yourself continually starting new projects that divert attention from your company’s overall goals.

As you plan your company, establish personal goals that provide you with sufficient stimulation, while also advancing the growth of your business. “Writing a business plan forces you into disciplined thinking if you do an intellectually honest job.

An idea may sound great in your own mind, but when you put down the details and numbers, it may fall apart.” Eugene Kleiner Venture Capitalist Creativity Entrepreneurs want
to leave their mark.

Their companies are not only a means of making a living, but a way of creating something that bears their stamp.

That’s why many businesses carry the founder’s name.
Creativity comes in many forms.

For some, it is the creativity involved with designing or making a new “thing” — a fashion designer creating a line of clothes, a software developer writing a new program,
a real estate developer erecting a new building.

For others, it may be the creativity of coming up with a new business process.
Creativity also comes into play in finding new ways to make sales, handle customers,
or reward employees.

If you have a high need for creativity, make certain you remain involved in the creative process as your company develops.

You’ll want to shape your business so it is not just an instrument for earning an income but also a mechanism for maintaining creative stimulation and making a larger
contribution to society.

But don’t overpersonalize your company, especially if it is large.

Allow room for others, particularly partners and key personnel,
to share in the creative process.

Cash Understand how your personal financial goals have an impact on your business plan. For instance, if you require substantial current income, you may need investors so you have sufficient cash to carry you through the lean start-up time.

This means you will share ownership interest with others, and the business must be devised for substantial profit potential to reward those investors appropriately.

Likewise, if your aim is to build a very large company and accumulate substantial income or wealth quickly, you will need outside investors to finance such rapid development
or expansion.

Once again, this means giving up more control over your company.

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If, on the other hand, your current income needs are less demanding or your overall financial goals more modest, you may be able to forego giving up a piece of your company to investors and instead expand your business more slowly through sales or through loans or credit lines.

Keep in mind there is sometimes a trade-off between personal goals: Wanting more cash often means having less control.

Examine your personal goals and those of key personnel using The Four Cs worksheet on page 16. Chapter Summary A successful business plan not only ensures that you achieve your short-term objectives, it also helps secure the long-term viability of your business.

When developing your plan, keep in mind the underlying factors affecting business
success and personal satisfaction.

Make sure your business concept is clear and focused and your market is well-defined. Understand the key trends in your industry, both nationally and globally, and develop responsive, disciplined management procedures.

The Four Cs Each founder or key employee in small or new companies should complete their own copy of this worksheet. Check the level of importance to you in each area.

CHAPTER 2 Getting Your Plan Started The Business Plan Process Gathering Information Sources of Information Online Offline Research Resources SBDCs and Other Support Organizations Trade and Industry Associations Paid Research Services Historical

Performance of Your Company How to Conduct Your Own Market Research Accessible Sources for Market Research Getting Help Evaluating the Data You’ve Collected A Quick Feasibility Analysis

Business Model Canvas Chapter Summary You find easy answers only by asking
tough questions.

The Business Plan Process Once you determine that a business plan is a necessary
tool for your company, you may wonder, “Where do I start ?”
Because a plan requires detailed information on almost every aspect of your business, including industry, market, operations, and personnel, the process can seem overwhelming.

The business plan process entails five fundamental steps:
1. Laying out your basic business concept.
2. Gathering data on the feasibility and specifics of your concept.
3. Focusing and refining the concept based on the data you compile.
4. Outlining the specifics of your business.
5. Putting your plan in compelling form.

The first step is to lay out your basic business concept. In the previous chapter, you were provided a worksheet on which to delineate the various components of your business.

With an existing operation, it may be tempting to skip over this step, but if you wish to develop strategies for future success, you must first examine the assumptions underlying your current efforts.

“You must have ongoing contingency plans to allow for miscalculations, disappointments, and bad luck.

It’s assumed that if you’re a leader, you don’t make mistakes.

But it’s not so; if you’re decisive, you’ll sometimes miscalculate, and sometimes
just be unlucky.
You need to openly discuss the possibility of mistakes, so people are prepared and aren’t crestfallen when they occur.

You need to rehearse your contingency plans.” Bill Walsh Former Coach and President San Francisco 49ers The focus of this chapter is on steps 2 and 3: gathering and interpreting
the data you need.

Solid information gives you a realistic picture of what happens in businesses similar to yours, as well as a better understanding of your own company.

You can then evaluate and refocus your concept in light of your newly acquired information;
a worksheet provided on pages 39–40 will help you with this evaluation.

Once you have compiled sufficient information and reevaluated your business concept,
you can begin to actually write your plan.

By following the chapters of this book and completing the Plan Preparation Forms, you can shape your plan into a compelling document. Developing a business plan is much more a business project than a writing assignment.

The process itself — not just the document produced — can positively affect
the success of your business.

During the everyday operation of your business, you seldom have time to think through
the kinds of issues you’ll examine while putting together your business plan;

the planning process gives you a rare opportunity to enhance your knowledge of how your company, market,and industry work.

Gathering Information Knowledge is power.

With accurate information at your fingertips, you make better business decisions as well as a more persuasive presentation of your plan when meeting with a banker, potential investor,
or divisional president.

Savvy investors use a business plan not merely to learn about a new business concept but as a means to judge whether an entrepreneur has the knowledge and exercises the due diligence necessary to run a business.

So take time to do your homework.

Sufficient research prevents you from placing inaccurate information
in your plan — a mistake that can keep you from getting funded — and enables you
to make informed decisions.

If you’re new to an industry or to business management, allow yourself more time on your research efforts and start with general background information.

Use the research project as an opportunity to educate yourself on the key issues
of your industry, not merely as a way to find the specific details you need
for your particular company.

Or visit my amazon directly

To begin your information-gathering efforts, start by checking the resources listed later in this chapter and in the References & Resources chapters at the back of the book.

First, seek general information about each of the areas you’ve identified in your
Basic Business Concept worksheet from Chapter 1.

As you progress, focus your research on more-specific issues, compiling the details necessary to make operational and financial decisions.

Chapters 4 through 17 outline the data you need to complete each section of your business plan, and in some cases include suggestions of possible sources of such information.

How Much Information Is Enough ?
It is relatively easy to get a great deal of information online; it is likewise easy to feel overwhelmed with so much of it.

Conversely, you will also feel frustrated because some critical data is proprietary
and unavailable.

The difficult challenge is determining which information is important and how much information is enough to put in your plan, especially if you are seeking funding.

Don’t try to be exhaustive in your research efforts; it’s not necessary or possible.
You are merely looking for information that will answer the key questions
about your business.

At the same time, your research must be thorough enough to give you, and those reading your plan, confidence that the answers are accurate and from reliable sources.

For example, if you are manufacturing dolls, you might identify your target market as girls between the ages of 4 and 10.

One of the questions you need to address in your plan is, “How large is the market?” For this, you may have to consult only one source, the U.S. Census Bureau, to find a reliable answer.

However, other questions that arise, such as, “What are the trends in doll-buying habits ?” may require consulting three or four industry sources or undertaking your own market research to compile information you can trust.

Success key terms Business Model Canvas A tool for describing some elements
of a new business in a one-page, visual format.

It was originally created by Swiss management consultant Alexander Osterwalder.
Distributor Company or individual that arranges for the sale of products from manufacturer
to retail outlets; the proverbial “middleman.” Due Diligence

The process undertaken by venture capitalists, investment bankers, or others to thoroughly investigate a company before financing; required by law before offering securities for sale.

Milestone A particular business achievement by which a company can be judged.

Profit Margin The amount of money earned after the cost of goods (gross profit margin)
or all operating expenses (net profit margin) are deducted;
usually expressed in percentage terms.

Proprietary Technology or Information Technology or information belonging to a company; private information not to be disseminated to others.

Receipts Funds coming in to the company; the actual money paid to the company for its products or services; not necessarily the same as a company’s real revenues.

Start Your Research by Asking Questions Start your research by making a general statement that is the basis of your business (or a portion of your business).

For example, if you are planning to open a sporting goods store in Chandler,
Arizona, your statement might be: “There is a substantial need for a sporting goods store
to serve the city of Chandler.”

“A lot of entrepreneurs don’t pay attention to the financial side of the house,
and that’s where we see a lot of them fail.

They relegate finance and accounting to the back seat.” Damon Doe Managing Partner Montage Capital Next, make a list of questions that logically follow from and challenge that statement. Here are some questions you might then ask:

■ How many sporting goods stores now serve the area?
■ How profitable are the current sporting goods stores in the area?
■ Are residents generally satisfied with the current sporting goods stores?
■ Is there more business than current sporting goods stores can handle?
■ What are the trends in the sporting goods industry nationally?
■ What are the demographic trends in Chandler?
■ How do Chandler demographics relate to national sporting goods trends and statistics ?
As another example, your statement might be:

“There is a profitable way to provide psychological counseling online.
” The questions following from and challenging that statement could include:
■ What companies are already providing such a service ?
■ What is the size of the market for psychological counseling now?


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