Monthly Archives: June 2016

How to Be an Entrepreneur

download-2In a world increasingly affected by globalisation, increased competitiveness and maturing products, the need for creativity and entrepreneurship has never been greater. Luckily, the attractions of becoming an entrepreneur have never been greater either, especially since a shift from a predominantly manufacturing- to a service-based economy has lowered the cost and barriers to entry for entrepreneurs. The British government has moved entrepreneurship (and support for it) to the top of their domestic agenda. Meanwhile, entrepreneurship has become a hot topic, with conferences, exhibitions, and even TV shows, such as “Risking it All” and “The Dragons’ Den” evidencing the popularity. But while the environmental conditions may be attractive, entrepreneurs still need a workable idea that is commercially viable. This article endeavours to assist wannabe entrepreneurs (wantrepreneurs) in coming up with ‘the plan’ so as to enable them to finally take the plunge into the world of entrepreneurship.

1. The environment

Before deciding on ‘the idea’ it is worth assessing the landscape thoroughly so as to consider the broader context and the impact that trends or changes may have on it, i.e. whether it is future-proof, etc. There are three main trends to look at – global trends, national trends and local trends.

Keeping up to date with global developments via The Economist or the BBC will certainly give you a good base to start from. However, to gain a more in-depth understanding of global changes from a business opportunity perspective, websites such as Trendwatching (www.springwise.com) are very useful. In an increasingly homogeneous global economy, it is obvious that what works well in one market can easily transplant into other ones with the minimum of localisation. Between them, these sites give a more in-depth insight into some of the latest emergent business ideas and can be considered in tandem with macro trends affecting us all, like environmental challenges, the increasing cost of oil, volatile currencies, etc.

On a national level, there are a number of trends that we are all familiar with in the UK: increased ubiquity of broadband access, the fact that as a population we are aging, increased expected life spans, growth in the number of single-person households, and so on. The key with all of these trends is to focus on the opportunities associated with these demographic shifts and trends. For example, it is safe to predict that an aging population will increase the demand for certain goods and services, such as home-help services, medication, nursing, and glasses, and that the growth in single-person households will increase the demand for convenience food products and more economical white goods such as smaller fridges and washer/ dryer all in one’s.

On a local level, there are also numerous resources we can use in assessing the local environment and, in particular, the likely demand for our goods or services. Websites such as ACORN (www.caci.co.uk/acorn) and UpMyStreet (www.upmystreet.com) provide extensive free demographic data about areas based on UK postcodes. These enable you to build up profiles of the local population and are ideal when you are looking to set up a shop or service to serve the local community specifically. Of course when it comes to local opportunities, these need to be assessed in conjunction with plenty of ‘on-the-ground’ research: walking in and around the area targeted for the new enterprise.

2. The options

The big idea

Whilst the majority of new businesses are replicas of existing businesses, some entrepreneurs will strive to create something completely unique. One of the most powerful things the Internet enables us to do is to search for solutions to problems more efficiently than ever before. Goods and services are designed to fulfill the needs of people. In other words, goods and services solve people’s problems; and while your proposed solution may be unique, it is likely the problem is not. Hence, an Internet search focusing on the problem your solution is trying to address is likely to highlight substitutes and competitors, which may all help to shape the nascent idea.

Using the Internet, you can often assess the potential demand for your service by gauging the number of people who search for a term related to the problem that your good or service satisfies. For example, our company, Palo Alto Software, produces business planning software. One way people find us online is by searching for help for their problem: their need to write abusiness plan. Using the Key Word Assistant on Overture, we can find out how many times “business plan” and other related terms were searched for in the previous month. This data can help us assess whether business planning is a significantly more popular term than “business plan”? If so, we might consider renaming our product “Business Planning Pro” instead of  Business Plan Pro.

How to Avoid Business Plan Mistakes

The importance of business planning is widely documented; however, guidance as to what constitutes good business planning is less clearly defined. This article aims to redress that imbalance by describing 10 of the most common mistakes that occur in business plans.

While the business-planning process is in itself a very worthwhile pursuit, most business plans are produced for a specific purpose. The plan is used as a means to convey an idea with a view to achieving a specific goal, e.g. securing funding. Hence the plan needs to be tailored with the audience in mind, and good knowledge of their requirements will help shape a winning plan.

For example, the requirements a Venture Capitalist will have in assessing a plan seeking to secure a million-pound investment will differ considerably from those of a local bank manager who needs a plan to support a small-loan application. While the former will be primarily looking for capital growth, the latter will be more concerned with security. Regardless of the specific purpose of the plan, these following business plan lessons will apply.

1. Incredible financial projections

One of the key areas business plan readers will focus on will be ‘the numbers’. Specifically, they will concentrate on the projected Income Statement or Profit & Loss. The fact that numbers are projected does not mean that those figures can be included without due rigour or process. They need to be credible, defensible and consistent. Of course forecasting is not an exact science, and the use of proxies can help the author ensure that the figures included are plausible and consistent with the story being told in the other areas of the business plan. The figures must also show an ability of the company to generate free cash flows so that the business can be run profitably while satisfactorily servicing their debts at the same time.

All costs should be recorded including salaries to owner managers who run the company. It is not credible to generate P&L projections where expenses such as salaries are omitted to demonstrate managerial commitment or to artificially reduce losses, etc. By the same token, no investor will be prepared to fund a business where the projected salary payments are excessive. While dealing with finances is not everyone’s strong point, there has to be someone on the management team who is cognizant with the maths. A business plan will need to include everything from break-even projections to proposed return on investments to cash flow forecasts, and one of the key players will have to converse on these subjects in a convincing manner. They will also need to justify the numbers.

2. Lack of a viable opportunity

A business plan needs to not only describe an opportunity, it must also detail how the opportunity can be exploited profitably and demonstrate the company’s ability to deliver what is required. In recent years there has been a significant increase in plans that are inaccessible to the average reader because they are couched in technical jargon and unfamiliar terms. If the reader of the plan cannot fully grasp who the prospective customer is, how that customer will be targeted, and the prospective benefits from the proposed solution, the reader will not invest. In an increasingly time-pressed world, people crave simplicity. Many business plan recipients will only scrutinize the Executive Summary and the financials, using these as the decision points as to whether to read further or not. Hence it is of paramount importance that both the executive summary and the wider plan describes the opportunity in readily understood terms, such as:

  • What is the issue or pain point?
  • What is the proposed solution?
  • What are the benefits of the solution?
  • Why are these benefits compelling?
  • Who will benefit the most from these?

Once these are detailed, there will be greater transparency regarding the viability, or otherwise, of the proposed opportunity in terms of the company’s ability to profitably serve the target market.

3. No clear route to market

All opportunities are only prospective ones without evidence that the target market can be accessed profitably. Many entrepreneurs are inherently product focused, concentrating their energies on ‘the idea’ to the exclusion of many other important elements such as how they intend to access their customer base. The growth in popularity of the Internet has certainly helped niche producers find geographically dispersed customers, making many more ideas commercially viable. However, it does not come without its challenges, as creating awareness online is both costly and intensely competitive. The business plan must include a comprehensive and credible analysis of how the company intends to secure access to their target market in a cost-effective manner. The low cost and barriers to entry for websites have resulted in the creation of hundreds of thousands of sites. Ensuring that a site stands out from the crowd is easier said than done. Knowledge of who the customer is and how they buy is very important, but identifying them and accessing them on an individual basis is much more

How to Get Top of Writing a Business Plan

Writing a business plan can seem a daunting challenge. However, this skill is a vital requirement for any entrepreneur or business seeking to increase their chances of survival. Here is a list of my top ten tips for writing that winning plan:

1. Write from the audience’s perspective

The starting point for any business plan should be the perspective of the audience. What is the purpose of the plan? Is it to secure funding? Is it to communicate the future plans for the company? The writer should tailor the plan for different audiences, as they will each have very specific requirements. For example, a potential investor will seek clear explanations detailing the proposed return on their investment and time frames for getting their money back.

2. Research the market thoroughly

The recent Dragons’ Den series on BBC 2 reiterated the importance prospective investors place on knowledge of the market and the need for entrepreneurs to thoroughly research their market. The entrepreneur should undertake market research and ensure that the plan includes reference to the market size, its predicted growth path and how they will gain access to this market. A plan for an Internet café will consider the local population, Internet penetration rates, predictions about whether it is likely to grow or decline, etc., concluding with a review of the competitive environment.

3. Understand the competition

An integral component to understanding any business environment is understanding the competition, both its nature and the bases for competition within the industry. Is it a particularly competitive environment, or one that lacks competition? How are the incumbents competing—is there a price leader evident? Finally, including a thorough understanding of the bases on which you intend to compete is vital; can you compete effectively with the existing players?

4. Attention to detail

Make the plan concise, but include enough detail to ensure the reader has sufficient information to make informed decisions. Given that the plan’s writer usually has a significant role to play in the running of the business, the plan should reflect a sense of professionalism, with no spelling mistakes, realistic assumptions, credible projections and accurate content. The writer should also consider the format of the plan, e.g., if a business plan presentation is required, a back-up PowerPoint presentation should be created.

5. Focus on the opportunity

If you are seeking investment in your business, it is important to clearly describe the investment opportunity. Why would the investor be better off investing in your business rather than leaving money in a bank account, shares, or investing in another business? What is the Unique Selling Proposition (USP) for the business? Why will people part with their cash to buy from you?

6. Ensure all key areas are covered in the plan

Undertake research on what a business plan should contain; one good place to find this is atBplans . Include sections on the Company, Product/Service, Market, Competition, Management Team, Marketing, Operations and Financials. The plan should also take on board the readers’ various preferences for viewing data. While many plans are predominantly textual, the plan should include some simple colour charts and spreadsheets.

7. Do the sums

The numbers will be subject to particular scrutiny. Costs should be documented in full and sales predictions should be both conservative and realistic. While costs are more certain and predictable, a crucial factor in the success or failure of the business will be the level of sales. If you are not particularly comfortable with maths, have someone assist you in preparing a simplecash flow and break-even chart. This will help the reader understand how many sales you must make to cover your costs, and also how much financing you must raise to start up successfully. Remember, at the beginning, there are a lot of start-up expenses in a period of uncertain sales volumes. If sales are on credit (including via credit card) it may take up to four weeks for you to receive the cash.

How to start up for business planning

One of the greatest misconceptions about business planning is that a business plan is useful only for start-ups. While start-up companies are indeed one significant segment of business planners, business planning is being utilised by an increasing number of companies as a means to manage growth better, to ensure new ideas have been assessed for commercial viability, and to value a business on exit.

Secondly, the importance of the business planning process is often under-emphasized relative to the primary focus on the final output, the business plan. The very process of producing a business plan enables management to take a holistic view of their organization. It helps them give due consideration to the various factors that mesh together to create the opportunity they are seeking to explore, as well as the resources required and the key drivers needed for success. This article aims to justify a more expansive remit for the business plan, by highlighting a number of key areas where its application is of considerable benefit for all companies.

1. Intrapreneurship
Companies are increasingly encouraging employees to create new growth opportunities as competition intensifies in their core (mature) business lines. Mature invariably means competitive, so the focus on growth opportunities is via innovation and creativity, especially in emergent areas. The term intrapreneurship thus refers to “inside entrepreneurs”; where intrepreneurs personify the key characteristics of an entrepreneur, but do so within the company bounds.

Intrapreneurship is not new – 3i, a venture capital/equity investment company, has been one obvious practitioner for many years – and its application of intrapreneurship has helped to spawn a number of new products. Google, a company renowned for innovation, operates a 70 percent rule, whereby employees are expected to spend 70 percent of their time on the core business, 20 percent on related projects, and 10 percent on unrelated new business opportunities. While the generation of new ideas is paramount, ensuring their commercial viability is of critical concern, and writing a business plan is one key way to assess the merits of an innovative proposal in a more rigorous fashion. The plan can thus be produced for an internal opportunity as if it were a stand-alone entity, with the author being required to detail both the opportunity and the resource implications of pursuing it.

2. Managing performance
A business plan can also be used as a management tool to assess ‘actual results’ against ‘planned results’. Using these figures in conjunction with an assessment of year-on-year performance can ensure that managers reflect on performance not just based on the previous year’s achievements, but also in relation to the original planned figures. This enables managers to analyse deviations from plan so as to understand what figures are materially different from the planned ones and what drivers shaped the disparities. It also helps to shift the focus away from solely historic comparisons –instead the manager is tasked with planning for the year ahead and hence there is an agreed goal up front and greater transparency on a month by month basis when ‘actuals’ can be compared with ‘planned’.

Such analysis helps to enhance a manager’s understanding of the changes that have impacted recent performance. If planned results and actual results are considered on a monthly basis, this analysis may also help the manager take remedial action in a more urgent time frame.

3. Planning strategically
The process of business planning is, in and of itself, a worthwhile pursuit as it forces the authors to remove themselves from the day-to-day tactical/responsive mode in which many managers operate. The planning process forces any manager to consider the future. In particular, they must take into account the resources at the company’s disposal and plan to maximise the return on capital, as limited by the wider context.

For many companies, a desire on the one hand to maximise the return from the existing product/service revenue stream, needs to be balanced on the other by a desire to develop new additional revenue streams. By putting a business case together for a particular course of action, a manager ensures that the proposal is financially robust (i.e., worthy of pursuit), that the goals are kept in focus and that resources are allocated accordingly.

Hence, a business plan can support a company’s focus on exploiting a particular market segment, creating a new product, promoting a new use for a product, etc. Once the plan is committed to paper, it is easier to ensure that there is consensus, ownership of the plan, and a breakdown of tasks, milestones and deliverables to help achieve the goals set out in the plan.

4. Preparing for a future exit
At some point in the life cycle of a business, the founders/investors may decide that they want to cash out of the business. The exit strategy will typically focus on extracting the highest value possible from the sale. An up-to-date business plan detailing the opportunity for new buyers will support any valuations put on the business by its current owners.

Before a company reaches the point of sale, it is important to get everything ready by making sure that all historic accounts, cash flow statements and business plans are up-to-date. It is generally accepted that thorough preparation for a sale, well in advance of the sale date, improves internal management focus, aids performance, and ultimately serves to increase the final valuation.

Once management identifies the key drivers for a typical potential acquirer, a business plan can be put in place to focus the minds of employees and ensure that the sale value is maximized. For example, if the general bases for valuation for the industry are focused more on cash generation than profit, a company can drive short term revenues by undercutting sales prices of competitors by selling at cost + 5%. While such activity may not be sustainable in the long run, it can serve to help cash flow when a sale is being considered and prospective acquirers are reviewing performance. While some managers are not that comfortable with planning and projections, the preparation of a thorough business plan plays a vital role in extracting the maximum value from a sale.