Topics A Definition of Entrepreneurship Sample Business Plan Outline The VC Pitch

A Definition of Entrepreneurship
The concept of entrepreneurship has a wide range of meanings. On the one extreme an entrepreneur is a person of very high aptitude who pioneers change, possessing characteristics found in only a very small fraction of the population. On the other extreme of definitions, anyone who wants to work for himself or herself is considered to be an entrepreneur. The word entrepreneur originates from the French word, entreprendre, which means "to undertake." In a business context, it means to start a business. The Merriam-Webster Dictionary presents the definition of an entrepreneur as one who organizes, manages, and assumes the risks of a business or enterprise.

Schumpeter's View of Entrepreneurship Austrian economist Joseph Schumpeter 's definition of entrepreneurship placed an emphasis on innovation, such as:

new products new production methods new markets new forms of organization

Wealth is created when such innovation results in new demand. From this viewpoint, one can define the function of the entrepreneur as one of combining various input factors in an innovative manner to generate value to the customer

with the hope that this value will exceed the cost of the input factors, thus generating superior returns that result in the creation of wealth.

Entrepreneurship vs. Small Business Many people use the terms "entrepreneur" and "small business owner" synonymously. While they may have much in common, there are significant differences between the entrepreneurial venture and the small business. Entrepreneurial ventures differ from small businesses in these ways: 1. Amount of wealth creation - rather than simply generating an income stream that replaces traditional employment, a successful entrepreneurial venture creates substantial wealth, typically in excess of several million dollars of profit. 2. Speed of wealth creation - while a successful small business can generate several million dollars of profit over a lifetime, entrepreneurial wealth creation often is rapid; for example, within 5 years. 3. Risk - the risk of an entrepreneurial venture must be high; otherwise, with the incentive of sure profits many entrepreneurs would be pursuing the idea and the opportunity no longer would exist. 4. Innovation - entrepreneurship often involves substantial innovation beyond what a small business might exhibit. This innovation gives the venture the competitive advantage that results in wealth creation. The innovation may be in the product or service itself, or in the business processes used to deliver it.

Sample Business Plan Outline

Title Page Name of company, date, contact information, etc. Table of Contents Executive Summary 1. 2. 3. 4. 5. 6. 7. Business Concept Company Market Potential Management Team Distinct Competencies Required Funding and its Use Exit Strategy

Main Sections I. Company Description

Mission Statement Summary of Activity to Date Current Stage of Development Competencies Product or Service o Description o Benefits to customer o Differences from current offerings Objectives Keys to Success Location and Facilities

II. Industry Analysis

Entry Barriers Supply and Distribution Technological Factors Seasonality Economic Influences Regulatory Issues

III. Market Analysis

Definition of Overall Market Market Size and Growth Market Trends Market Segments Targeted Segments Customer Characteristics Customer Needs Purchasing Decision Process Product Positioning

IV. Competition

Profiles of Primary Competitors Competitors' Products/Services & Market Share Competitive Evaluation of Product o Distinct Competitive Advantage o Competitive Weaknesses Future Competitors

V. Marketing and Sales

Products Offered Pricing Distribution Promotion o Advertising and Publicity o Trade Shows o Partnerships o Discounts and Incentives Sales Force Sales Forecasts

VI. Operations

Product Development o Development Team o Development Costs o Development Risks Manufacturing (if applicable) o Production Processes

Production Equipment Quality Assurance Administration Key Suppliers Product / Service Delivery Customer Service and Support Human Resource Plan Facilities
o o o

VII. Management and Organization

Management Team Open Positions Board of Directors Key Personnel Organizational Chart

VIII. Capitalization and Structure

Legal Structure of Company Present Equity Positions Deal Structure Exit Strategy

IX. Development and Milestones Time may be specified on a relative scale rather than specific calendar dates. Milestones may include some or all of the following:

Financing Commitments Product Development Milestones o Prototype o Testing o Launch Signing of Significant Contracts Achievment of Break-even Performance Expansion Additional Funding Any other significant milestones

X. Risks and Contingencies

Some common risks include:

Increased competition Loss of a key employee Suppliers' failure to meet deadlines Regulatory changes Change in business conditions

XI. Financial Projections

Assumptions (Start date, commissions, tax rates, average inventory, sales forecasts, etc.) Financial Statements (Balance Sheet, Income Statement, Cash Flow Statement) Break Even Analysis Key Ratio Projections (quick ratio, current ratio, D/E, D/A, ROE, ROA, working capital) Financial Resources Financial Strategy

XII. Summary and Conclusions Appendices May include:

Management Resumes Competitive Analysis Sales Projections Any other supporting documents

The VC Pitch
Some Tips for Success

Acquiring venture capital funding can consume a large amount of valuable time and effort. Here are a few tips that can help you secure funding and get on with the process of building your company. Choose the Right VC Carefully research your potential investors. Learn about their focus areas and their philosophy. Then, go to venture capitalists who have financed firms similar to your own; they will understand what you are saying. Some VC's are very hands-off, whereas others regularly become quite involved with the operations of their portfolio companies. Be sure to talk to those that more closely match your needs. Once you have identified a good match, be sure to talk to the right person within the firm. For example, if your idea is in the realm of medical technology, be sure that you are speaking to those people in the VC firm. Business Plan A VC likely will spend only a few minutes looking through your business plan. Illustrate concepts using diagrams so that one does not have to read the plan to figure it out. Assume that the VC will not read the entire plan, because he/she probably won't read it. A full business plan may have 50 pages or more, but the VC probably will not be interested in that level of detail during the initial review. As such, it is a good idea to have an executive summary of no more than 10 or 20 pages. Build Credibility Focus on the results of your team, showing any demonstrations at the beginning of your presentation. An initial demo helps to eliminate any questions that may otherwise linger throughout the presentation and distract from your pitch. Many start-ups originate from a team of students, but it is wise to recognize that you will need a broader team with more experience and contacts, so it is not a good idea to list a team of only students. A team that already has worked together has a better chance of securing funding. In this context, working together means having done a similar business project together. If you have no team, you may do better by seeking an incubator; a major job of incubators is to help you build a team. While venture capitalists may spend time helping their portfolio companies

to recruit, VC's do not want to be your HR person. Partner Firms Use the logos of your partners and potential partners on the opening page of your presentation. Use big names if possible. VC's are clubbish and would like to be able to associate with your high-profile partners. However, if a potential partnering firm already has decided not to work with you, be sure to remove it from the list. Competitors When listing potential competitors, it is not a good idea to mention giants like Cisco Systems or Microsoft, or any other competitors that are heavily funded. Even if they currently are far behind, they have the resources to quickly take the lead. Don't forget how Microsoft overtook Netscape's huge lead in the browser market. Revenue Model Be sure that you are prepared to clearly articulate how you will make money. VC's like proven models, for example, one that signs up customers and automatically hits their credit card each month for a certain amount. Such a model often is considered superior to one that requires you constantly to have to encourage people to use your service. Customer Acquisition Costs You should have an estimate of your customer acquisition costs. If you have a web site, know how many people will visit the site per dollar spent to get them there. If you do not know this number, take the time to come up with a rough estimate because you likely will be asked. Valuation The entrepreneur instinct usually is to give up as little equity as possible in exchange for funding. As a result, entrepreneurs all too often will arrive a premoney valuation that is grossly unreasonable. If you insist that your start-up is worth $150 million pre-money, you will lose credibility. Unless otherwise indicated, the assumption will be that you have only an idea. (If you already have 2000 man-hours in software development, be sure to mention it in the pitch.)

Seed funding often assumes a $1 million to $2 million valuation. The first round may be in the $5 million to $10 million range. You may consider omitting the premoney valuation from the pitch altogether, or giving a genuinely conservative number to build credibility. Presentation Style VC's want to see visionaries who are passionate about their idea. As such, you should be able to talk without using notes or looking at the projector screen. The VC is investing in vision and passion, so show it. Your style is important because you have to able to sell. Even if you secure the first round of financing, if your company is going to go public you will need additional rounds. You have to be able to sell to investors, partners, and customers. When you are giving the pitch, project confidence by not speaking too quickly. Show preparedness by including answers to expected questions in the presentation. Finally, project the image that the train is leaving, and if the VC's do not get on now they will miss out.