The Rebound

The Ultimate Guide to Starting a Business After You Have Lost Your Job

Feargal Byrne

The Rebound:: LostJobStartBusiness.com

The Rebound: The Ultimate Guide to Starting a Business After You Have Lost Your Job
Feargal Byrne B.A., M.B.S., M.M.I.I. 2010

LostJobStartBusiness.com Web’s number one resource for people who have lost their job and are starting a business. info | at | LostJobStartBusiness | dot | com

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Foreword: Losing your job is a stressful and difficult time in your life. Your ego has taken a bashing, and your self confidence is at an all time low. You are starting to question why you spent all those years at university, learning a trade or working your way up an organization's hierarchy. ! It's strange when all you have believed, in the past, seems to have let you down. Right now, you have two choices 1) wallow in self pity and 2) do something about it. Think about it, this is actually an opportunity for you. The opportunity cost of starting a business has decreased dramatically. ! You now have the chance to step out of the worker drone rut that you have been in for so many years, and step up to the next level. That next level is moving from being an employee to becoming an entrepreneur. ! Who is going to save the economy? Who is going to create jobs? Who will make society better? The answer is you. As an entrepreneur, you are the true economic superhero. Be creative, be innovative and figure out a business model that works in the modern economy. You have the power. Sitting around and waiting for others to do something is not enough. You have got to act. There has never been a better time to start a business. Costs have come down. Highly skilled workers who have also lost their jobs in multinationals are now available to growing start-ups. ! Remember, keep motivated because everyone needs you to succeed. Even if they don’t know it yet. You see, start-ups are the true spark for economic recovery and you hold the spark stick. Feargal Byrne
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Chapter 1: Change Your Mindset 6
Different Ball Game 6 Employee Mentality Versus Boss Mentality 8 Are You An Entrepreneur? 10

Chapter 2: Tips for Start Up Entrepreneurs 13
Ten Fundamental Tips 13 It's a Marathon 18

Chapter 3: Market Research 20
Cheaper to Just Start 20 It Would Be Cool If... 21 Do Your Research The Practical Way 21 First Things First: Establish a Point of Reference 23 Integrate Your Product Development With Your Market Research 26

Chapter 4: Business Planning 29
The Business Plan Myth! 29 Why Your Business Plan Should Be a Five Minute Read 31 Business Plan Layout 32 Don!t Fear The Financials 35 3

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New Business Plan Format 38

Chapter 5: Marketing 42
Salespeople Who Work for Free 42 Will People Rave About You? 45 Build a Fan Base 46 The Internet a Start-up!s Best Friend 48 The Marketing Mix Delusion 50 Trade Shows - Are They Worth It? 53 Marketing What Does it Mean for Start-ups 54 The Psychology of Getting Investment 57 Venture Capital Explained 58 Picking an Investor - Do Due Diligence on Them 60 Your Start-up Team 61 Getting On The Radar Of Potential Investors 63 Traction Is The Key To Unlocking The “Series A” Vault 66 VCs are not the Bad Guys 68 The P/E Ratio 69 Networking and The Advisory Board 71 Potential Investor Meeting 72 Investor Meeting Playing the Traction Card 77 4

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Changing VC Investment Style 83

Chapter 7: Your Type of Business 85
Build a Business Model that Works in a Recession 85 What to Copy From Established Businesses 86 Entrepreneurs and Warren Buffett 87 Importance Of Cash Rationing 90

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Chapter 1: Change Your Mindset
Different Ball Game You wake up to the same ringing alarm clock. You stumble down the same stairs and make the same coffee. Everything seems the same. On the face of it, it is. But, behind it all, it’s not. If life were a computer game the developers have kept the same graphics but changed the game engine. The first day you become an entrepreneur is probably the biggest turning point in your life. It’s probably more important than graduation, than that job promotion you got five years ago, and if you’re married, it might be even be more important than your marriage (don’t tell your spouse I said that, or they will not allow you to read this blog anymore). ! It’s a whole different world when you step over the threshold and into the realm of the entrepreneur. Everything changes. You’re not in the zoo anymore you’re in the jungle. There are no zoo keepers to help you now. You have to hunt for yourself, find shelter on your own, find water. On top of that, you must avoid being eaten by other wild animals. Yeah life is more interesting this way but it’s also more perilous. You
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can’t get away with just showing up. You need to be active and work smart. ! ! You are about to embark on the most rewarding

and fulfilling learning experiences life has to offer. It’s important to enjoy it. Just remember to admit when you’re wrong. Being wrong is a virtue if you can admit to it. Then you can move on and do the right thing. You don’t have a boss that will criticize your mistakes. Making mistakes is a key process in entrepreneurship. It’s how winning strategies evolve. ! As an entrepreneur, you don’t have a social ladder to climb. Internal company politics is out the window. This is replaced by cold hard fact. I think that this is really good for creativity. Because, you don’t waste time running social scenarios through your head on top of trying to innovate. If what you do works, then great. If it doesn’t, then back to the drawing board. ! As I have mentioned many times before. It boils down to the “Right First Time” versus the “Incremental Improvement” mindset. That’s the underlying game engine that happens when you become an entrepreneur. When you get to grips with this. Believe me, the sky is the limit.
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Employee Mentality Versus Boss Mentality I have noticed time and time again that when people who have previously been in employment “go out on their own” they seem to still carry with them the same culture as the organization they have left. They wear the same clothes to work. They have a similar signature on their email. They still behave as if they are working for a multinational. ! These are the symptoms of the Employee Mentality. It’s important to change this mindset and move into the Boss Mentality. No, I’m not talking about acting like Bruce Springsteen all the time. I’m talking about projecting confidence and controlling your own destiny. I’m talking about being decisive and accepting failure as the natural process of working out the best way to do things. ! An important lesson that I have learned is not to get bogged down in formalities. Formalities and start up companies do not like each other, they will never get along and there is no point in trying to make them get along. Why is this? you ask. ! Well, speed of decision making and flexibility, in other words lack of formalities are competitive advantages for a small new business. Don’t deny your
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new business these tools of success just because the company you worked for had formal processes and systems for almost everything. ! Remember, the only way to find out if something will work or not, is to try it out in the real world. Business in 2010 is different to business in 1999. It’s also different to business in 2006. Business in 2011 will probably be different to business in 2010. It’s changing and it’s changing fast. You have to be super flexible. The companies that are laying off workers right now all have outdated business models and cost structures that are no longer viable. They can’t adapt. ! The single biggest error that you can make when starting your business is continuing your Employee Mentality. You must change this. However, it’s not easy. You have been living in that environment for the last number of years. It will take time to change your mindset. You need to acclimatize. However, it’s important that you begin to take those incremental steps towards the Boss Mentality. Now is the time for you to fulfill your potential by starting to drop the Employee Mentality and assuming the Boss Mentality.

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Are You An Entrepreneur? Working for someone is easy. You show up every morning and do what is expected of you. You get a paycheck at the end of the month for your efforts. That’s it. There are benefits, you have the resources of your organization behind you. The ground work has been done already. All you need to do is slot into the system, keep your head down, and work away. Your social group will be impressed with your job title. You will fit in just nicely to conversations with new people you meet that center around where you work. Fantastic. ! For most people this is really attractive. Security and stability are their priorities. Regular income is what floats their boat. That’s fine, everybody is entitled to be happy in their lives. However, for some people the above is a vision of hell. These people are the dreamers. Their brains are constantly thinking up new ideas. They are not afraid to let their imagination sweep them off their feet. They love the thrill of not knowing where the next paycheck will come from. They rather be broke right now with the chance of making millions in future than having a reasonably respectable salary hitting their bank account each month. They don’t need to impress others by talking about the multinational that they work
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for. The are just up for the challenge. Are you one of these people? Are you an entrepreneur? ! To make a comparison, working for somebody else is like living in a modern city. You have roads, running water, communications and electricity. Not to mention buildings, fast food, public transport, police and many other things that we all take for granted. On the other hand, entrepreneurs are the trailblazers who founded the city. They built the first shelter, organized the first road, set up the local political system etc. Everyone who lives in the modern city owes it to the original founder. Everyone who works for a large business owes it to the original entrepreneur. ! It’s all well and good saying that you have the entrepreneurial spirit. Are you prepared to learn the skills needed to be a trailblazer? You got to be able to hunt for yourself, find water, build improvised shelter, navigate without sat-nav. As you can see, it’s a different skill set than modern living. Likewise entrepreneurship requires a different skill set than working in a large organization. You must be prepared to adapt both your workstyle and your lifestyle when you become an entrepreneur. ! Here are some questions that if you answer yes
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to them all you can safely say that entrepreneurship is the path for you. Are you prepared to live below the poverty line until your business takes off? Are you willing to fail ten times to succeed once? Are you willing for your friends to criticize you and your business? Are you willing to argue your case with your spouse during the difficult start-up period? Can you cope with 4 hours sleep a night? Are you prepared for people to reject you and you business time and time again? As you can see it's not a walk in the park but the journey is fun and the rewards are astounding.

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Chapter 2: Tips for Start Up Entrepreneurs
Ten Fundamental Tips There are a lot of issues that you need to consider when starting a business. Here are 10 of the most important ones. 1. Keep Your Cash Burn to a Minimum You can’t operate like a typical established business. If there is no need for office space then don’t rent it. Set up in your garage or living room. Use Skype or another VOIP provider for your phone service. Use as much free software as you can such as OpenOffice, Google Docs etc. Every cost you can eliminate or reduce increases your chances of success. Look at it like this. Cash is the oxygen for your business. When there is no cash your business will die. However, if you reduce the amount of cash needed, your business can keep living for longer. ! This gives you scope for failure. You will make mistakes, so it’s essential that your business keeps going long enough to learn from them. In other words,

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by keeping your cash burn to a minimum you have more rolls of the dice. 2. Get Another Job I know that you want to start a business but hear me out. You need income to survive. You may have a redundancy package and some savings but you shouldn’t eat into these too much right now. A good idea is to get another job because it will provide you and your family with income until your business gets off the ground. ! You are probably concerned that you won’t have enough time to work on your business. Believe me; you will have more than enough time to get your business off the ground. Here are some of the benefits. Because your time is limited, you will become more productive in your business time. You will also not make any rash decisions for your business due to personal financial pressure. 3. Leverage the Internet It’s 2010 and traditional marketing methods are losing their effectiveness. The Internet offers the best value for
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you to promote your business. Do not fall into the trap of traditional radio, print or TV advertising. It doesn’t work very well anymore. If you are going to spend money on advertising, limit it to search engine pay per click. Remember, the most important part of Internet marketing is testing and measuring constantly. You will make incremental improvements that overtime will lead to healthy results for your business. ! Use sites like YouTube and Squidoo to improve awareness of both you and your business. Use social networking to make contacts and participate in discussions relevant to your business. You must also start a Blog that is interesting to your target market. The Internet is the great equalizer for start ups and you can use it to your advantage. 4. Don’t Jump In at the Deep End Here is a general rule of thumb. Before you eat the cake take a small nibble first and see if the cake is nice. By this, I mean you should try and make some sales before you formally set up your business. If you get sales or traction then engage in the formal business set up

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process. If you don’t, then try something else. I call this organic market research. 5. Make Your Business Plan Simple and Straightforward If your business plan can be understood by a 5 year old then it is good to show investors. Your business plan should be super user friendly. An ideal business plan would have a one page cover letter and a PowerPoint slide deck of 10 – 15 slides with notes if needed. This is much better than an 80 page thesis that induces a headache for anyone who reads it. By presenting your plan in a direct straightforward way you are showing respect for those who read it. Their time is valuable, so don’t waste it. Your time is also valuable. You don’t spend as much time formatting 10-15 PowerPoint slides as you would proofing and formatting 80 pages of text. It’s a win win situation. 6. Sign a Shareholders’ / Stockholders’ Agreement This is massively important. Don’t say I didn’t warn you!

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7. You Must Self Fund First Before Investors Will Touch You Why would anyone invest their money in a venture if the founder(s) have not put some of their or their family’s savings in the business? Besides, particularly in the economic situation we find ourselves in today, investors want to see traction. You are going to have to put some of your money and sweat equity on the line and show positive results before you will get any external investment. 8.! It’s Vegas Baby! A lot of the decisions you will make as a business owner can be best described as educated guesses. Some will work and some won’t. Business management can be boiled down to doing more of what works and doing less of what doesn’t work. It’s of crucial importance that you monitor each decision you make in order to determine it’s effectiveness. 9.! Shop Around and Negotiate Down Professional Fees

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Given the current recession you should definitely try and squeeze the best value for accounting and legal advice. Many accounting and legal practices are finding the recession tough just like everyone else so make sure you get the best possible price for their services. 10.! Realize That You Probably Won’t be an Overnight Success Overnight successes are rare so the chances of your business becoming one are slim at best. However, if you aim at making incremental improvements to what you do, and never give up, you are likely to eventually succeed. Hard work is the key. It's a Marathon Starting up is like running a marathon. It’s not a sprint. The success of your new business depends on what happens in the long term. This is critically important to how you make decisions. It’s always tempting to sprint. To take the shortest route. To make choices that will benefit you now but have negative repercussions the future. Sustainability is key. Investors will recognize if your decisions can be sustained into the future and therefore keep producing worthwhile returns.
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!

Look, the value of your business is what it can

achieve in the future. This potential is an asset. By making decisions that benefit your business in the long term you are building this asset. If you make decisions that only benefit in the short term, then when it comes to company valuation you are not going to gain. Remember, be sensible and avoid temptation. Don’t corrupt your start-up’s business model for short term gain.

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Chapter 3: Market Research
Cheaper to Just Start More than ever, the costs of starting a business are plummeting. It has reached a stage that the costs of starting a business are actually less than doing market research on starting a business. As a result, we have seen a new type of market research. Now, the most efficient and accurate form of market research is a combination of prototyping and early stage testing and measuring. ! Market research has become a real time decision making process that aims to constantly improve your business on various fronts. The key to making your start-up successful is to achieve word of mouth amplified by the Internet. Achieving this is a process that involves constant evolution of your product and marketing. You cannot achieve this through traditional marketing techniques. It costs too much, particularly for a cash strapped start-up. By initially engaging in traditional market research tactics you are pointing your business in the wrong direction from the beginning. ! You never really know what’s going to happen
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until you start-up. However, if you listen to the early adopters and are prepared to make changes you will develop your business in the right direction. It Would Be Cool If... When you get feedback from early adopters, you are essentially being told what you need to do in order to spread word of mouth. I think the best type of feedback starts like “it would be cool if….” Not only are you getting useful development pointers, you are also finding out what could spark the word of mouth chain reaction that is every marketer's/entrepreneur's dream. So, the next time you are talking to a “geek” about your product, don’t look at it from a developers standpoint only. Put on a marketing hat and try to work out how this information can help you build your marketing strategy. Do Your Research The Practical Way Earlier on we touched on Organic Market Research. Here are some practical tips that can help you. When doing market research you can do it either the scientific or practical way.

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!

Since you are building a business in the real

word that you hope will make real money I would suggest doing your market research the same way. Are you doing a Phd.? Do you even own a lab coat? Then why would you do scientific market research? ! I know what you’re thinking. What does this guy mean by “practical market research”. Well, here goes (I will try to make my explanation as practical as possible). ! Find similar listed companies in your sector and read their annual reports. Find out what is and isn’t working for them. Also, find out what their future strategy is and why they will be following it. Go onto LinkedIn and ask for advice. Post questions. Use forums and Google Groups to do the same. Build a beta or prototype and start showing it to early adopters/ geeks. ! Listen to them tell you how awful your beta/ prototype is and make the appropriate changes. Get more feedback from the early adopters. Repeat this process until they start telling their friends about you. ! Sounds simple, doesn’t it? Well it is. It’s much less time consuming than writing out questionnaires and running focus groups. You are achieving the same
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results but in a real world practical setting. And here is the important part, by doing practical market research you are also getting traction. That’s my third favorite word after profit and sale. First Things First: Establish a Point of Reference Right, sometimes this idea gets me into trouble with academics who study entrepreneurship in a lab setting. However, I have been converted to this view by a hard dose of reality with one of my previous ventures. Let me explain, when I was fresh out of college I solidly believed that you must do lots and lots of market research before you build anything. ! I believed that before you even prototype, you should put together a questionnaire and get 600 or so responses. Then you should statistically analyze your results. You should also run a focus group with your target market. On top of this, it was also a great idea to do interviews with some potential customers. ! But that’s not all, you need to read report upon report on your market segment. You must also dissect each one of your competitor’s businesses from all analytical standpoints.
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!

After all of this is done, you should have a good

idea if your business is feasible. The theory goes further, if you determine that your business has significant potential to become a success you then write a business plan which will help you get investment."It all sounds reasonable, doesn’t it? However, it’s not practical. It takes too long to complete (remember you can’t go for an extended period of time without any money coming in). It’s too expensive to outsource for a start-up. If you do it yourself nobody will believe it, no matter how objective you are. The results are likely to be biased in some way. It doesn’t help you get traction (traction is the most important thing). " ! The good news is that there is a better way to go about market research for your new business. I like to call it “Organic Market Research”. In summary, Organic Market Research involves putting together a prototype or beta and getting it out there. Show people what you have. Allow them to use it. After they tell you why your product is awful, make the appropriate changes to improve it. You will know when your product is at a good standard when the early adopters start telling their friends.
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!

Look, traditional market research is sub optimal

for a new start-up. You must listen to real world feedback and make the appropriate adjustments in real time. By taking a step back and viewing the market research and initial prototyping stage as one process you are leveraging the most from your time and resources. ! As you know, this is extremely important in a start-up setting. Remember, you’re not Procter and Gamble so get your hands dirty from the word go. However, you must realize that your product will be criticized. The key is to listen to the criticism and then do something about it. ! Another key point to remember is that you are probably not going to be “right first time”. People who think this, are either delusional or complete geniuses. And there are not a lot of geniuses walking around these days. No matter what you do, building your business is a process. There is no magic formula that always works. You must constantly evolve. You will make mistakes, but if you accept these mistakes as part of the learning curve you have a great chance of building a successful business.
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!

Another major reason for throwing a marker

dart earlier is that you can reach traction quicker. This is the most important factor in getting external investment (if you need it). What you do in the real world is worth 100X what you do in a “scientific” market research scenario. Therefore, by focusing on improving your business from your initial starting point you are spending your time generating traction. My friend, that’s what this start-up game is all about. Integrate Your Product Development With Your Market Research This is really important. See, look at it as if you are trapped in a tank with a limited amount of air. You have a better chance of surviving if you act quickly and find an escape. What you don’t want to do is take too long. The problem is that doing market research and product development sequentially takes too long. The chances are that you will run out of air. ! Believe me, good quality scientific market research for a start-up is expensive. Just get a quote from a market research firm and you will find out. However, there is a better way. You can do your product development and market research
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simultaneously in real time. This saves you time, energy and money. Most importantly it helps you get traction quickly. ! Not only does this reduce your cash burn but it also helps you and your founding team psychologically. It creates momentum, and believe me, this in infectious. Like a moth to light, you should immediately move towards traction. ! When you sit back and think about it. Traditional market research is a simulation. It’s not real, and represents nothing more than a best guess. When you use reality as your testing lab your results are real and indisputable and this is key to presenting your case during your pitch. I can’t emphasis this enough. Behind all the VC and Business Angel rhetoric all that really matters is traction. ! Sounds simple, but if it was, everybody would be landing Series A rounds. However, by being laser focused on traction you are giving yourself a head start on those entrepreneurs who believe that their idea is so good they don’t need traction. Look, they are living in fantasy land. ! All aspects of your start-up go hand in hand. As
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a result, don’t compartmentalize. You’re not a

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multinational. Everyone is involved in everything. Everyone is marketing. Everyone is developing, everyone is making the coffee. See, you are all in it together. Make life easy for each other and spread the load. ! Imagine standing in front of a panel of investors. How can you future proof your start-up for their questions? You gotta be bullet proof. Traction is the ultimate body armor. Much better than self conducted market research. ! In the start-up game real results always win. Everything else is a waste of time. Without real results you lack the number one objective truth. That truth is what investors are looking for. It gives them a good idea if they are going to make money.

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Chapter 4: Business Planning
The Business Plan Myth! Lets get this straight from the word go. Nobody invests in an idea and a business plan is just one big idea. As a result, it is not that important for you to get funding. Instead your plan should be created to get you traction. Don’t worry about fancy formatting. Don’t worry about detailed descriptions for other people. Just worry about getting traction. ! See, traction is the key to getting investment not the actual plan. If your plan gets you traction then it’s a good plan. ! Let me redefine the “Business Plan” right here. To me a “Business Plan” is a story about how you got traction, and also, a description of how you are going to get more. ! Nobody has time to read it. So do them a favor. Keep your plan for investors simple and to the point. People should be able to understand your plan in 5 minutes. Remember, your objective is to convey a message and not to put people to sleep.

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!

In summary, the business plan that you write for

yourself should look like a scorecard and the business plan that you write for investors should be a 10-15 slide deck. ! The next time you hear someone insist that you need to write a 60+ page business plan, think about the research from the Robert H. Smith School of Business, University of Maryland which shows that entrepreneurs need not worry about writing an in-depth business plan to get funding from VCs. The research shows that business plans play an insignificant role in the decision making process of Venture Capitalists. The paper titled “Form or Substance? The Role of Business Plans in Venture Capital Decision Making.” which was co authored by David Kirsch, Brent Goldfarb and Azi Gera, contains research on 718 funding requests from the period April 1999 - February 2002. ! There are some great resources on business planning such as sample templates and videos on LostJobStartBusiness.com. Be sure to check them out. " The key is not to focus on the plan as a stand alone issue. Focus on building your business and use the plan as a reflection of what you are doing as well as what you intend to do in the medium term.
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Why Your Business Plan Should Be a Five Minute Read We have all seen it. The behemoth 80+ page business plan."It’s a sight to behold. Very impressive indeed. A lot of work went into it. In fact, it took four and a half weeks to write and proof read. It contains every conceivable detail and the writers believe that it leaves no stone unturned. Okay, it sounds good doesn’t it? Well in fact, when you think about it, it’s not. Here are seven reasons why. ! 1.! If you are looking for investment, the people who you want to invest in your business don’t have the time to read it. ! 2.! If you can’t condense what your business is about into a five minute read, either you are an extreme scatter-brain or your business has way too many moving parts for a start-up. ! 3.! If you are going to use the plan in the day to day management of your business it’s not practical to have a plan that resembles a telephone directory.
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! 4.!

It’s good to take care of the environment. Mammoth business plans = less rain forest = not good at all.

! 5.!

The more technical jargon there is, the more you are diluting the two core elements of the plan. How is this business going to make money? and how much can it make?

! 6.!

Law of averages are against you when you have an sixty plus page plan. Less people will read it. So if you are looking for investment, there is a smaller pool of people that you can draw from.

! 7.!

You have wasted time writing it when you should have been working on getting traction and making sales for your business. Sales matter much more than a business plan.

Business Plan Layout This suggested layout is not set in stone, but is a good starting point. You should include a one page cover letter at the start. It’s good to present the body of your plan in the form of PowerPoint slides that are printed out or in PDF format.

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Slide 1: The problem you solve, the solution your business provides and a usage example. Try to keep each point to one sentence. Slide 2: Potential exits: Who will buy your business? Do they have a track record of acquisitions. Slide 3: Problem breakdown: Go into detail about the problem that you solve (remember back up everything). How many people have the problem and how much in money terms does this problem cost them? Slide 4: Traction: This is the number of users, key reference sites or sales that you currently have. If you are not at that stage yet, list the milestones you have reached (this is probably the most important slide). Include any IP such as patents that your business has. Be aware that without traction you most likely will not get investment. Slide 5: Market overview: Size of market and projected growth (back up everything). Slide 6: Business model: How you will make money. It might be good to mention other companies that use the same model.
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Slide 7: Milestones: Show the key milestones you intent to meet. It’s usually good to show these on a timeline. Slide 8: Competitors: List your competitors along with their strengths and weaknesses (Hint: if they are a public company read their annual reports). Use a “What we can do but they can’t” and a “What they can do but we can’t” (be honest) matrix. Slide 9: SWOT analysis: List your Strengths, Weaknesses, Opportunities, and Threats. Slide 10: PEST analysis: List the Political, Economic, Social and Technological issues within your industry sector. Slide 11: Management Team: Background, education, ownership etc. Slide 12: Financial Projections: Usually for three years. Include graphs. Make it clear how you got the sales figures. Slide 13: Current Objectives: Funding needed and immediate milestones.
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Don’t Fear The Financials The single most important skill that you can have when putting together financial projections for your business is common sense. If you can apply common sense, doing the financial projections for your start-up is easy. Don’t outsource your projections. You will need to change these constantly and revise them as you analyze real world data when it comes in. By constructing the financial projections for your business yourself, you are gaining an invaluable insight on how your business will work. ! The hard part is getting your assumptions right. Obviously, your are not going to be 100 per cent accurate, but you should try to be as accurate as possible. Read annual reports of similar companies. Try to find out typical conversion rates for your sector. Also, identify the key financial indications for your industry. However, remember if your business model is different to the industry standard your key financial indicators will also be different. ! I believe that the best way to do your projections is to think through how each item in your financial projections relates to others. This is a great process that helps you understand your business model.
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You can find out your expenses by getting actual quotes for each item. Don’t guess what your expenses could be when you can get accurate quotes. Once you have your assumptions established all you need to know in order to complete your financial projections is how to add, subtract, multiply and divide. You don’t have to be a financial analyst. As long as you apply logic to your projections they should come out okay. How to do Sales Projections Many entrepreneurs get this very wrong. Some do not apply any methodology to obtaining their sales figures. In the vast majority of business plans, the sales assumptions are simply plucked out of thin air. As a result, the vast majority of business pans are worthless and are a waste of time, energy and resources. ! Would you build a house on quick sand? Then why would you build a business plan on unvalidated sales assumptions?! ! There are many different ways to estimate your sales figures. One way is to use the key performance indicators for your industry sector. That’s what most accountants would suggest. However, this in unrealistic for a new business. Firstly, these figures are an average
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of the industry. So therefore, they naturally reflect businesses that have spent years building a client base and solidifying their market position. As a start-up, you have none of the above. Also, in start-up mode your business model will most likely be different to established businesses in your sector. As a result, I believe that Key Performance Indicators are a lazy way to compile your financial projections. ! The best way to build your sales assumptions is to use a bottom up approach. This does not require any financial wizardry. It only requires a cold hard dose of common sense. In order to do this, you must understand your business model. In particular, you need to understand each step of your sales funnel. What will the conversion rates be for each stage of your sale funnel? However, all of this is still speculation until you actually start selling. The reality is, that nobody is going to believe your estimates, especially hardened business angels or VCs, without real world evidence of them being achieved. ! This leads us to what could seem like a chicken and egg situation. However, it’s not. As an entrepreneur, you need to bootstrap to early stage sales and then use your results as back up to advocate your
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future projections when you are looking for funding to scale your business. At the very start, you need to make assumptions for your own use. Once you start selling, monitor your conversion rates. Refine your assumptions then show them to potential investors. When they start asking questions, you will be in a great position because your assumptions are backed up by conversion rates that you are actually achieving. ! Another point is that you should show each stage of your sales funnel in your projections. Have a separate assumptions page where each figure is broken down into it component parts. It’s like a story laid out in figures. The story is about how somebody is going to buy from you. Remember, when trying to get investment it’s not about science fiction it’s about science fact.! ! You can get sample financial projections and a how to guide form LostJobStartBusiness.com New Business Plan Format I remember being in business school. One of the modules was business planning whereby we had to write a business plan for a fictitious company. Of course, we all produced a cliched 80 page behemoth of
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a document. We made sure that it ticked all the boxes so we could get the most marks. When I finished and entered the real world, I firmly believed that I should write a similar plan for my start up. How wrong I was. ! This approach to teaching business planning is common place. Most people who leave a business school have a distorted view of the business planning reality. ! Some people recommend that people write a detailed business plan just for their own management use. I agree with this. However, I believe that they should only use one A4 page and a pen. They should write their internal business plan in the form of a scorecard and they should regularly check their progress. ! With regard to a business plan for investors, since then, I have seen the light, and now advocate a more practical approach to writing one. Now, I view a business plan as a story. It’s a story about your business so far, and a best guess on what is going to happen in the future, based on your current conversion rates etc. It should be presented in a format that is quick and easy to read. Potential investors should understand your business model within five minutes of picking up the
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plan. ! In general, I agree with the new consensus that you should write your business plan on a 10-15 slide deck with notes. ! The more you can back up your assumptions with hard evidence of actual conversion rates, cost per customer acquisition, positive product reviews by industry experts and glowing customer testimonials the better your business plan will be. In other words, if your plan is packed with real world evidence, you have a great chance of getting investment. ! However, the same amount of background work goes into a plan in this format. The difference is that you don’t have to spend two weeks writing, formatting and proofing a massive document that will never be read in it’s entirety. See, as a start-up entrepreneur who requires investment to scale, your job is to make investing in your business a no brainer. ! Think about it, the easier you make it for investors to understand your business the better the chance that they will invest. It has been proven that business plans are not as important as they are made out to be. Research from University of Maryland’s Business School shows this. Your business plan is not
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an investment tool, it’s a communication tool and just one component of many that a potential investors will consider. ! In conclusion, if you tell an interesting story about your business that points to future success you are onto a winner. On the other hand, If you produce a 70+ page document, potential investors will have another cure for insomnia and your message will be lost. Remember, the work isn’t in the writing, it’s in the building of a business model that gets results.

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Chapter 5: Marketing
Salespeople Who Work for Free You only need sales people for bad products. It’s official, you’ve read it here. Sales people are obsolete for good products. Of course, by good I mean remarkable. However, if a product isn’t good enough for someone to tell their friends about, is it any good at all? ! Being remarkable has almost become a manta for the modern marketer. As a result, it should be a mantra for new entrepreneurs. You need to be noticed. You need people to tell their friends about you. In other words, if you step back and take the big picture view," you will realize that you are an engineer building a word of mouth engine. ! You see, the default setting for new businesses is full camouflage. They don’t stand out. As an entrepreneur, it’s your job to take off the camouflage jacket and put on a yellow high visibility vest. ! If what you are doing is not exciting, funny, controversial, revolutionary or really cool you are facing an uphill battle. The chances are, that you will
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not make it to the top of the hill. However," if what you are doing is one or all of the above, then you have a great chance of building a fan base and generating word of mouth. ! You don’t need sales people. Why pay someone to deliver the “hard sell” when you can get somebody’s friend to deliver the “soft sell” for free by recommending your product? Nothing works better than social validation. Today, it’s easy to recommend stuff to friends. The person who recommends something cool (early adopter) will get social kudos. The followers (who are the majority) will feel good because they fit into this new trend. This can reverberate through different social structures. See the scalability? ! You don’t have to spend hundreds of thousands of dollars on a sales force. From the start, build your product and business with word of mouth generation in mind. ! As I pointed out earlier, marketing today and engineering have a lot in common. Instead of building an actual machine, with marketing, you are building a structure that helps generate and reverberate word of
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mouth. That’s where the money is! It makes perfect sense. Doesn’t it? The Evolution Of Marketing Face it, you are a marketer. It’s the most important thing that you do. I know, you think that you are an engineer/designer/techie, and that’s okay. But in the big picture you are a marketer. ! See marketing has evolved. It’s not like it was. It’s not what you read in “marketing” text books. As the way people communicate and interact has changed so has marketing. In the past, marketing was predominantly a communication between the company and the consumer through the medium of advertising. That’s how it worked in the stone age. ! Now, marketing is about communication between the consumer and all their friends. It’s about their sphere of social influence. Your job as a marketer/ designer/engineer is to create something that is worth talking about. ! So, the next time you are creating something, put on your marketing hat and ask yourself – How can I make this stand out enough so that people will tell their friends? Without it, you don’t have much of a chance.
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Will People Rave About You? In his excellent book “Purple Cow” Seth Godin talks about being remarkable. As a start-up, you must be remarkable. It’s important for you to understand that word of mouth is your only shot. How are you going to get people to tell their friends about you, if your product is “run of the mill”? I’m sure you agree, you can’t. ! Traditionally marketers called this the Unique Selling Point (USP). However, as Seth points out, it goes beyond just being unique. People must care about how you are different or unique. It must be something that motivates people to comment. They must feel the need to tell their friends, to post on message boards, to bookmark your site, and so on. ! I have talked to many fellow entrepreneurs who rattle on about how many sales people they are going to put on the road. They seek hundreds of thousands of dollars in equity investment just to put a sales force on the road. To me, if you need a sales force you haven’t generated enough word of mouth. ! Think of it like this. Why don’t you make your customers the sales force? You don’t pay them, they do
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the job for free. All you have to do is be, as Seth Godin would say, “remarkable.” " ! The important thing is to be remarkable with meaning. This is the most critical component in your marketing mix. By achieving this you will get maximum leverage with any other marketing tactic you use on top of this base. ! ! Being remarkable and comment worthy is only When you get early adopters to use your the first step. However, it’s probably the most crucial. product (beta, prototype etc.) listen to what they have to say. If they make suggestions not only are they helping you improve your product but they are also telling you how to press their “word of mouth” button. The chances are that if you implement their suggestions successfully they will tell all of their friends, blog about you, social bookmark you, review you and so on. Build a Fan Base Once you have generated word of mouth you need to build a loyal fan base. Even though there is a Global recession going on right now, Apple have achieved some great results. The main reason for this is their fan base. People who buy Apple computers are not simply
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customers they are fans. Apple means more to them than a simple computer. To them Apple is a way of life. ! This is infectious. Have you ever taken your MacBook on a train and gotten a thumbs up from a complete stranger. The generic laptop user beside you always looks on with envy. ! I was at a Bruce Springsteen and the E-Street Band gig in Dublin. I was in the line to get into the pit. I was surrounded by the most hardcore "Boss" fans that I have ever seen. Most of them were not from Ireland. They were from France, Spain, Italy, USA, Canada, England and Scotland. They were following Springsteen and the E-Street Band on their European tour. It was a great atmosphere. I overheard conversations about past set lists and predictions of what the band would play later that evening. ! So, why do thousands of people follow a band across a continent? Why would someone want to see a band play more than once? Well, it’s like a drug. The great thing about the band is that the set list changes just enough to make you want to find out what will be played the next night. You definitely “got value” , 3 hrs and 15 mins! (that in itself is remarkable for an international touring band) and got to hear “Sherry
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Darling” but they didn’t play “The River”, but they might play it next time. Wow, better buy the plane tickets and fly to the next show. ! Once you have made something comment worthy and created word of mouth you must keep people interested. How you do this depends on who your customers are. Apple has the keynote at MacWord for their fans. This is more fuel for the word of mouth fire. How many times has a friend e-mailed you a video link for Steve Jobs at MacWorld announcing the new iPhone when it first came out? ! Always remember that you are an engineer building a word of mouth engine. The Internet a Start-up’s Best Friend ! You’re probably saying “Oh, I’ve heard that a thousand times before.” But hear me out. It’s not the technology that makes the Internet important to start-up entrepreneurs, it’s the interactions. ! The Internet is a vehicle for communication. Ideas spread quickly and widely through this medium. A simple link sent over MSN or Facebook by one person to their friend has profound influence. See, the
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Internet makes it easy for people to tell their friends about stuff. That’s what makes it a powerful tool. ! Traditional advertising and marketing techniques are in decline. As a start up entrepreneur, you should leave them to Nike and Pepsi. Use the Internet to leverage people telling their friends about you. That’s your primary objective. Getting people to talk, link, review, blog, vlog, comment, recommend, rate and endorse you, is what the game is about. ! The Internet is the only way you can get in the mix. Forget about PR firms and Ad agencies, they are not for you. Focus your resources on the Internet. This gives you the biggest leverage for your time spent on “marketing” which today means generating word of mouth. ! However, I can’t overstate the need for you to have your fundamental word of mouth generator in place. This is the part of your product that is comment worthy. Internet marketing does not work without it. It doesn’t matter how many Twitter posts you make. If what you do is not comment worthy, it will not spread. ! In other words. If you are bland you will lose. Simple huh?
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The Marketing Mix Delusion Imagine this, you have just learned the rules of poker and you are sitting at your first table." Do you think it would be wise to bet on every hand? Will you learn anything from doing this or will you just go broke? Do you think that you could beat the more experienced players? ! There’s only one thing that’s going to happen. Your chip stack will vanish quickly and you will be out of the game. Another thing that you definitely don’t do is go “all in” at the very start. This is a lot like marketing a new start-up. ! ! A lot of start-up entrepreneurs make this mistake. Hey, even I did it. Thankfully I have learned my lesson. You see, the difference between marketing and gambling is that in marketing once you find a winner it will probably keep winning for a while to come. The trick is to find a winner without spending too much cash. As a result, I think that paid advertising is the wrong place to start for a new business. You may as well take out your lighter and start burning cash. You will run out of cash before you find a campaign that is profitable. Leave this to Nike. They have enough money to do it. You don’t. !
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Instead, focus on marketing activities that you can do without spending cash. You could call potential key reference sites with your pitch. However, I wouldn’t do that at the very start. I would focus all my attention on building a global base of early adopters."In other words, I would focus on the Internet. It’s the perfect vehicle for new businesses. It’s free and you can reach people all over the world. You are a global business with a click of the mouse. However, the Internet requires a more thorough approach than most other marketing tactics. ! See, you need to monitor everything. That’s the advantage of the Internet. You can test and measure almost anything. This information is essential for your marketing activities. I have noticed that too many startup entrepreneurs don’t do nearly enough testing and measuring online. To me this is crazy. ! Imagine this, you get people on your site for free. If you make one small change you can improve your conversion rate from 0.4% to 3%. That little improvement is probably the most significant event in your start-up’s history. You know that on average you are getting 250 dollars for every one hundred visitors."Now, because you have a 3% conversion rate you can ramp up your Internet marketing activity." In
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other words buy visitors (Search Engine Optimization is better in the long-term but it takes time. You get immediate traffic with Pay Per Click). Only do this when you have a conversion rate that gives you a profit after the advertising is paid for. For the following let’s assume that you use Google AdWords. ! So because you know that you are getting 250 dollars profit from every one hundred visitors. You can spend 100 dollars to get one hundred visitors and still clear 150 dollars on average. You can incrementally ramp this up. Imagine spending $100,000. See you can now scale your business. Also, you can invest more in SEO and reduce your PPC spend. ! If you focus on one main marketing tactic like the Internet you can try enough things in that area to find out what works and what doesn’t. Once you have your website working as a marketing machine. You can then expand your activities outside the realm of the Internet. ! Whatever tactics you decide to use in your startup marketing campaign make sure that you can give them the depth required and not to scatter your resources too thinly.
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Trade Shows - Are They Worth It? Lot’s of start-up entrepreneurs go to trade shows thinking that they will set the world on fire with their super cool stand. They think “Yeah, we got an LED wall, how cool is that? I’m sure everyone will want to buy our stuff.” In reality, this hardly ever happens. ! Yes, I know that trade shows are of some benefit. However, since your time and energy is scarce I don’t believe that they are worth it. That’s right, in my mind trade shows are sub optimal for you. Remember, you are a start-up and everything is limited. You must use what you have on the things that give the highest returns. ! Firstly, forget about getting a stand at a show. It simply costs way too much and I’m talking about both time and money. Secondly, only attend if you’re are really sure that there is nothing more you can do with your product, website, blog etc. ! I have attended many trade shows in the past and for me they were a waste of time. I will not be attending anymore because there are other things that I can do with my time that give me greater benefits. By being just another stand or being just another guy who
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took a card from a desk doesn’t really give you any benefits. ! Believe me, the environment at trade shows is not conducive for a start-up. Leave it to the experienced trade showers. Save your money and time for other things. Marketing What Does it Mean for Start-ups Marketing in the context of a new business is often misunderstood. In many cases, it’s relegated to a number under the header “sales and marketing” in an excel spreadsheet. This is sad, real sad. Relegating marketing to an after-thought puts a new start up at a distinct disadvantage." This is particularly true in today’s economic situation. The number one reason for this, is a complete misunderstanding of marketing. This is not the entrepreneur’s fault. They just haven’t been shown the light yet. You see, most start-up entrepreneurs are from technical backgrounds. They have no exposure to marketing. Therefore, they assume that all they need to do in order to market their start-up is run advertisements in newspapers, on local TV, on radio and use Google AdWords (if they have heard of it).
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!

This just doesn’t hack it for a start-up. It’s like a

space shuttle being launched into space. A new business has to generate a lot of force to leave the atmosphere. It needs an extra kick more than an established business. However, most start-up entrepreneurs take their marketing cues from established businesses. As a result, they miss the target. ! The secret behind start-up marketing is really simple. As outlined earlier, it’s about getting people to tell their friends about you. In turn, they will tell their friends and the cycle continues. In order for this to happen there has to be a spark. It’s the first job of the entrepreneur to create that spark. ! Creating this spark involves creating a product that gets people talking. The second step is to help people megaphone your start-up. It’s about using word of mouth as a tangible marketing strategy."It’s about turning your customers into salespeople who work for free. ! For this to work you need a perfect storm of idea, vision and execution. This is what entrepreneurs should work towards. Invest in making this happen instead of advertising. ! Investors are looking for sustainable businesses.
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If your turnover depends on advertising spend then what happens when this is turned off? ! By focusing on creating word of mouth generators for their start-up, entrepreneurs are taking the ideal approach to start-up marketing. Hopefully, more entrepreneurs will focus on this instead of apply clichéd marketing techniques.

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Chapter 6: Getting Investment
The Psychology of Getting Investment This is probably the most overlooked area of entrepreneurship. Yet it’s crucially important. Dealing with Business Angels and Venture Capitalists (especially Venture Capitalists) is a game. In most cases, investors in new businesses get thousands of propositions every year. Therefore, they don’t put any value on entrepreneurs who send them business plans and harass them at events. ! You must give them the impression that you don’t need them. That they are surplus to your future plans. You must also subtly, give them the impression that other investors are interested in you. Essentially, what you are doing is creating higher value for yourself in their minds. ! What’s the best way to do this? It’s quite simple. Just build a business that is self sufficient but if it got additional investment could really scale. When you have this, your subconscious will automatically convey what investors are looking for.

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!

Also, if you are getting industry reviews, being

recommended on industry websites, being twittered about, being blogged about, professional investors will pick up on it. If they don’t, then you don’t want them investing in your business. They are not tuned into your market sector. ! Another thing that you should do, is set criteria for investors to meet. For example, if a potential investor needs to be explained a typical industry practice then you should tell them that you are looking for an investor that is well versed in your sector. Thank them for their time and interest but don’t accept their offer. ! Oh and finally my golden rule of thumb. Never contact Business Angels or Venture Capitalists directly.

Venture Capital Explained Okay, one of the most important things that you, as an entrepreneur, need to understand is how venture capital works. Business angels operate a little bit differently but the same principals apply. It’s actually quite simple. See, it comes down to a numbers game. For example, they invest in ten companies. Most of these companies
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will fail therefore losing the VC’s money. However, let’s say that out of the ten companies three actually make it. ! The VC must get the money that they invested in the seven companies that failed back from the three successful companies. Let’s say that two of the three companies are mediocre success stories. They are not giving super high returns. But, there is one company that is the star of the bunch. The company is now making stratospheric profits and can be sold for hundreds of millions of dollars. ! When the VC sits down and looks at it’s portfolio of companies it averages out the return over all ten in the portfolio. Makes sense doesn’t it? However, you need to be aware that this approach to investing has knock on implications on how companies who have received VC funding can operate, and ultimately, how much they can be sold for. Often, this results in a conflict of interest between the Entrepreneur and the VC. ! For example, if you are operating a successful VC backed company and you receive an offer for a trade sale of 20 million dollars the VC may turn it down because it doesn’t match it’s investment strategy.
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They are holding off for a 200 million dollar offer. You as the entrepreneur would have been more than happy to take the 20 million dollar exit but you can’t because you signed the term sheet with the VC. ! Look, when you get investment from a VC just remember that you must conform to their investment strategy. Be aware of this from the start. Remember, that it’s all about the return on investment. Picking an Investor - Do Due Diligence on Them This is just as important as putting together your founding team. Investors differ widely so you need to pick one that has the right skills for your business. Don’t take the first offer that comes your way. Also, consider the skill set of a potential investor as part of the package. The money isn’t everything. Ask yourself these key questions Who has the Business Angel or VC previously invested in? Have they had many successful exists?
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What’s their background? What are their key skills? Will they be hands on or hands off? Can you get along with this person? What non-financial things can they bring to the table? Google their name both in news and in regular search. Call up portfolio companies and get their take on the potential investor. ! I know it’s obvious, but many entrepreneurs don’t do enough research on a potential investor before a meeting. You are doing yourself and the potential investor a big favor by doing your research. Your Start-up Team I’m going to say this once but you really need to listen. Sign a Shareholders’/Stockholders’ agreement. Okay, now that’s out of the way let’s look a your start-up team.
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!

This is the most important issue concerning

your business. Firstly, you should all get along. Also, you all and I mean all, need to be obsessed with the business. ! ! Currently, I work alone but I have been part of a I think a three person team is good at the start. start-up team before. Two on development and one on marketing. As I said before, all members of the start-up team must be obsessed. Even if one member is only 3/4 obsessed your team will not work. " ! You have to realize that trial and error is part of being an entrepreneur so this will happen a lot at the start. Here are some start-up team pointers. 1) Be in constant communication. Tell the team exactly what you have done and what you plan to do. Always ask for clarity if you don’t fully understand what another team member is saying. 2) Don’t set unrealistic deadlines. Let each member set their own deadlines because they know their area of expertise best.
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3) As soon as you start having difficulty with something tell the team. 4) Be honest with everything. If you think someone should be doing a better job then tell them straight away. 5) Hold you hands up when you make a mistake. 6) Don’t expect miracles. Everything takes time and effort. 7) If someone wants out, refer to the shareholders agreement. There will be problems. The key is how you deal with the problems that will determine how successful your founding team is.

Getting On The Radar Of Potential Investors Okay, first things first. The idea that sending a business plan is all that you need to do in order to get on the radar of investors, is preposterous. Unfortunately,
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Venture Capitalists and Business Angels are inundated with plans from expectant entrepreneurs. However, most of these get thrown straight into the bin. ! If this continues I am going to have my Bob Geldof moment and organize a series of multi continent concerts to raise awareness of the environmental impact of ignorant entrepreneurs printing hundreds of business plans and sending them to VCs. ! This is the most ineffective tactic used to get the attention of investors. Also, contacting investors cold is another bad idea. Investors won’t appreciate it. Don’t be one of the hundreds of entrepreneurs who harass investors. Believe me, there is a better way. ! Investors pay attention to their industry. It’s in their interest to keep an eye on new companies in their sector of expertise. As a result, the key to getting on their radar is to generate word of mouth among industry circles. ! There are many ways to do this. You could get your product reviewed by an industry publication/blog. Send press releases to industry journals, magazines and websites. Ultimately, if the early adopters start noticing you, so will the investors.
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!

It’s important to create higher social value

among investment circles by generating a good industry buzz about your company. This takes time and is difficult to do with only your own funds. However, it demonstrates your dedication and competence to potential investors. This is important because many top level investors invest in the person just as much as they invest in the business. ! It’s important not to go cap in hand to investors. They won’t respect you if you do. Remember, they are not a charity. If you can create a start-up with solid fundamentals and the potential to scale then investors will recognize that immediately. ! By not contacting investors directly you will be in a better negotiating position when they contact you. Besides, if you contacted them directly they probably would not have arranged a meeting. ! It’s also important to note that many investors are notified about potential investment opportunities by accountants or by their legal advisors. You should be aware of this if you happen to get into conversation with such a person at an event. ! In summary, the best way to get on an investor’s
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radar is to be so good that they can’t ignore you.

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Traction Is The Key To Unlocking The “Series A” Vault If you had the option of placing a bet either before the race starts or half way through it, what would you choose? Obviously, you would choose to place the bet half way through. You can see how each horse is running and determine who to bet on based on the most up to date, and more importantly, relevant information. ! See, that’s what Venture Capitalists and Business Angels do. It’s important for entrepreneurs to understand this. There are too many start-up ideas to invest in. By “sitting on the fence” and watching which start-ups are performing well and getting traction, investors are gathering the information required to make a diligent investment for themselves, or in the case of Venture Capital, for the VC fund. ! Once you realize this, you can begin to focus all your power on getting traction. When you sit back and think about it, nothing else really matters. Traction tells the investor quite a lot about your business. It answers a great number of questions. 1) It proves that there is a market.
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2) If you are making sales it shows that people are prepared to pay for your product. 3) It shows that you can manage and develop a business. 4) It is a good base for your future projections. 5) It’s the best form of market research. The truth is that external funding is to scale, and not to start-up. When you get traction it helps investors to gauge how much you can scale from that point. Investors should be experts in your industry sector and therefore should know how early stage traction relates to scalability. ! All the market research and strategic planning in the world doesn’t mean squat without traction. As a start-up entrepreneur your time is limited. You must focus on the activities that further your cause the most. You can’t do everything according to the business strategy and market research text books. You must prioritize. ! On to the big question. How do you get traction? I believe that there is no set way to achieve this. Different businesses will have different paths to traction. However, the important thing is to constantly
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evolve your approach by testing and measuring. Establish a point of reference by implementing your best guess and then refine it incrementally. VCs are not the Bad Guys Okay, I know what you are telling yourself. “This guy has sold out.” “He’s turned to the dark side.” “The VCs have secretly taken over the blog!!!” ! ! I understand your initial reaction but take some deep breaths and relax. I have lost count of the number of times fellow entrepreneurs have moaned, bitched and complained about VCs. I never was so hard on them. ! My college degree was in Accounting and Finance so somewhere in my subconscious I held a little bit of sympathy for the VC community. I understand that they seem arrogant, self righteous, and egotistical to someone from a technical engineering/ scientific background." Sorry, can I rephrase that? – They seem arrogant to most human beings. However, it’s not their fault. It’s the position that they are in. ! Look, their responsibility is to subscribers of the fund. The people who put money into the VC fund. They must maximize the return for these people. As a result, it’s only ethical that they are so hard on
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entrepreneurs. On top of this, let’s face it, entrepreneurs can be annoying. We can seem arrogant, self righteous, and egotistical to VCs. Venture Capitalists are also scared because the World’s oxygen supply is being diminished right before their eyes by the thousands of 80+ page business plans that come in the mail ever year. ! You see, they are not in the business of being nice. That doesn’t make them bad people. In fact, if you show a VC a little bit of love who knows they might even invest! The P/E Ratio I know that it’s boring. I know finance is all about guys in bland suits with even blander personalities. I do apologize for bringing up this technical financial term. However, there was no way around it. I tried brain storming a better way to sugar coat it but unfortunately my mind hit a blank. Right, so lets get down to business. ! The P/E Ratio is the most important financial ratio for entrepreneurs. Let me explain, the P/E Ratio is a method of valuing companies. It looks at a company’s

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profits and compares it to the value of the company. It is expressed as a multiple. ! For example, an average P/E Ratio of ten in your industry means that an entrepreneur can argue a ten times profit valuation for their business. So, if they had a profit of one million dollars they would value the company at ten million dollars. There are a number of slightly more complicated considerations such as taking an average of profits over a number of years etc. but on the whole, you should understand the principle. ! So, how do you find out the P/E ratio. Well, the easiest way is to use Google and Yahoo finance. They will give you the P/E ratio of similar listed companies. It’s a good starting point. ! As you can see, the higher your profits the higher your valuation. So, let’s make this clear, you should strive not only to make sales, but to have a business model that minimizes costs and therefore maximizes profits. Cost cutting is easy and will have a major impact on your bottom line. If your objective is to sell your business then cutting costs and running an effective and efficient business is worth multiples of the cost saving.
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Networking and The Advisory Board Many advise new entrepreneurs to seek advisory board members who have contacts in the sector concerned and who can advise on certain key issues. My problem is that the people who give this advice don’t realize how hard this is for a first time entrepreneur to do. ! It’s a lot like getting actual investment. In fact, for someone who will actually add value to your advisory board their time is often more valuable than a significant proportion of the investment required. Just because somebody has experience in the industry doesn’t mean that they will contribute to you in any positive way. As a result, you need to be aware of how passionate your advisory board members will be. You must judge their personality. ! Also, you should pay them in equity. That way they benefit from the upside but not the downside. Ultimately you should look for people who you can get along with and that have a track record of success in your niche. I know it’s common sense but it’s always worth saying. ! Ask yourself, what can this person contribute to the company. If they can pick up the phone and introduce you to a key client then obviously they are of
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value. However, if all they offer is advice and don’t leverage their network for you then you should think twice. ! Make sure your advisory board members allow you to use their name with your start-up. This gives you instant credibility. If they don’t allow you to name drop in one to one situations then don’t have them on your advisory board. They don’t have confidence in you or your business and it’s not conducive to have people like that involved. ! In reality, all an advisory board can do is open doors. It’s up to you to walk through them. It’s useful to have but remember it’s difficult to get really good people on your advisory board. In some cases it can be harder than getting investment. ! However, the good news is that the traction card will work here too. Ultimately the combination of traction with a good advisory board can be extremely powerful and most likely will fast track your growth. Potential Investor Meeting The Entrepreneur has just finished their presentation. They are feeling good. It came off without a flaw. They think the hard part is over – or is it?
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Investor: Right, nice presentation you didn’t bore me as much as I was expecting when I saw you walking in the door. You seem to have a natural flair for presenting things. That’s well and good, but now let’s get down to business. I have a few questions. Entrepreneur: Fire away. Investor: How do I know that your product is as awesome as you suggest? Are there users that I can call up to get their opinion? Entrepreneur: Well we have an Alpha version. There’s a few bugs but if you use it and can see past the bugs I’m sure you will see how this product can be a success. Investor: I’m not your target market. I would like to hear what your target market has to say about your product. If you had some reviews or testimonials I would have a much better idea about your product. Entrepreneur: I understand. Unfortunately we are not at that stage just yet. Investor: Moving on, are you sure that you looked at your competition hard enough? It seems hard to believe
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that only two other businesses are currently involved in what you believe is a lucrative niche. It makes me think that either you haven’t done enough research or your niche isn’t as lucrative as you believe. Entrepreneur: We searched Google for the main keywords of the niche. Those two companies are all that showed up. Investor: Hmmmm. I have another meeting in 25 minutes so I am going to move quickly on. Let’s take a look at your financial projections, they seem a bit far fetched to me. How did you come up with your sales figures? Entrepreneur: We looked at the overall market and estimated that it was worth a total of $200 million per year. We estimate that we can get 1% of this market in year 2. We have used this as a base for out sales assumptions. Investor: Do you know how many businesses I have seen that project a 1% market share by year two or three? Let’s move on. Entrepreneur: Okay.
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Investor: Looking at your expenses. It seems to me that you have completely missed the mark on how much you need to spend on marketing. Those sales figures are unobtainable based on your marketing spend. Look, I’ve been in this game a long time and you are trying to get water from a stone with these projections. Entrepreneur: Thanks for the advice. We thought that our marketing expenses were okay. Our Accountant produced the figures and that’s what he believed would be sufficient to generate the sales in the plan. Investor: I’ll tell you straight up. I don’t like your founding team. You guy’s don’t have the level of experience that can take your idea and turn it into a business that I would be prepared to invest in. Right now, I’m not going to invest. You need to work on your business more. Entrepreneur: Wow, err, well thanks for your time This scenario plays out countless times all over the world. First time entrepreneurs do not realize what they need to do in order to construct a viable investment
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proposal to Business Angels and Venture Capitalists. If entrepreneurs understood what was required to get investment from the very start, they would be able to structure their business model in such a way that would make it easier for them to get funding to scale. ! It’s not complicated. In fact, it’s much simpler than many first time entrepreneurs believe. Get traction, become cash flow positive and make profits. ! Experienced investors will be able to judge the benefits of their investment to your business and get a more realistic appraisal of the potential returns. ! Sadly, many entrepreneurs don’t put themselves in an investor’s shoes. However, if they investigate what makes a good investment for a Business Angel or Venture Capitalist they will be able to fit their business model into this criteria. It’s like looking down the sight instead of just firing wildly from the hip. ! In order to avoid the above scenario, entrepreneurs need to focus on creating a sustainable business model that will generate returns for investors. There is no need for window dressing. Remember, investors don’t invest in an idea they invest in a business. So, focus on building a business with solid foundations.
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Investor Meeting Playing the Traction Card As we have seen above, you must be ultra prepared when you are pitching to investors. However, being prepared means more than just being prepared for the meeting. You must prepare your business to a level that gives investors confidence in you and your team, shows a market for your product, and indicates that your business can scale to a level that will give an appropriate return. ! You must always remember that top level investors will test you by asking awkward questions. They will push you and observe your reaction. They will be observing not only what you say but how you act. The buzzword that you should always remember in this situation is confidence. The best way to convey confidence is to have your homework done and have a business that is getting some good traction. ! I cannot over emphasis how important traction is. It’s a critical foundation for you to advocate your business plan to potential investors. If you don’t have traction it’s very hard to argue your point. ! Here are some demo questions and answers that you should be prepared for. They show the importance of traction as a base to support your plans. I have
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picked the more difficult questions that many entrepreneurs come unstuck by. These are real questions that I have encountered as an entrepreneur. 1) Question: Your team is not very experienced, I don’t know if you can deliver. Is there anything that will give us confidence in your team? Answer: Since we began the business we have achieved $X sales with a relatively low marketing budget. In the last three months, we have been profitable, and as a result, the business is now self sufficient and we are paying ourselves. This business is already a success and we have shown a high degree of competence in achieving this success. We want to carry on our success and scale the business. We believe that our results speak for themselves. We understand that there are some gaps in our experience. However, our experience with this business so far demonstrates our capabilities as entrepreneurs. Note: Use your past results as a means to advocate your competence. You do need to have achieved positive results in your business. If you haven’t got any traction

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then you will have a hard time answering this question. Remember, never talk yourself down. 2) Question: I don’t think your projections are realistic, did I miss something? Answer: Our projections are based on conversion rates that we are actually achieving. These conversion rates can be maintained as we scale. We make $X on every $Y spent on Google AdWords. We have used Google’s Traffic Estimator to show that this can be maintained as we ramp up our PPC spend. Note: You show that your projections are being achieved in the real world. This makes it very hard for a potential investor to shoot them down. It’s very hard to argue against reality. I understand that organic web traffic is the best way to attract visitors. However, Pay Per Click (PPC) gives a tangible matrix. It’s easier to present as part of a plan. 3) Question: Your competitors’ products are much better than yours. Why would anyone want to use your product?

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Answer: Our product meets the needs of X niche much better than our competitors’ products. This is the reason why we have generated word of mouth and made some early stage sales. You should read this review from reviewofyourproduct.com. It answers your question quite well. Also, here are some quotes from our current customers. Note: It’s always good to introduce independent third party references for your product. Reviews in industry magazines, websites and blogs help dramatically in backing up your point. Also, it’s a good idea to have quotes from actual customers in this situation. 4) Question: Regarding the international market. I don’t see any infrastructure in place that shows you can make this work. How are you going to sell internationally? Answer: A substantial number of our early customers are international. They have found us through our website. Also, we have noticed that once we get a customer in a region many more follow afterwards. This shows that our product generates a good degree of word of mouth. Look, we are already selling worldwide
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and this model works for us. There is a lot of room within this model to scale. We intend to do this first before we apply other marketing methodologies. Note: Again you rely on your traction to back up your point. Without it, it’s very difficult to put forward a convincing argument. 5) Question: You have no sales staff I am not happy with your business model. Can you convince me otherwise? Answer: When we started out we couldn’t afford to put sales staff on the road. Instead we developed a business model based on Internet marketing. We focused on creating a product that generates word of mouth. To put it another way, our customers are our sales staff. Because we have worked hard on constantly improving or website sales and marketing engine, we have made it easy for people to spread digital word of mouth. Again, this model is working for us. We just need to scale it. Note: If your current model is not giving results then investors won’t back it. You need to base your

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assumptions on real results. This is the best way to show that your planned model can work. 6) Question: I have looked at the Key Financial Indicators for your sector. Your assumptions are totally out of whack. Why should I believe them? Answer: I have also looked at the Key Financial Indicators for our sector. However, the difference between us and the average business in our sector is that our business model is much more streamlined. As a result, our assumptions are different to the Key Financial Indicators. Be rest assured, our projections are based on actual results that we are achieving right now. Note: Again, this point is almost impossible to argue without being able to show real word results. As you can see, traction is the glue that ties your business plan together when under inspection from external investors. You see, when faced with either Venture Capitalists or Business Angels you really require traction in order to put forward a good case.

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Changing VC Investment Style With the success of Y-Combinator many Business Angels and Venture Capitalists are changing the way they invest in start-up companies. In the last number of years the cost of starting up has plummeted. This is particularly the case with Web 2.0 companies. ! As a result, Venture Capitalists are adjusting their investment strategy to reflect this. The days of a five million dollar series A could be over. However, there are benefits to this new level of prudence. As an entrepreneur, I know that if the money is there it will be spent. Conversely, If a start-up has to live on less then it will adapt. In fact, it’s a win win for both parties. ! By taking on less investment at the start, the entrepreneur avoids unnecessary dilution. On the VCs end, they haven’t gone “all in” with a massive series A round. Their risk is mitigated. ! Ultimately, this will result in less waste and better business models. Given the current global downturn, restructuring VC investment methodologies to something more similar to Business Angel groups will help get the sector out of it’s current slump. ! Start-up accelerators such as Y-Combinator and
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Berkerley Ventures seem to be the most sustainable

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method for new business investment. I predict that we will see more and more established VC funds following suit in the next few years.

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Chapter 7: Your Type of Business
Build a Business Model that Works in a Recession What was wrong with the US auto companies? Simply put, their business model was outdated and obsolete. What was wrong with all the banks? Their business model could only survive in an economically opulent time. The same can be said with most businesses that are struggling right now. ! So, what are the options open to established businesses that are struggling? Well, they can either change or fail. However, change is extremely difficult. Core beliefs and practices that have been ingrained in the organization must change. To anyone familiar with organization behavior. This is a nightmare. ! You, on the other hand, don’t have to worry about change. You can start with a business model that not only will work in a recession but will position you excellently for any economic upswing. ! I know that some of your friends are neighsayers. They like to criticize your plans. I guess that some people will always take the negative stance no matter what. However, the next time you hear “Hey, you are crazy for starting that business in this
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recession” put it down to their lack of business knowledge. See, this recession is caused by business models and a good business model can do well despite the recession. ! “The Recession” is the biggest excuse out there right now. The key for you, is not to use it as an excuse. There’s plenty of opportunity out there for you. ! Keep your business as lean as possible. Really squeeze the costs down to a minimum. Bootstrap like your life depended on it (it does). What to Copy From Established Businesses Some of your competitors have been around the block a few times. As a result, they have learned a thing or two. Why not piggy back on their experience and copy them on a few things? ! You must be selective on what you copy. Remember, you must have something that people want to talk about. You must be different in some way. But if people don’t care about that particular aspect of a business model then I think it’s a good idea to copy it from a competitor. No point in reinventing the wheel, huh?
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!

Typically, look to areas like distribution,

technical support, warrantees, licensing etc. for opportunities to follow in the footsteps of your competitors. Just make sure that your product does not become generic as a result. Keep the remarkable elements. ! As you can see, this is a tougher decision than you may have thought at first. It’s a balancing act and does require tweaking over time. I’m sure you agree that by copying your competitors in some “behind the scenes” operations you are benefiting from their experience without having to make the mistakes. " ! If you are seeking external investment you can use your competitors as back-up for any operational question that you may be asked. ! A great way to find out what your competitors are doing is reading annual reports and also doing a news search on google for other businesses in your sector. Entrepreneurs and Warren Buffett Warren Buffett loves reading annual reports. He looks at a company’s business model in detail. He applies a simple and straight forward approach. In many ways,
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Buffett acts like a super business angel. His methods have been proven right in the long term. Entrepreneurs can learn a lot from Buffett’s investment strategy. The difference is, that instead of reading reports and doing research on the company, entrepreneurs are at the forge and are writing the annual reports by their actions. ! There are many distractions that all too many times lead entrepreneurs down the path of failure. It’s important to have one eye on the money engine at all times. The trap of “high-tech escapism” is very easy to fall into. ! Having a clear understanding of what fundamentally makes a good company is invaluable for entrepreneurs. It’s the framework on which you hang your core business strategy. It’s the compass point that will get you to your destination. Once you have this established in relation to your business everything must focus towards it. Ultimately, three common sense questions sum this up. 1) How much will the business make? 2) How much will it cost to run the business?

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3) Will your income stream and cost structure be sustainable into the future? As an entrepreneur your goals and ambitions set the criteria for your business. How much do you want to make? How hard do you want to work? ! Now what you are looking for is a convergence of what makes sense for you to start a business and what a potential investor is looking for. If your criteria meets their criteria then you have a real chance of making a deal. However, if you don’t focus on the money engine from day one, it’s very unlikely that your start-up will be positioned for investment to scale. ! A vast majority of investors are looking for historical data that indicates future potential. You must get this traction. The higher up the traction ladder you are, the better chance you have of getting investment. ! There is plenty of information on Warren Buffett’s investment strategy. Try to build a business that Warren would invest in and I’m sure you won’t have any problem finding others who will believe in you.

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Importance Of Cash Rationing The most important issue facing a start-up is cash burn. It may sound easy to manage, but in reality, it takes a lot of planning to get right. From my past experience there is a large range in cost for almost everything a start-up needs. These costs add up and if left unchecked can mean that the business must fold before it manages to achieve any significant traction. ! This requires start-up entrepreneurs to do a “cold light of day” cost benefit analysis. In other words, only pay for the absolute essentials. Use as much open source software as possible. Don’t rent office space. Start up in a garage or bedroom. Use Skype for your incoming and outgoing calls. Use a web host that gives you extreme value. If you can keep your cash outflows to under $80 a month you are well on the way to building a cockroach like enterprise. ! Something that is hard to kill might just live long enough for you to learn from your mistakes and make enough sales to vault to the next level. Look, I believe that every start-up entrepreneur should do a line by line assessment and squeeze any unnecessary expenditure out. Lean is the name of the game. ! It’s important for entrepreneurs to ration cash
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like their life depended on it (and it does). However, I still see the majority of entrepreneurs overlooking some cash savings that could keep their business alive during the development stage. Be vigilant and reduce costs at any opportunity. Type of Business for Your First Venture As you already know, there are various types of startup. You’ve got the Web Based Start-up, the Bio-Tech/ Pharma Start-up, the Retail Start-up and so on. Each start-up involves different structures during the start-up phase. ! For me, I think the best type of business for first time entrepreneurs is one that is cheap to start and has plenty of scope for learning. To take this idea further, a business that involves extensive market research and upfront expenses is probably bad for first time entrepreneurs. ! When you are a first time entrepreneur you don’t have the access to funding that a previously successful entrepreneur would have. It makes sense to start a business that you can bootstrap on your own. Also, as you become successful with your start-up you are building confidence in the eyes of potential
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investors. So, if you require additional funding to scale, you have a better chance of getting it. End Note Starting a business is an exciting and rewarding experience. It requires that you step out of your comfort zone. It enables you to move away from the restrictions of playing the game by someone else’s rules and instead write the rule book yourself. ! It’s a process that is the most important component in an economic recovery. Right now, I believe that there has never been a better time to startup. The combination of technology and lower start-up costs mixed with global communications make bootstrapped business models that offer high returns possible. I hope that this ebook will help you along the way. If you embrace entrepreneurship wholeheartedly, the day you lost your job could be the best day of your life.

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About the Author Feargal Byrne is an entrepreneur with experience in the software and entertainment sectors. He holds a B.A. in Accounting and Finance and an M.B.S. in Entrepreneurship and Marketing. He is a member of the Marketing Institute of Ireland. He blogs on LostJobStartBusiness.com. You can contact Feargal by email: info | at | lostjobstartbusiness | dot | com Twitter: LJSBusiness

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