Prep Your Business Idea for Success

Summary from Business 2.0

Establish a Company
• Tools Needed ○ Whiteboard  Brainstorming ○ Mobile Phone  Communication ○ New Credit Card  American Express’s Platinum Business offers 0% interest for 6 months. ○ Accounting Software  Quickbooks Simple Start

Stress Test (Debug and Perfect Your Business Brainstorm)
1. – – – Bounce your idea off as many people as possible. Track down at least a dozen people with expertise in the market you intend to enter. Would they pay money for the proposed product? Use each conversation to sharpen how you explain what your company will sell (if you can't describe the product clearly and concisely, how can you possibly sell it?) – Before saying goodbye, always get the name of another person with whom you can discuss your idea.

Build Your Founding Team (Join forces with other execs to navigate the challenges ahead)
1. Ace Technologist, Strategic Thinker, Dealmaker (Sales and Marketing) a. Everyone must have relevant industry experience b. A good Rolodex c. Willingness to wear many hats, trust and good judgement. d. Expectations should be clearly laid out and founders’ financial interests should be mutually aligned. e. It’s tempting to partner with good friends, but that’s not necessarily a pathway to success. 2. Five qualities to Look for in a Co-Founder a. Loyalty to the business idea b. Honesty, including the ability to acknowledge errors and mistakes. c. Versatility to focus on more than one aspect of the company. d. Connections and the ability to attract talent to the team. e. Flexibility in the face of changine circumstances.

Draft a Business Plan (Map out the market and explain how you fit in it)
1. Tool to help focus your ideas and a conceptual summary to share with potential investors, advisers, and employees. 2. Sells your vision for the company: a. Why it’s viable b. Why it’s better than anything else out there c. Why your team has what it takes to make it happen 3. Detail key factors that relate to the company: a. Target markets b. Goals c. Product attributes d. Revenue projections e. Competitive differentiators f. Founders’ resumes 4. Well honed executive summary that’s no more than 3 pages long a. Grab the reader’s attention by starting with a simple 2 sentence description of your company and what it will do. 5. Do not fall in love with it, it will change (it’s a work in progress). 6. Four things to avoid when writing business plan a. Asking potential investors to sign a non-disclosure agreement. i. It’s a rookie move. b. Spending too much time describing the market. i. Instead, provide lots of detail on your strategy to dominate it. c. Making wildly optimistic projections and assumptions. i. Nothing will get the door slammed in your face faster. d. Exaggerating Your Experience. i. They’ll eventually learn the truth and when they do,your credibility will be compromised. Permanently.

Name Your Business (Give your start-up a handle that works)
1. This is your first impression, brand equity and foundation for every marketing effort. 2. Simple and easy to understand or quirky and memorable. 3. Check the U.S government’s trademark website to make sure no company serving an overlapping market has staked out a similar moniker (www.uspto.gov). 4. You don’t need a lawyer to file a trademark of your own. a. Just get a professional trademark search before signing papers that make your name official.

Register Your Business (Adopt the corporate form that’s best for your growth plans)
1. Establish as a legal entity 2. A formal corporate structure solidifies the standing of the founders.

3. Provides potential investors with the assurances they need to participate in the company’s financial evolution. 4. Provides tax benefits and all important liability protection. 5. Hire an experienced lawyer who specializes in setting up start-ups (many will even defer payments until the first round of financing). 6. If lawyer likes your business plan, he or she may also become a crucial source for later introductions. 7. What’s right for you Inc. (The Fine Print) a. S Corporation: Fine if you don’t plan to raise money from outside angels or VC’s. Only one class of stock is allowed. Taxed at a lower rate than larger corporations, but enjoys the same liability benefits. b. Limited Liability Company: Functions like an S-Corp, but with no outside shareholders. A good choice for professional services firms that don’t need to solicit investment. Can be converted to a C-Corp later. c. C Corporation: Preferred by most medium-size to large companies. Allows for multiple classes of stock (a common requirement for angel and VC investors). Taxation rates for C-Corps are higher than for SCorps.

Prototype the Product
• • • • First physical embodiment of business idea Tool you’ll use to attract the resources you need to grow Don’t confuse a prototype with final product (distracting and potentially fatal mistake) A good prototype is just a working demonstration that showcases what your product will do. ○ Pretty looks aren’t important Show your finished prototype to a dozen or so potential customers and investors who can validate your idea, define key features and guide your product development. Tools You’ll Need ○ Spec-Document Software: Omni Outliner and Microsoft Visio simplify writing product definitions. ○ Development Server: Lease one for $300 a month from a Web Hosting company like ServerBeach. ○ Collaboration Tools: Basecamp is a cheap Web-based application for sharing files and documents. ○ VoIP Calling Service: Skype is a free application that lets you make long distance calls from your PC.

Trademark and Patent Ideas (Avoid infringing on others’ patents and secure some of your own).
1. Patents and patent law are a major headache for tech and Web-based startups, so you’ll you want legal guidance. 2. Get a provisional patent: Allows you to lay claim to an idea as “patent pending”. 3. Submitting a provisional patent costs about $200 if you do it yourself, while a full patent application costs $12k to $15k, including legal fees. 4. Patent Law 101 a. Technology Patents: Describes and protects how a particular device, mechanism, or software program works. b. Business Process Patents: Describes and protects a mechanism for making money and how it interacts with underlying technologies. Amazon.com holds such a patent for its one-click shopping feature.

Get an Advisory Board
1. Group of 6 to 12 people to provide expertise in the industry you hope to tackle. a. Technical insight b. Startup veterans 2. In exchange for equity in the company a. Typically 0.1 to 1% for 4 hours per month 3. Avoid big group meetings a. Bring in specific advisers for task oriented discussions as needed

Trial product (Build Your Prototype)
1. Start with a basic mock-up or artist rendering 2. Show to a few potential customers and use their feedback to define specifications 3. Hire independent contractors a. Design: Scour local schools. www.aiga.org or www.creativehotlist.com b. Hardware: www.coroflot.com c. Software: craigslist, dice, monster, simplyhired, elance, ipswap, and rentacoder 4. Your attorney should draw up confidentiality agreements and noncompete clauses.

Develop the Beta Product (Required: $500k to $1m)
• • • The Beta transforms the prototype into a product you might actually sell. The focus here is on usability and design. Create something so simple, so powerful and so effective that people beg to become beta testers.

As you amass comments and feedback, look for opportunities to simplify production and keep costs lean. ○ Tools You’ll Need i. Enterprise Level Email ii.Phone Service iii.T-1 Broadband iv.Feedback Collection Technical Core development team should be local. Look for people who are excited about the product. Where to find workers a. Contracting: Part-timers can help get a company started, but directorlevel staff should be permanent hires i. Nasscom.org ii.Russoft.org b. Recruiting: Old fashioned networking and follow your gut. c. Poaching: Snatch workers away from rivals

Build Your Staff
1. 2. 3. 4.

Establish Your Back Office
1. Accounting, payroll and benefits administration. 2. Quickbooks when less than 12 employees. 3. Administrative Outsourcing a. Paycycle: Automates payroll processing and taxes b. Paychex: Small to midsize firms to manage payroll and tax compliance. c. Ceridian: Provides services from payroll to benefits. d. Trinet: Provides health-plan and benefits services to larger firms

Beta Test (Launch Beta Test)
1. Agile development a. Emphasize the release of fully functional products b. Ask end users for input c. Address suggestions quickly to iron out bugs and add features d. Solicit large amounts of user feedback (often by email). e. Test everything with real people.

Revise Business Plan (Revisit the Business Plan)
1. The product your company was created to sell may not be the thing you later unveil in the marketplace. 2. You may change your business 3x by the time you release. 3. You may be focused on the wrong market or even the wrong product. 4. Keep an open mind and revise your projections and analysis accordingly.

Launch the Product
• • • • Testing is done and the product is refined. Time to find paying customers and reassess your staffing needs. A rule of thumb is that a company should have about 20 employees at launch. 60% of its headcount devoted to product development and the rest focused on management, sales and marketing. ○ Tools You’ll Need  In House Networking • Networked storage, commodity servers and a place to put it all.  Email/collaboration • Zimbra  PBX Phone System • Asterisk PBX  Business Process Software • Netsuite and Salesforce.com

Establish a Board of Directors (Build a new Board of Directors)
1. With new investors, broader network of contacts and backers, put the best of them together to create a formal board of directors. 2. One member will be from your investors and the rest should be people that understand your business, have practical operating experience and can leverage their relationships to open doors with potential customers. 3. Cultivate a range of expertise on your board a. Finance b. Technology c. Marketing d. Management e. Merchandising

Implement Sales, Marketing and Distribution (Develop sales and marketing plan)
1. 1 VP of sales and marketing with 2 sales people to start pounding on doors. a. The goal is assess how potential customers respond to the sales pitch. b. Once the ideal pitch is identified, institutionalize. 2. Marketing efforts should have a specific goal that supports your company’s strategic objectives. 3. Focus! Focus! Focus! a. Set specific goals.

Open Office
1. When the company has more than 10 full-time employees. 2. Your first office is a temporary expedient (treat the deal as such).

a. Figure out the minimum square footage you need today and how much you may need in 12 months. b. Assume 80 to 100 square feet per worker. c. www.Searchofficespace.com d. The Four Deadly Sins of Office Real Estate i. Overpayment: Rent should be no more than 4 to 6% of operating expenses. ii.Overimprovement: Resist the temptation to renovate iii.Overcommitment: Do not sign a lease for more than 12 months iv.Overoptimism: Plan conservatively. Short-term overcrowding is less troubling than paying for unused space.

Grand Opening (Hit the Market)
1. Set specific but realistic publicity goals: a. Short list of journalists to reach b. Number of blog mentions you want c. A target for website hits and registrations d. Treat early customers like VIP’s e. Then pause for a moment to appreciate all that you’ve accomplished. f. Building Buzz on the Cheap i. Give it Away 1. Compile a list of people you’d most like to have for customers then give them the product for free. ii.Think like a Blog 1. 3 words is ideal, 7 is ok, 15, you’re screwed. iii.Create Clever Gimmick 1. A simple stunt can generate a major splash if its surprising, focused and well targeted.

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