Business development in startups
In this article, I want to highlight the issues that the importance of start-ups underestimate. The overwhelming majority of the failures suffered by entrepreneurs, raising their first startup, are connected precisely with the issues of building and developing a business.
Warning 1 . I apologize in advance to the advocates of the Russian language for the use of English words. Most of them have standards in this business, and, being translated into Russian, they distort (or make it incomprehensible or difficult to understand) the text of the article (see here ). If you have questions on terminology, I will answer in the comments. I also apologize for ochepyatki - not so much time and that spellcheker did not catch, everything fell into the last edition.
Warning 2 . The article is aimed at entrepreneurs who are building a startup for sale in the future and are planning to put together a strong team and attract an investor. Entrepreneurs who build small start-ups on their knees or see a “business of their life” in a startup can safely not read further.
')
Warning 3 . I tried to write an article that would be interesting for novice entrepreneurs, so I apologize to experienced entrepreneurs, for whom many things will be commonplace. On the other hand, I would love to see additions to this article in the comments.
Typically, entrepreneurs aim to make money on the sale of a startup to another company (99%) or access to any of the stock exchanges (IPO). Startups that aim to generate cash flows and live with a net profit are very rare.
Thus, we see that the life cycle of a startup is usually from a year to 7 and depends on the scale of the project, the goals set, the markets in which the startup works, the cyclical nature of the economy.
Traditionally, entrepreneurs try to attract money from venture investors. In the venture business, investor experience and connections are valued significantly higher than the money itself. We will discuss this below.
Who is an entrepreneur. I propose the following definition:
An entrepreneur is a person who seeks market opportunities (market opportunities), monetizes (earns money) them, carries risks and maximally delegates functions that are not inherent to him.
I would like to separately dwell on how the idea differs from the market opportunity . Most often, a good idea comes to a person who has extensive experience in any field and at some point he comes up with something that is fundamentally different from what exists on the market. Usually, such ideas come to engineers or
developers. Market Opportunity comes from a deep understanding of the market to a person who knows these markets well, the needs of clients in this market, the shortcomings of the players. As practice shows, the lion's share of successful projects is born from market opportunities. Turning an idea into a successful, from a financial point of view, startup is still a matter of chance.
If we have decided that we are building a system company, then regardless of whether we are attracting investor money or developing a startup ourselves, an entrepreneur needs to do certain things that, first, will increase confidence that a startup will become a successful company, and secondly, it will be easily sold, due to the fact that its business processes, internal management and business structure are transparent and understandable.
Separately, I want to draw attention to the fact that even if an entrepreneur has decided not to raise money from outside, he is strongly recommended to go through certain steps. The fact is that investment is not only money. An entrepreneur invests his time, and time - an irreplaceable resource. If the project does not add up, 2-3 years that are spent on the project, no one will return. Key employees who have a stake in the project will work more efficiently in
if they see approximately when, for how much, to whom and why the company will be sold. If in this case the risks are small and manageable, then the entrepreneur can well save on the salaries of such employees.
Thus, before deciding to create a startup entrepreneur must do some work, which is already a business development.
1. Examine the markets. Markets are characterized by only a few parameters: annual turnover, profitability, number of sellers, number of consumers (preferably with segmentation), annual growth over the past few years, and forecasts for several years ahead. It is very good when there is a global market problem that hinders the development of this market, and if this is resolved, the market growth will increase dramatically (say from 3-4% per year to 20-30%)
2. Examine competitors. Start learning competitors need to study the products of competitors. It is necessary to make a list of key parameters of the products and compare competitors precisely in the cut of such parameters. Thus, you can always see the shortcomings and calculate the combination of which parameters will be perceived positively by the market. After that, compare the products of competitors with what the entrepreneur plans to do and try to guess what market share he can
take and in what period. If an entrepreneur writes that he has no competitors, then he simply does not see them. If there is a need, then people somehow satisfy it.
3. Intellectual property. Protection of any startup from competitors is based on the protection of intellectual property. If we believe that our startup is highly technological, then any innovation must be protected. You can protect in two main ways or their combination. The first is obtaining a patent (you can write a lot about this), the second is Know How, when any person can theoretically repeat the technology, but it requires either specific knowledge, or a large investment, or a lot of development time. Believe that if an entrepreneur guessed right with the market and product, then competitors will try to respond to it very quickly. The last option is the "rocket". Rocket, it is nothing but an exhibitor in growth. Look at the growth schedule of such a project, and everything will become clear. When competitors see that a project is developing very quickly, then from the moment a decision is made to launch a similar project, until its launch. The first project cannot be stopped + the base of uncovered potential users decreases all the time. And to entice users from another company is always more expensive. Thus, if we see a market of 1 million users, the pioneer company has 50k
users and it steadily increases this amount by one and a half times each month, then at a time cost of 6 months to launch a competing product, even with a conditionally unlimited budget, competitors simply have no chance. Before starting a startup, you need to clearly see
which of the schemes will be used by the startup. Figure out what IP Startegy will be in the start-up folder (how intellectual property will be created and protected).
4. Describe our customers. In order to successfully position, you always need to know who will use our product. To do this, you need to clearly segment the target audience and select one or more segments that very quickly respond to the proposal. It is always difficult to do this. One of the favorite mistakes of entrepreneurs is the creation of a product that is equally attractive to everyone, an attempt to reach the widest possible layers of the target audience (usually there is a strong competitor in each segment, and if you fight several competitors at once, you have to fight on several flanks; where there are no direct competitors, or weak competitors and from there to launch an offensive)
5. Business model. I tried to reveal this crown in the article
6. Calculate costs. It is necessary to assume approximately how much it will cost to create a product, to expand production or a site for the provision of services, to build a company. As practice shows, in order to get a practical figure from a theoretical figure, it is necessary to multiply it by 2 or even 3.
7. Calculate the planned income. If we have studied the markets, then we know the annual volume of the markets. Knowing the products of competitors and our product with all its competitive advantages, we can assume the growth dynamics of our market share, and hence the income.
8. Team. At the planning stage, it is necessary, if not to agree, then at least to suggest who could be the backbone of the team. Usually, the team needs people who could close the following functions - product development (CTO), marketing (SMO), Product developmet, sales (VP ​​of Sale) and finance (CFO). To start there is no need to recruit everyone, but there must be people who close these questions. CFO can be taken part-time, or even outsource this function altogether. The entrepreneur himself usually plays the role of a CEO or President.
The first stage is over. When information is gathered, the entrepreneur decides to start the project.
And the first items on the agenda should be a strategy. To develop a strategy, the first step is to set a goal. What do we want?
Example 1:
We want to sell in five years for $ 100m. In order to sell for such money, we need to have a turnover of at least 40m dollars a year. This means that we need to occupy 20% of the market, in which 5 large players, 20 medium and a hundred small ones work.
Example 2. We want to build a user base, which will be our main asset and sell it to company X, for $ 20 from the nose. Potentially we can dial 10m of such users.
Example 3. We have invented a technology that, when used in mobile phones, will be very necessary for users. We want to have 10 cents from each phone sold with this technology and we believe that we can capture 40% of the phone market (330 million a year). Our annual income will be $ 12 million, and we believe that Ericsson will be able to buy us for 30 million dollars.
A plan to achieve these results is a strategy. The strategy may involve both direct sales and work through partners. In the case of social networks, social network participants (usually) cannot generate large cash flows, which means that we need to think about how to sell advertisements or other services to third parties.
When the strategy is developed, it is necessary to sit down for a business plan. A business plan is a business model deployed in time superimposed on a company's cost plan. Thus, there are forecasts of profits and losses.
I PAY ATTENTION THAT EXECUTIVE SUMMARY, A PRESENTATION FOR THE INVESTOR AND A BUSINESS PLAN IS ONLY A REFLECTION OF UNDERSTANDING BUSINESS AND LIVING STRATEGY. The phrase “I will quickly write a business plan now” in this context simply does not make sense. An investor never makes decisions based on formal documents, but always tries to answer the question “can this entrepreneur be able to build this business?”
In the framework of the implementation of the strategy, you should always check the mailstone checkboxes.
These are the points at which the execution of a business plan is monitored.
An example of such flags:
December 2008 - launch betta
March 2009 - receiving the first test orders
July 2009 - access to income of 10k dollars per month
August 2009 - the conclusion of the first distribution agreement, which
will provide net income of 50k per year
September 2009 - to open an office in Brussels
Given the characteristics of a startup, we understand that a business plan and strategy is not a dogma. We are following an unknown path and the strength of a startup in its flexibility. But it is not necessary that such flexibility turns into a shy from side to side.
At the stage of starting the project, along with the elaboration of a strategy, the following tasks for business development become an entrepreneur:
- assemble a team
- decide on the form of ownership of the company and the jurisdiction where it will be registered
- decide which tasks will be solved within the company and which will be outsourced
- protect intellectual property
- if necessary, start negotiations with investors
- start contacting potential key customers to explore their needs
- try to establish a dialogue with industry experts
At the product launch stage, the entrepreneur should
- look for partners that could become additional sales channels
- to personally engage in transactions with key customers (this is not necessarily a big contract, but it’s no secret that any sale to a company from Fortune500 increases trust among small customers, and if an entrepreneur manages to make a sale at IBM, then the weight of the company and the product in the eyes of smaller ones consumers will increase many times)
At the growth stage of a company, an entrepreneur should
- follow the development team. It is no secret that in a fast-growing company it is not always the growth of staff skills that keeps pace with the tasks that have to be addressed. So, it is necessary either to improve the qualifications of employees or to complement the team or replace employees with more qualified ones.
- gradually introduce corporate rules of the game, flexibility and speed in decision-making are good when the company employs 10 people, but not 100. Then this is uncontrollable chaos.
Unfortunately, the majority of our (from the former USSR) entrepreneurs do not assume that they will have to face the solution of such problems. From here I see two standard reactions to the development of the situation. The first is hands down. There are many materials on the Internet, how to build and develop start-ups and from there you can learn a lot. The second is that I am the smartest, I have a brilliant idea, she will make her own way into life. This is the worst option, with him a lot of people who are involved in a startup with friendly steps go to the abyss. The result - time spent, money, damaged reputation.
Very few start-up entrepreneurs (even with great managerial experience) are able to do everything on their own. Usually, you still need help.
What do entrepreneurs, who on the one hand want to build a startup, but at the same time realize that his experience is obviously not enough to raise such a project.
There are several ways
1. To assemble a team that will block those gaps in the experience of the entrepreneur, which he found in himself.
2. Connect a company that is engaged in assistance in business development for startups. As practice shows, such a company has already worked with several startups, employees of the company have sufficient experience
3. Start the right investor. As I wrote, in the venture business, investor money is not his most valuable asset. A serious investor has the knowledge, experience and connections that he puts together with his investments.
Separately, I would like to warn that it is always necessary to separate the third-party business developer from the packer. A business developer always actively helps a company to build a business. The packers only prepare the required documents based on the data that the entrepreneur
provides. You should always separate a third-party business developer from an investment broker who simply “sells” the project to an investor, earning a commission.
I will be glad to receive feedback, my other articles can be read here.
Warning 1 . I apologize in advance to the advocates of the Russian language for the use of English words. Most of them have standards in this business, and, being translated into Russian, they distort (or make it incomprehensible or difficult to understand) the text of the article (see here ). If you have questions on terminology, I will answer in the comments. I also apologize for ochepyatki - not so much time and that spellcheker did not catch, everything fell into the last edition.
Warning 2 . The article is aimed at entrepreneurs who are building a startup for sale in the future and are planning to put together a strong team and attract an investor. Entrepreneurs who build small start-ups on their knees or see a “business of their life” in a startup can safely not read further.
')
Warning 3 . I tried to write an article that would be interesting for novice entrepreneurs, so I apologize to experienced entrepreneurs, for whom many things will be commonplace. On the other hand, I would love to see additions to this article in the comments.
Typically, entrepreneurs aim to make money on the sale of a startup to another company (99%) or access to any of the stock exchanges (IPO). Startups that aim to generate cash flows and live with a net profit are very rare.
Thus, we see that the life cycle of a startup is usually from a year to 7 and depends on the scale of the project, the goals set, the markets in which the startup works, the cyclical nature of the economy.
Traditionally, entrepreneurs try to attract money from venture investors. In the venture business, investor experience and connections are valued significantly higher than the money itself. We will discuss this below.
Who is an entrepreneur. I propose the following definition:
An entrepreneur is a person who seeks market opportunities (market opportunities), monetizes (earns money) them, carries risks and maximally delegates functions that are not inherent to him.
I would like to separately dwell on how the idea differs from the market opportunity . Most often, a good idea comes to a person who has extensive experience in any field and at some point he comes up with something that is fundamentally different from what exists on the market. Usually, such ideas come to engineers or
developers. Market Opportunity comes from a deep understanding of the market to a person who knows these markets well, the needs of clients in this market, the shortcomings of the players. As practice shows, the lion's share of successful projects is born from market opportunities. Turning an idea into a successful, from a financial point of view, startup is still a matter of chance.
If we have decided that we are building a system company, then regardless of whether we are attracting investor money or developing a startup ourselves, an entrepreneur needs to do certain things that, first, will increase confidence that a startup will become a successful company, and secondly, it will be easily sold, due to the fact that its business processes, internal management and business structure are transparent and understandable.
Separately, I want to draw attention to the fact that even if an entrepreneur has decided not to raise money from outside, he is strongly recommended to go through certain steps. The fact is that investment is not only money. An entrepreneur invests his time, and time - an irreplaceable resource. If the project does not add up, 2-3 years that are spent on the project, no one will return. Key employees who have a stake in the project will work more efficiently in
if they see approximately when, for how much, to whom and why the company will be sold. If in this case the risks are small and manageable, then the entrepreneur can well save on the salaries of such employees.
Thus, before deciding to create a startup entrepreneur must do some work, which is already a business development.
1. Examine the markets. Markets are characterized by only a few parameters: annual turnover, profitability, number of sellers, number of consumers (preferably with segmentation), annual growth over the past few years, and forecasts for several years ahead. It is very good when there is a global market problem that hinders the development of this market, and if this is resolved, the market growth will increase dramatically (say from 3-4% per year to 20-30%)
2. Examine competitors. Start learning competitors need to study the products of competitors. It is necessary to make a list of key parameters of the products and compare competitors precisely in the cut of such parameters. Thus, you can always see the shortcomings and calculate the combination of which parameters will be perceived positively by the market. After that, compare the products of competitors with what the entrepreneur plans to do and try to guess what market share he can
take and in what period. If an entrepreneur writes that he has no competitors, then he simply does not see them. If there is a need, then people somehow satisfy it.
3. Intellectual property. Protection of any startup from competitors is based on the protection of intellectual property. If we believe that our startup is highly technological, then any innovation must be protected. You can protect in two main ways or their combination. The first is obtaining a patent (you can write a lot about this), the second is Know How, when any person can theoretically repeat the technology, but it requires either specific knowledge, or a large investment, or a lot of development time. Believe that if an entrepreneur guessed right with the market and product, then competitors will try to respond to it very quickly. The last option is the "rocket". Rocket, it is nothing but an exhibitor in growth. Look at the growth schedule of such a project, and everything will become clear. When competitors see that a project is developing very quickly, then from the moment a decision is made to launch a similar project, until its launch. The first project cannot be stopped + the base of uncovered potential users decreases all the time. And to entice users from another company is always more expensive. Thus, if we see a market of 1 million users, the pioneer company has 50k
users and it steadily increases this amount by one and a half times each month, then at a time cost of 6 months to launch a competing product, even with a conditionally unlimited budget, competitors simply have no chance. Before starting a startup, you need to clearly see
which of the schemes will be used by the startup. Figure out what IP Startegy will be in the start-up folder (how intellectual property will be created and protected).
4. Describe our customers. In order to successfully position, you always need to know who will use our product. To do this, you need to clearly segment the target audience and select one or more segments that very quickly respond to the proposal. It is always difficult to do this. One of the favorite mistakes of entrepreneurs is the creation of a product that is equally attractive to everyone, an attempt to reach the widest possible layers of the target audience (usually there is a strong competitor in each segment, and if you fight several competitors at once, you have to fight on several flanks; where there are no direct competitors, or weak competitors and from there to launch an offensive)
5. Business model. I tried to reveal this crown in the article
6. Calculate costs. It is necessary to assume approximately how much it will cost to create a product, to expand production or a site for the provision of services, to build a company. As practice shows, in order to get a practical figure from a theoretical figure, it is necessary to multiply it by 2 or even 3.
7. Calculate the planned income. If we have studied the markets, then we know the annual volume of the markets. Knowing the products of competitors and our product with all its competitive advantages, we can assume the growth dynamics of our market share, and hence the income.
8. Team. At the planning stage, it is necessary, if not to agree, then at least to suggest who could be the backbone of the team. Usually, the team needs people who could close the following functions - product development (CTO), marketing (SMO), Product developmet, sales (VP ​​of Sale) and finance (CFO). To start there is no need to recruit everyone, but there must be people who close these questions. CFO can be taken part-time, or even outsource this function altogether. The entrepreneur himself usually plays the role of a CEO or President.
The first stage is over. When information is gathered, the entrepreneur decides to start the project.
And the first items on the agenda should be a strategy. To develop a strategy, the first step is to set a goal. What do we want?
Example 1:
We want to sell in five years for $ 100m. In order to sell for such money, we need to have a turnover of at least 40m dollars a year. This means that we need to occupy 20% of the market, in which 5 large players, 20 medium and a hundred small ones work.
Example 2. We want to build a user base, which will be our main asset and sell it to company X, for $ 20 from the nose. Potentially we can dial 10m of such users.
Example 3. We have invented a technology that, when used in mobile phones, will be very necessary for users. We want to have 10 cents from each phone sold with this technology and we believe that we can capture 40% of the phone market (330 million a year). Our annual income will be $ 12 million, and we believe that Ericsson will be able to buy us for 30 million dollars.
A plan to achieve these results is a strategy. The strategy may involve both direct sales and work through partners. In the case of social networks, social network participants (usually) cannot generate large cash flows, which means that we need to think about how to sell advertisements or other services to third parties.
When the strategy is developed, it is necessary to sit down for a business plan. A business plan is a business model deployed in time superimposed on a company's cost plan. Thus, there are forecasts of profits and losses.
I PAY ATTENTION THAT EXECUTIVE SUMMARY, A PRESENTATION FOR THE INVESTOR AND A BUSINESS PLAN IS ONLY A REFLECTION OF UNDERSTANDING BUSINESS AND LIVING STRATEGY. The phrase “I will quickly write a business plan now” in this context simply does not make sense. An investor never makes decisions based on formal documents, but always tries to answer the question “can this entrepreneur be able to build this business?”
In the framework of the implementation of the strategy, you should always check the mailstone checkboxes.
These are the points at which the execution of a business plan is monitored.
An example of such flags:
December 2008 - launch betta
March 2009 - receiving the first test orders
July 2009 - access to income of 10k dollars per month
August 2009 - the conclusion of the first distribution agreement, which
will provide net income of 50k per year
September 2009 - to open an office in Brussels
Given the characteristics of a startup, we understand that a business plan and strategy is not a dogma. We are following an unknown path and the strength of a startup in its flexibility. But it is not necessary that such flexibility turns into a shy from side to side.
At the stage of starting the project, along with the elaboration of a strategy, the following tasks for business development become an entrepreneur:
- assemble a team
- decide on the form of ownership of the company and the jurisdiction where it will be registered
- decide which tasks will be solved within the company and which will be outsourced
- protect intellectual property
- if necessary, start negotiations with investors
- start contacting potential key customers to explore their needs
- try to establish a dialogue with industry experts
At the product launch stage, the entrepreneur should
- look for partners that could become additional sales channels
- to personally engage in transactions with key customers (this is not necessarily a big contract, but it’s no secret that any sale to a company from Fortune500 increases trust among small customers, and if an entrepreneur manages to make a sale at IBM, then the weight of the company and the product in the eyes of smaller ones consumers will increase many times)
At the growth stage of a company, an entrepreneur should
- follow the development team. It is no secret that in a fast-growing company it is not always the growth of staff skills that keeps pace with the tasks that have to be addressed. So, it is necessary either to improve the qualifications of employees or to complement the team or replace employees with more qualified ones.
- gradually introduce corporate rules of the game, flexibility and speed in decision-making are good when the company employs 10 people, but not 100. Then this is uncontrollable chaos.
Unfortunately, the majority of our (from the former USSR) entrepreneurs do not assume that they will have to face the solution of such problems. From here I see two standard reactions to the development of the situation. The first is hands down. There are many materials on the Internet, how to build and develop start-ups and from there you can learn a lot. The second is that I am the smartest, I have a brilliant idea, she will make her own way into life. This is the worst option, with him a lot of people who are involved in a startup with friendly steps go to the abyss. The result - time spent, money, damaged reputation.
Very few start-up entrepreneurs (even with great managerial experience) are able to do everything on their own. Usually, you still need help.
What do entrepreneurs, who on the one hand want to build a startup, but at the same time realize that his experience is obviously not enough to raise such a project.
There are several ways
1. To assemble a team that will block those gaps in the experience of the entrepreneur, which he found in himself.
2. Connect a company that is engaged in assistance in business development for startups. As practice shows, such a company has already worked with several startups, employees of the company have sufficient experience
3. Start the right investor. As I wrote, in the venture business, investor money is not his most valuable asset. A serious investor has the knowledge, experience and connections that he puts together with his investments.
Separately, I would like to warn that it is always necessary to separate the third-party business developer from the packer. A business developer always actively helps a company to build a business. The packers only prepare the required documents based on the data that the entrepreneur
provides. You should always separate a third-party business developer from an investment broker who simply “sells” the project to an investor, earning a commission.
I will be glad to receive feedback, my other articles can be read here.
Source: https://habr.com/ru/post/27079/
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