I have had some interesting discussions with a entrepreneurs the last few days about what I call “business plan paralysis.” Never make the mistake of being a slave to what you have written in your business plan. Just because you present a specific business model in your plan, it is no guarantee that it will actually look anything like what you thought it would once it gets going. You may need to adjust your features or services, change your pricing, change your distribution strategies, alter your staffing plans, widen or narrow your target market, or even make significant changes to your product or service. While the plan may give you a path to launch your business, the market will tell you how to proceed from there.
Successful entrepreneurs are not necessarily that good at crafting the initial business plan. What they are good at is listening to the market and listening to their customers. They will tell you what your business should really look like if you’ll just listen.
Don’t be arrogant and stubborn about your vision. Let it evolve and develop according to the feedback you get from the market.
Don’t assume that you’ll look like a failure or a fool to your customers for having to adjust the direction of your business. The market will be happy that you are better meeting their needs. They will be glad you listened.
Don’t worry about what investors might think about your need to adapt to market information. Keep them informed every step of the way. They will be impressed with your management skills and support you as long as what you are doing will make the business stronger. They want you to make money — not to follow the plan as it was originally written. They expect you to listen to the market and adapt.
In most cases the original opportunity for your business came about due to changes in the market. So continue to listen to the market and it will tell you where to take your business over time.
Change is the one constant in today’s economy.
Stay nimble. Stay flexible. Continue to adapt. And listen!
Entrepreneurship Education Taking Many Different Forms
University-based entrepreneurship education takes many forms.
Some students pursue a very traditional business education. Such is the case of Joe Pascaretta, founder and president of the Alps Lawn Company and Alps Technology International and a freshmen student at the University of Michigan, recipient of the $5,000 scholarship from the National Federation of Independent Business — Young Entrepreneur Foundation.
Both of this 19 year old’s companies are growing substantially. Pascaretta’s Alps Lawn Company — a landscaping firm that serves more than 60 residential and commercial properties — experienced a 239 percent increase in revenue to gross more than $1 million in 2006. Pascaretta’s other business, Alps Technology International — an Internet technology firm for the Web site development market — saw a 93 percent increase in revenue in part due to a major increase in international sales.
When deciding where he should attend college, Pascaretta chose the University of Michigan so that he could continue to run both of his businesses. He realized that financially he could have chosen to forgo college, but instead chose to pursue a degree in business while continuing to run his companies. College for him is as much building credibility as anything else.
“In today’s business community, a degree is a valuable asset,” said Pascaretta. “I plan to continue running both businesses through college, but after graduation I want to be able to evaluate my options and see what opportunities are out there. As an entrepreneur, I’m always looking for new innovative ways to reestablish myself in the business world.”
Other colleges and universities are actively seeking students like Pascaretta. There are any number of programs being created to meet the specific needs of student entrepreneurs who want to integrate their business pursuits into their education.
For example, Grand Canyon University has gained a lot of good press for their newly announced College of Entrepreneurship. From their web site:
Established in 2006 to address the evolving needs of the 21st Century Entrepreneur, Grand Canyon University started the nation’s first College of Entrepreneurship. Michael Gerber, entrepreneur, and best-selling author of “E-Myth” joins the only college of its kind — an “Entrepreneurship school by Entrepreneurs” as the Chairman of the College of Entrepreneurship. Michael Gerber, along with an advisory board of internationally known experts, provides the core team for this dynamic learning community.
The College offers a bachelor of science degree program designed for tomorrow’s business owner and promises to offer a curriculum unmatched by other entrepreneurial schools. State-of-the-art simulations, adjuncts who are “entrepreneur-teachers,” and a University Entrepreneurs Fund for seed funding to select student-inspired business plans makes this program a major cut above the rest.
Belmont and other universities are also actively recruiting high school students with businesses to come and study at their schools. This past weekend I spent the day talking with many such students at one of our preview days for high school seniors. We are seeing about 40% of our incoming students arriving on campus with businesses in hand. At Champlain College, they actively advertise their “Bring Your Own Business” program to prospective students.
Universities are generally slow to respond, but there is evidence that many schools are moving quickly to bring their business education into the new entrepreneurial economy.
Supply of Venture Capital Funds is High
The National Venture Capital Association reports that venture capital fundraising was at its highest since 2001. So what does this mean?
First, it tells us that there is a lot of idle cash in the economy. And this cash is available in part because other forms of investment are not creating adequate returns. Institutional investors and very wealthy individuals, the most common source of venture capital funding, are no longer seeing high yields in real estate. So more of this money is flowing into venture capital funds.
Second, it tells us that venture capitalists will not be able to be as selective in their investments. Over the past few years VCs have taken much of their funding into later stage deals. Now we will likely see them invest more in earlier stage ventures, and may even see them become less selective in the industries that they are willing to look investing in.
Finally, solid high-potential companies will have a slightly stronger hand during negotiations with VCs. Simple supply and demand tells us that when demand is high (excess money in VC funds), demand will be strong (for good deals). It may now become more of a sellers’ market when it comes to entrepreneurial deals being peddled to the VC “road show” market.
The Power of the Marketing Plan
A marketing plan is so much more than simply a list of promotional tactics to be used to sell your product. While how you plan to promote your business is important, the marketing plan should explain all of the strategies you will use to build relationships with your customers.
Marketing plans consist of what is commonly called the “4 P’s”: Product, Pricing, Promotion and Place (distribution). When building your marketing plan you should address how each of these will improve your chances of attracting customers to your business.
We look at product because we need the customer to tell us what they really want from us. We may have developed our own thinking about this, but what we think does not really matter. I work with many artists through my position here at Belmont — musicians and visual artists are common in our program. I tell these artists that if they want people to pay for their art or their music that they will need to adjust their skills and gifts to meet the needs and wants of the market. But, that lesson is not just for artists. It is for all entrepreneurs. We have a notion of what we think the market wants when we open our doors, but in almost all cases the market begins to immediately give us feedback that tells us what they truly want. What they want may force us to make a minor adjustment in what we offer, or it may take a major rethinking of our business concept. If we are not ready to adjust to the feedback from the market, our chances of success fall dramatically.
Pricing is the next key part of the marketing plan. What we understand what the market wants in our product, we now have to price it at a level that the market is willing to pay. Most often an entrepreneur will set the price relative to the market. The most common mistake I see is pricing the product or service too low. Price is part of what communicates quality to the market. If you price lower than everyone else, that may send a message of inferior quality to all of those potential customers. I refer to this as “apologizing to the market.”
Place tells how we get the product or service from us to the customer. Will we use distributors, retail outlets, our own retail stores, the Internet, door to door sales, kiosks, or some other means to get the product into their hands?
And finally there is promotion, which tells how best to communicate our product, its price and how they can get it, to the market.
Now here is a final step in market planning that many overlook. There is another part of the business plan that should tell the same story as our marketing plan — our revenue forecasts. Revenue forecasts should never be made by guessing or simply plugging in some numbers that look reasonable. Rather, the revenue forecast should, in numbers, tell the same story as the marketing plan. Why? Consider the simple formula for Revenues:
Revenues = Price X Quantity
If we do a good job in our marketing plan, and use real information we derive from real customers (or potential customers), it should help explain our assumptions for those two seemingly simple variables — price and quantity. A well developed marketing plan will tell us why we think we can charge a certain price. It will also help us explain why and how we intend to sell a certain number of units by giving the customer what they want (product), how we will get it to them in a manner that will make it easiest for them to buy it (place), and how we know they will be aware of all of this information (promotion).
Bringing Religion into Work
There is an interesting guest column at Inc.com on religion and work written by Alan Wolfe, Director of the Boisi Center for Religion and American Public Life at Boston College. Wolfe writes the following:
Workplaces are not public in a legal sense and, because they are not, courts will generally allow companies room to find their own ways of accommodating the rights of believers. But workplaces are public in a social sense; they are composed of groups of people, and the larger the groups grow, the more likely there will exist religious differences among them. There is an implicit bargain here for private companies to accept. Make room for diversity and tolerance, and few will object to religious expression in the workplace. Confine the right to expression only to select groups, however, or use one faith to browbeat others, and those others will rightly object. The choice is up to each company.
I believe that Wolfe has missed an important part of this issue by looking at this only from the position of the individual employee and to define it only in terms of evangelization toward a specific religion. There are many privately owned businesses in which the owners have used the core values of their faith to shape how they start and grow their companies. They build their values into the policies and practices, and into the culture of their companies, that govern everyday activity in their businesses.
These entrepreneurs are not doing this to convert their employees nor to make their firms an extension of some particular church. They do this because their faith is based on integrity. What is good and what is right does not change once they walk into the door of their businesses. And they find ways to integrate this into how they run their companies. It shows up in compensation systems, job design, employee ownership programs, policies governing customer relations — the list goes on and on. It is not a matter of using their businesses to save others souls, but to act in ways that assure that their own souls do not become compromised by how they act in their business.
The specific religion that these entrepreneurs practice becomes inconsequential, as does the religious tradition of their employees. My experience and the results of the interviews we have conducted for our forthcoming book suggest that because the focus is on how the entrepreneurs’ faith and values guide their actions, these businesses become good places that are valued by employees of all faiths. They are companies that treat all employees with dignity, fairness, and respect, that treat their customers well, and that have a truly good culture.
Future of Small Business
I had the pleasure of participating this past fall in a day long discussion conducted by the Institute for the Future on the future of small business. The first installment of the final report that began with that incredible day of dialogue has now been released. The Intuit Future of Small Business Report provides a fascinating look into the future of our entrepreneurial economy. I encourage anyone who is a small business owner, wants to be a small business owner, works in a small business, or does business with small businesses — OK, basically everyone — to read the full report.
The report begins with a discussion of three consecutive eras of transformation that have occurred in the US over the past 40 years — the social transformation of the 1960s and 1970s, followed by the technological transformation of the 1980s and 1990s, and finally the entrepreneurial economic transformation that began around 2000 and is still underway. Each transformation played an important role in the subsequent one, and together they have fundamentally changed the culture and economy of the US.
Three trends that are shaping the future of small business are examined in the first installment of this report.
The Changing Face of Small Business
There are some distinct demographic patterns in the current entrepreneurial economic transformation. Two age groups are showing significantly higher entrepreneurial activity: the Entre-Boomers and the Generation Y, or what I call the Entrepreneurial Generation.
For the Boomers, entrepreneurship is a form of “un-retirement.” According to this report, only 30% of Boomers mention financial needs as their primary reason to keep working. Personal fulfillment and longer production working lives seems to be a major drive behind their entrepreneurial propensity.
The Entrepreneurial Generation tends to reject the corporate world, favoring instead the independence and flexibility that an entrepreneurial career can create. Interestingly, they also tend to believe that an entrepreneurial career is more secure.
The changing face of small business is also reflecting more women entrepreneurs looking for the flexibility that business ownership can create — mompreneurs, as some call them. It is also being shaped by a growth in immigrant entrepreneurs.
Just as in the last great entrepreneurial age of the late 1800s, immigrants are playing an important role in this economic transition. Many immigrant entrepreneurs are pursuing a global approach with their small business.
The Rise of Personal Business
There are now about 20 million “self-employed” Americans. These are small business without employees. The explosion of this segment of our economy comes from several causes.
1- The traditional employment contract is fading away for many professionals.
2- Many prefer the life of a “free agent”, taking their skills from job to job.
3- People want more flexibility to create more work-life balance and see self-employment as the ticket to this change in lifestyle.
4- The accidental entrepreneurs, who did not plan to be self-employed, but come to that point through unplanned events in their lives.
The Emergence of Entrepreneurial Education
This trend is near and dear to this old professor’s heart. The IFTF authors say that entrepreneurship education will continue to expand well beyond the 1,600 US universities now offering courses. They see more programs embracing not only the high growth entrepreneur, but also small business owners. More attention will be paid to undergraduate students seeking entrepreneurship education. Several schools, including us here at Belmont University, are seeing a growing number of new freshman coming to school with businesses already operating. Entrepreneurship education is also moving into the trade schools, community colleges, and adult education programs.
More younger children will be exposed to entrepreneurial careers in primary and secondary education. This will create a generation that when they enter the work force, will be much more attuned to careers built on entrepreneurship.
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Thanks to the folks at Intuit and at IFTF for allowing me to be a part of this exciting look into the future of small business. I look forward to seeing the future installments of this report.
To Write a Business Plan, or Not to Write a Business Plan
Why do we write business plans? What purpose do they serve?
Guy Kawasaki had a post yesterday on a recent study by Bill Bygrave from Babson suggesting that business plans are highly overrated. And to a large degree, I agree. (Guy as a link to a Word Document version of this study at his post about this study).
Now before all of my students throw up their hands in joy over this statement, I need to explain further. For while I think too many entrepreneurs spend way too much time on their business plans, many of these same entrepreneurs do not spend enough time on actual business planning.
Let’s look carefully at Prof. Bygrave’s summary of his conclusions from this study:
The analysis revealed that there was no difference between the performance of new businesses launched with or without written business plans. The findings suggest that unless a would-be entrepreneur needs to raise substantial startup capital from institutional investors or business angels, there is no compelling reason to write a detailed business plan before opening a new business.
That is only true if would-be entrepreneurs have done all of the homework that goes into writing a sound business plan. I know for a fact that the population Bygrave surveys in this study (alumni of Babson) get very good training in new venture analysis and planning. So his subjects all should know how to use these tools in preparation to launch their ventures. It really doesn’t matter if they actually go the final step and write it down in a formal business plan.
Business plans are a way to document sound analysis and good planning of your new venture. Whether you actually write this document is to a large degree irrelevant. What does matter is that you go through the process of evaluating the market for the venture, analying the potential profit margin it can produce, and reflect honestly on your personal readiness to make it happen. So it is the process of planning, not the actual plan, that really matters.
So why do I have my students write a plan at the end of their studies? It is basically a final exam in their last class with us to show that they understand how to analyze and plan their new venture. Too many people think that a business plan is the beginning, middle and end of starting a new venture. The business plan is simply a reflection of a sound process — it is not the actual process.
In reality, investors like venture capitalists use it in the same way. They want evidence of sound analysis and planning, and the business plan is a way to capture the work an entrepreneur has done in these critical steps.
Guy Kawasaki has it right in his conclusion about this study:
However, don’t draw the wrong conclusion from this study: “Analysis, planning, vision, and communication are unnecessary.” This isn’t true. What is true is that a business plan should not take on a life of its own. It is a tool — one of many that may help you get funded (or, more accurately, hinder you from getting funded if you don’t have one) and may help you get your team working as a team. But it is not an end in itself.
So to all of my students this semester — get back to work on your business planning!
(Thanks to Bruce Schierstedt for passing this along).
Carnival of the Capitalists
Visit David Maister’s blog of this weeks edition.
Public Relations Resources
One of the best ways to bootstrap your marketing efforts is to utilize public relations (PR) for your business. In effect, PR gets the media to tell the world about your business.
There are a couple of myths about PR. First, although it is often called “free advertising,” it is not exactly free. It takes time and often a little bit of money to make PR efforts effective. Although you do not always have to hire a PR firm, it can be money well spent due to their experience and media contacts. So although not free, it is still a very cost effective way to get the word out about a business.
The second myth is that PR “just happens.” If you do great things the media will find you. Although that does happen on occasion, most often PR works best when it is an intentional tactic as part of your bootstrap marketing plan. PR works best when you are proactive with any media contacts.
Kauffman’s eVenturing has just published a new collection on PR that offers a great array of articles, stories and how-to’s.
More on Entre-Boomers
There was another story on the growing trend of Entre-Boomers (Baby Boomers who become entrepreneurs late in their careers) in Business Week.
[M]any boomers–or those 78 million Americans born between 1946 and 1964–are leaving corporate jobs to start their own businesses. And it’s not just because they’re ready to retire; though some have the time and money to try life as an entrepreneur, many don’t. They…are often worried about disturbing corporate trends like layoffs and pension cuts that are leaving many in their age bracket with a tough road through retirement.
“Baby boomers are looking at starting real businesses–looking for another 10- to 12- to 15-year career, God willing,” says Paul Magelli, senior scholar-in-residence at the Kansas City (Mo.)-based Kauffman Foundation.
We are seeing an interesting trend with two distinct demographic bulges in entrepreneurial activity. The Entrepreneurial Generation, who are in their 20s, and the Entre-Boomers in their 50s and early 60s.
(Thanks to John Russell, a fellow Boomer and former graduate student of mine, for sending this along).