Read an Excerpt
BUSINESS PLANS THAT WORK
A Guide for Small Business
By JEFFRY A. TIMMONS, ANDREW ZACHARAKIS, STEPHEN SPINELLI
The McGraw-Hill Companies, Inc.Copyright © 2004Jeffry A. Timmons; Andrew Zacharakis, and Stephen Spinelli
All rights reserved.
ENTREPRENEURS CREATE THE FUTURE
We are in the midst of a silent revolution—a triumph of the creative and entrepreneurial spirit of humankind throughout the world. I believe its impact on the 21st Century will equal or exceed that of the Industrial Revolution on the 19th and 20th.
Jeffry A. Timmons
The Entrepreneurial Mind, 1989
Entrepreneurship runs deep in the American psyche. Many of today's heroes are celebrated for their entrepreneurial achievements. Bill Gates, Steven Jobs, Sam Walton, and Arthur Blank, among others, have created businesses that are household names (Microsoft, Apple Computer, Wal-Mart, and Home Depot). Whereas people entering the workforce in the 1960s and 1970s sought larger corporations and job security, people entering the workforce today are seeking younger, entrepreneurial firms or launching their own ventures. If America has learned anything in the last 20 years, it is that job security is a myth. To succeed, people need to be creative in designing their careers. That means seeking jobs that build your skill set and position you to start your own business at some future point. For those of you reading this book, the time may be now. You are not alone in your entrepreneurial dreams. Twenty-two million of your fellow Americans are in the process of launching a business or own a business less than four years old. Ultimately, the most rewarding and satisfying careers are those which are created for oneself; create a company rather than a job.
Babson College, along with the London Business School, has spearheaded the Global Entrepreneurship Monitor (GEM) project, which tracks the rate of entrepreneurship across 40 countries. Entrepreneurship is defined as any attempt to create a new business. The best estimates of the entrepreneurial activity rate for adults age 18 to 74 in 1993 was around 4 percent. After peaking at around 16.7 percent during the Internet boom in 2000, the rate dropped to 10.5 percent in 2002, which was still over twice the level of activity since 1993. In 2003, the activity rate improved to 11.9%. However, not every entrepreneur succeeds in launching a business, and only 40 percent of launched businesses survive longer than six years. This book is designed to help you get beyond the prelaunch stage, navigate the new business stage, and ultimately grow into a sustainable enterprise that is both personally and financially rewarding.
This chapter provides a background on the state of entrepreneurship in the United States, showing which firms beat the failure rule and why. The chapter continues with an overview of attributes that successful people possess. Next, the chapter illustrates when ideas are opportunities and provides a framework (the Timmons Model).
Entrepreneurship in America
To understand what works and what doesn't work, it is useful to examine who entrepreneurs are. We can think of entrepreneurs as falling into different categories based on the stage of development of their businesses. Nascent entrepreneurs are individuals in the prelaunch mode. They have yet to pay themselves or any employees a salary. New business owners are entrepreneurs who have paid salaries and whose business is less than four years old—a critical phase in entrepreneurship. Once the business has survived and reached positive cash flow—usually by the fourth year at the latest—the business is closing in on being a sustainable enterprise and the entrepreneur's task moves toward building on the foundation she has laid.
Nascent entrepreneurs are individuals who report that they are taking steps toward launching a business but have not yet paid themselves or anybody else in the organization a salary or wages. In 2002, 7 percent of the adult population (or 1 in 14 adults) was in the process of launching a business. Men are more likely to be nascent entrepreneurs than women are (1.5 men for every woman), but the rate of women becoming entrepreneurs has been accelerating in the last decade. Entrepreneurs are people of all ages, but most are between 18 and 44. They tend to be college-educated, but there are many who have not finished high school. As you can see from the demographics, entrepreneurship isn't confined to highly educated men but is an encompassing phenomenon in the United States. There are times in a person's life when it is more likely that he will pursue entrepreneurship (the midthirties), but exceptions to that rule abound (Colonel Sanders was in his sixties when he launched Kentucky Fried Chicken, and Bill Gates was a teenager when he launched Microsoft). We often describe entrepreneurship as the art and craft of the creative, the unexpected, and the exceptional. The inspiration, if you will, may strike at any time in your life as long as you are open to seeing new opportunities.
Not all nascent entrepreneurs launch their businesses successfully. Many discover in this prelaunch stage that the business isn't viable for any number of reasons. For instance, the opportunity may not be large enough for a person to leave an existing job. You need to be confident that the business can grow to a level where you will be able to pay yourself a good salary compared with what you are making now. Moreover, you must recognize that it typically takes two or more years to approach revenue figures that make that earning potential possible. There are opportunity costs to pursuing an entrepreneurial venture. Other flaws may become apparent in the prelaunch phase. You may learn that you lack the skills necessary to be successful, and so you may postpone your dream while you seek jobs that will build that skill set. Entrepreneurs invariably find it difficult to raise the necessary capital, and less determined individuals will abandon their plans.
The critical thing is the learning curve. New and old businesses make mistakes, some of which may lead to failure, but successful entrepreneurs manage mistakes better. Successful entrepreneurs recognize that learning events help them reshape the opportunity so that it better meets customers' needs. The business planning process can help you compress and create those learning curves and move from nascent entrepreneur to business owner. Business planning will save you considerable amounts of time and money by helping you understand and anticipate the obstacles that all entrepreneurs face in launching a business. In articulating in the business plan the nature of the opportunity and the way you will exploit it, you have to answer many of the real-life questions you ultimately will face in practice. Indeed, your immersion in writing a great business plan will carry over into the execution of that plan. You will build a textured awareness of the market and ways to attack it. In essence, writing a great plan provides the momentum to be a great entrepreneur, but the plan is not the business.
Even if you launch your business successfully, not all new business owners will survive. Traditionally, the failure rate for new businesses has progressed as follows: 23 percent fail within two years, 52 percent fail within four years, and 63 percent fail within six years. Although these numbers hold over time, they vary by industry and company type. We believe that you can move those percentages in your favor by gaining a deep understanding of your capabilities as a leader-founder, what it will take for the business to succeed, and how to create ways to make this happen. Business planning is part of that process. It is a useful tool for understanding the potential, the risks, and the payoff for a particular opportunity.
Who are the survivors
Excerpted from BUSINESS PLANS THAT WORK by JEFFRY A. TIMMONS. Copyright © 2004 by Jeffry A. Timmons; Andrew Zacharakis, and Stephen Spinelli. Excerpted by permission of The McGraw-Hill Companies, Inc..
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.