April 4, 2005
Roadmap to Entrepreneurial Success: Power Strategic for Developing a High Profit Businessby Robert W. Price
As the pace of business competition accelerates, seat-of-the-pants management becomes ever more dangerous. In order to survive, entrepreneurs operating their ventures in uncertain environments need a focused "path to profitability." Roadmap to Entrepreneurial Success provides the necessary tools for both the new and experienced entrepreneur to stay on course and succeed. This essential business resource debunks dated concepts and offers a step-by-step program for:
- identifying value drivers in your business, and communicating those drivers to your venture team and potential investors
- understanding the business planning and business modeling process
- leveraging the six competitive advantages and five market entry strategies that successful entrepreneurs use most often
- gaining immediate "sales traction" in a fast-changing marketplace
- growing around the "growth wall" that stops many companies cold
- getting on the radar of potential acquirers if you choose to sell your business
Filled with key steps and strategies, it's a start-to-finish guide to maximizing growth.
Author Biography: Robert W. Price (Laguna Beach, CA) is Senior Research Fellow at the Global Entrepreneurship Institute, a nonprofit organization specializing in educating entrepreneurs leading high-growth-potential ventures.
April 4, 2005
Los Angeles Venture Association
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Roadmap to Entrepreneurial Success
By Robert W. Price
AMACOM BooksCopyright © 2004 Robert W. Price
All right reserved.
IntroductionCreating Your Start-Up Strategy
The beginning is the most important part of the work. -Plato
The time to prepare isn't after you have been given the opportunity. It's long before that opportunity arises. Once the opportunity arrives, it's too late to prepare. -John Wooden, basketball coach of ten championships teams at UCLA
Competition for the future is competition to create and dominate emerging opportunities-to stake out new competitive space. Creating the future is more challenging than playing catch up, in that you have to create your own roadmap. -Gary Hamel and C.K. Prahalad, Competing for the Future
Identifying the Problem and the Solution
The greatest challenge a new business venture faces is getting the right things done in the right order. Knowing what to do, and in what sequence, is critical, especially since the entrepreneur has very limited time and resources. Craig W. Johnson, chairman of the Venture Law Group, once said that starting companies is much like launching a rocket: If at launch you're just a fraction of a degree off, you could end up a thousand miles off course downrange.
The pressures on the entrepreneur leading a new venture are relentless. The obstacles and challenges are formidable. Everything takes longer than planned. Gaining traction through market credibility and respect is very difficult. Forecasts are rarely accurate, and just making more sales does not always solve a cash crunch. Relationships with suppliers and buyers are more demanding, and just getting paid on time is not always easy. Competitors seemingly come out of nowhere at the worst times. Building a good venture team is difficult and time consuming, and leading and managing the team is the biggest challenge as there will be numerous conflicts among partners and investors.
The problem is entrepreneurship has been rebooted and the rules of launching and financing a venture have changed. The global economy has been struggling along and there is no shortage of geopolitical tensions. Diane Swonk, chief economist and senior vice president at Bank One Corporation, explained that the drivers of uncertainty in the financial world are both numerous and diverse. In fact, she states that the most uncertain times in global financial history started during the past decade. These events were:
1997: Thai bhat devalued
1998: Russian default
1999: Brazilian real devalued
2000: NASDAQ tech wreck
2001: Terrorist attacks on World Trade Center and Pentagon
2002-2003: Corporate governance crisis
The landscape of business is now integrated with the threat of global terrorism on our soil and the impact on the U.S. economy is only beginning to be understood. This threat of terrorism is slowly being incorporated into business planning and operations. Alexis D. Gutzman, writing in Unforeseen Circumstances: Strategies and Technologies for Protecting Your Business and People in a Less Secure World, tells us that "September 11, 2001 was a wake up call for businesses. Many standard business practices were suddenly identified as risky behavior." As for business planning, she notes that "any book that was published before January 2002 on the topic of business planning is probably obsolete."
According to Steve Forbes, editor-in-chief at Forbes magazine, all these events have put investing on hold in the United States. Forbes says that more than $2 trillion was on the sidelines in the cash markets. These stark tales of uncertainty underscore a new reality confronting companies everywhere. Bill Gartner, a professor of entrepreneurship at the University of Southern California's Marshall School of Business, looks at these problems through the eyes of entrepreneurs. Gartner says, "It's not that there's not money out there, it's just that the money doesn't meet up with the ideas." Entrepreneurs need to focus on the real problem. He adds, "They don't know the right people, they don't understand the industry well enough. That's what they really need to concentrate on."
Successful ventures coming from today's challenging and uncertain times will be built on value. For the past twenty-five years Venrock Associates, based in Menlo Park, California, has managed the Rockefeller family's money. The firm made money on start-ups like Apple Computer and Intel. According to Tony Sun, a Venrock partner, "Historically, the best companies are started in the down times, because during those periods entrepreneurs are very focused on creating core value and building enduring businesses."
Solution: Back-to-Basics Approach
As we stated, knowing what to do today, and in what sequence, is the problem. Our book helps you identify and analyze the right strategic steps, and leads you through in the right sequence. As the rate of technology development and the pace of competitive pressures accelerate, the flying-by-the-seats-of-the-pants approach to management just is not cutting it. Entrepreneurs must now launch and operate their ventures into a highly unpredictable environment.
Our solution is based on a "back-to-basics" approach to entrepreneurial discipline. Discipline is the act of encouraging a desired pattern of behavior. George Washington said that discipline "is the soul of the army. It makes small numbers formidable, procures success to the weak, and esteem to all." We say that entrepreneurial discipline is the orderly conduct that holds a new business venture all together. Karen Griffith Gryga, a principal at Liberty Venture Partners, says that "it may feel like tough medicine, but it is aligning the risk-reward profile of today."
Ironically, the phrase "back to basics" entered the mainstream business management world following the recession of the late 1970s. First prescribed as a solution in 1982, In Search of Excellence by Tom Peters and Robert Waterman went on to become a classic. It is still found in bookstores today. Jim Collins, co-author of Built to Last, provides sound advice to entrepreneurs in these uncertain times. According to Collins, we don't need to throw out the fundamentals but just do a better job of applying the fundamentals. The rebooting of entrepreneurship leaves entrepreneurs running a business today with some vexing questions: What has changed? What is the next milestone? Are we jumping ahead too fast or taking too long? How do we manage this process? How does entrepreneurial management and practices differ from the management practices we know in the corporate world?
Entrepreneurial Management Practices
The adjective "entrepreneurial" is used in a host of varying contexts and embodies a wide variety of meanings and implications. For instance, "entrepreneurial knowledge," as J.J. Kao points out in The Entrepreneurial Organization, can be referred to the concepts, skills, and mindset associated with operating large corporations with greater flexibility, innovation, and responsiveness. However, for this book, entrepreneurial knowledge is restricted to the concepts, skills, and mindset that individual business owners must employ in the process of starting and operating high-growth-potential ventures.
In their book, Entrepreneurship, Robert Hisrich and Michael Peters say that managing a new venture differs from managing an existing operation along five key management issues: strategic orientation, commitment to opportunity, commitment of resources, control of resources, and management structure. The entrepreneurs born with these management skills come from a rare breed of people with intelligence, great heart, and creative skills. They are visionary and self-confident, good communicators with unlimited energy, and have a strong passion for what they do. Fortunately for those of you who were not born blessed with these skills running through your blood, we know that the most critical skills in launching and running a new venture can be learned. We will teach you some of the most important ones.
Entrepreneurs are directly involved in the dynamic, and very complex, interrelationship between financial management and business strategy. This is the significant difference that sets entrepreneurial management apart from all business management practices. In almost all cases, the person making the decisions has personal risk at stake. The worst-case scenario for folks "at work" is getting fired. The worst case for entrepreneurs is losing their home, personal credit, and lifestyle, as well as the destruction of family relationships.
Peter Drucker remarked that for the existing large company, the controlling word in the phrase "entrepreneurial management" is "entrepreneurial." In any new business venture, the controlling word is "management." Therefore, for the purposes of our book we lean toward "management" as a discipline for entrepreneurs. We define entrepreneurial management as the practice of taking entrepreneurial knowledge and utilizing it for increasing the effectiveness of new business venturing as well as small- and medium-sized businesses. The heart of entrepreneurial management is continually juggling these vital management issues:
* What is this venture about? (mission and values statement)
* Where should it go? (goals and objectives)
* How will it get there? (growth strategy)
* What does it need to get there? (people and resources)
* What structure is best? (organizational capabilities)
* How much money does it need and when? (financing strategy)
* How will it recognize the final destination? (vision of success)
The Entrepreneurial Life Cycle
These vital management issues and activities play out in what we call the entrepreneurial life cycle. The entrepreneurial life cycle repeats itself in businesses of all sizes, from start-ups in a garage to corporate entrepreneurship activities in global Fortune 500 companies. It starts with an entrepreneur who perceives an opportunity, creates an organization to pursue it, assembles the required resources, implements a practical plan, assumes the risks and the rewards, all in a timely manner for all involved. It was once said that entrepreneurship is a lot like driving fast on an icy road. We prefer to think of entrepreneurship as less reckless and more methodical. Entrepreneurship is a continual problem-solving process. It is like putting together a huge jigsaw puzzle; at first pieces will seem to be "missing," obscure, or not clearly recognizable. Not all entrepreneurial life cycles follow a single process, but our research suggests that the stages we present below are common in the most successful emerging growth ventures. Size, profitability, commitment, complexity, scale of organizational structure, decrease in risk, increase in value, and decrease in founders' involvement characterize each stage. We believe that by knowing and understanding these stages entrepreneurs, business managers, investors, and consultants will be able to make more informed decisions, and most of all, be prepared themselves for challenges that lie ahead. We present the seven stages in the entrepreneurial life cycle, as follows.
Stage 1. Opportunity Recognition
This "gestation" period is quite literally the "pre-start" analysis. It often occurs over a considerable period of time ranging from one month to ten years. At this stage it is important to research and understand the dimensions of the opportunity, the concept itself, and determine how to decide whether it is attractive or unattractive. The individuals need to look internally and see if they are truly ready for entrepreneurship. The vast majority of people, including almost all inventors, never move off of this stage and remain just "considering" entrepreneurship.
Stage 2. Opportunity Focusing
This is a "sanity check," a go/no-go stage gate for part-time entrepreneurs because it fleshes out shaky ideas and exposes gaping holes. Venture capitalist Eugene Kleiner, of Kleiner Perkins Caufield & Byers, says, "Focus is essential; there can be the possibility of the business branching out later, but the first phase of a company should be quite narrowly defined." It is important to include objective, outside viewpoints because different people can investigate the same opportunity and come to opposite conclusions.
Stage 3. Commitment of Resources
Most entrepreneurs see commitment as incorporating their business or quitting their day job. But this stage actually starts with developing the business plan. There is a huge difference between screening an opportunity and researching and writing a business plan. Writing an effective business plan requires a new level of understanding and intense commitment. The process will take between 200 to 300 hours, so squeezing that amount of time into evenings and weekends can make this stage stretch over three to twelve months. A common mistake entrepreneurs make is skipping the business plan; commit other resources, start the venture, then follow up and try to determine exactly what the focus will be for the venture.
Stage 4. Market Entry
Profitability and success define this stage. The entrepreneur is committed with a very simple organization, the resources were correctly allocated according to the business plan, and the first sales were made. This is what defines success in the very early stages. If the business model was profitable, reasonable objectives were met, and the venture is on track for attaining true economic health, then the entrepreneur can chose between a capital infusion for growth or remaining small with self-financing.
Stage 5. Full Launch and Growth
At this stage, the entrepreneur needs to choose a particular high-growth strategy. Upon considering such alternatives, quite often the entrepreneur chooses to remain a small business and never passes this stage or perhaps opts to remain operating as a sole proprietor. Or the venture could remain small for the simple fact that not all small ventures can or will become big companies. They are not fast growth potential because there is not enough room in the market for growth, their production and management systems are not scalable, or they will not scale because the rate is too great of a challenge to the management.
Stage 6. Maturity and Expansion
Now the venture is a market leader at cruising altitude. The growth becomes a natural extension of the venture through professional management practices. This professional management team is implementing the venture's growth strategy through global expansion, acquisitions, and mergers as cash is plentiful and inefficiencies are completely flushed out.
Stage 7. Liquidity Event
This harvesting stage is focused on capturing the value created in the previous stages through a business exit.
Excerpted from Roadmap to Entrepreneurial Success by Robert W. Price Copyright © 2004 by Robert W. Price. Excerpted by permission.
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