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BUSINESS PLANS THAT WORK
A GUIDE FOR SMALL BUSINESS
By ANDREW ZACHARAKIS, STEPHEN SPINELLI, JEFFRY A. TIMMONS The McGraw-Hill Companies, Inc.
Copyright © 2011Andrew Zacharakis, Stephen Spinelli, and Jeffry A. Timmons
All rights reserved.
ISBN: 978-0-07-175257-2
Excerpt
CHAPTER 1
ENTREPRENEURS CREATE THE FUTURE
The weight of this crisis will not determine the destiny of this nation. The answers to our problems don't lie beyond our reach. They exist in our laboratories and universities; in our fields and our factories; in the imaginations of our entrepreneurs and the pride of the hardest-working people on Earth.
—President Barack Obama Address to Joint Session of Congress, Tuesday, February 24, 2009
Entrepreneurship runs deep in the American psyche. Many of today's heroes are celebrated for their entrepreneurial achievements. Sergey Brin and Larry Page, Jack Dorsey, Mark Zuckerberg, Bill Gates, Steven Jobs, Sam Walton, and Arthur Blank among others have created businesses that are household names (Google, Twitter, Facebook, Microsoft, Apple, Wal-Mart, and Home Depot). Moreover, many of today's leading companies were founded at the depths of recession, such as IBM, Microsoft, GE, FedEx, Hewlett-Packard, Revlon Cosmetics among many others. In fact, a study out of the Kauffman Foundation finds that more than half of the 2009 Fortune 500 companies and nearly half of the 2008 Inc. 500 companies were launched during a recession or a bear market. In 5–10 years, we will see many new companies on the Inc. 500 and the Fortune 500 that were founded during the "Great Recession." If America has learned anything during the Great Recession of 2008–10, it is that job security is a myth. To succeed, people need to be creative in their career design, which means focusing their career on positions that intersect with market trends, taking jobs with interesting young companies, and developing skill sets that help them understand how to synthesize inputs. For those of you reading this book, the time might be now. You are not alone in your entrepreneurial dreams. Over 26 million fellow Americans are in the process of launching a business or own a new business less than four years old. Ultimately, the most rewarding and satisfying careers are those that are created for oneself; create a company rather than take a job. With the current pace of innovation this probably means preparing for jobs that might not exist today. Entrepreneurs' unique experiences imbue them with an ability to combine human, physical, and financial resources to create advantage.
Babson College, along with the London Business School, spearheaded the Global Entrepreneurship Monitor (GEM) project in 1999. Today, GEM tracks the rate of entrepreneurship across 54 countries. In the GEM study, entrepreneurship is defined as any attempt to create a new business. Best estimates of the entrepreneurial activity rate for adults aged 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 8.7 percent in 2008, still over twice the level of activity since 1993. However, not every entrepreneur succeeds in launching a business, and only 40 percent of launched businesses survive longer than five years. This book is designed to help you get beyond the prelaunch stage, successfully navigate the new business stage, and ultimately grow your business into a sustainable enterprise that is both personally and financially rewarding.
This first chapter provides a background of the state of entrepreneurship in the United States, which firms beat the failure rule and why. The chapter continues with an overview of attributes of successful people. Next the chapter illustrates when ideas are opportunities. Our simple but robust framework for opportunity assessment is the Timmons Model.
Entrepreneurship in America
To understand what works and what doesn't work, it is useful to briefly examine entrepreneurs. We can think of entrepreneurs as falling into different categories based upon the stage of development of their business. Nascent entrepreneurs are those individuals in prelaunch mode. They have yet to pay themselves or any employees a salary. New business owners are entrepreneurs who have paid salaries and their 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 becoming a durable enterprise, and the entrepreneur's task moves toward building upon the foundation already laid.
Nascent Entrepreneurs
Nascent entrepreneurs are those individuals who report that they are taking steps toward launching a business but have yet to pay themselves or anybody else within the organization a salary or wages. In 2008, 5.9 percent of the adult population (or 1 in 17 adults) were in the process of launching a business. Men are more likely to be nascent entrepreneurs then women (1.3 men for every woman) but the rate of women becoming entrepreneurs has been accelerating in the last 20 years. Entrepreneurs are all ages, but most commonly fall between 18 and 44. They tend to be college educated, but there are many who don't even finish high school. As we can see from the demographics, entrepreneurship isn't confined to highly educated men; it is an encompassing phenomenon within the United States. Granted, there are periods in life when it is more likely that a person will pursue entrepreneurship (mid-thirties), but exceptions to the rule abound (Colonel Sanders was in his sixties when he launched Kentucky Fried Chicken and Mark Zuckerberg was a teenager when he launched Facebook). 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 successfully launch their businesses. Many will discover in this prelaunch stage that the business isn't viable for any number of reasons. For instance, the opportunity may not be compelling enough for you 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 salary that is comparable to what you currently make, or more. Moreover, you must recognize that it will typically take two or more years before you approach revenue figures that make such earning potential possible. There are opportunity costs to pursuing a new venture. Other flaws may become apparent in the prelaunch phase. You may learn that you lack the skills necessary to be successful, so you may postpone your dream while you seek experiences that build that skill set. Entrepreneurs often find it difficult to raise the necessary capital, and less determined individuals will abandon their plans.
Learning is a way of life for entrepreneurs. New and old businesses make mistakes and some of those mistakes 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 customer 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 time and money by helping you understand and anticipate the obstacles that all entrepreneurs face when they launch a business. Articulating in your business plan the nature of your opportunity and the way you will exploit it requires you to answer many of the real-life questions you will ultimately face in practice. Indeed, your immersion in creating a great business plan will carry into your execution of that plan. You will build a textured awareness of the market and how to attack it by doing research, talking to potential customers and vendors, and generally building a network or "brain trust." In essence,
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Excerpted from BUSINESS PLANS THAT WORK by ANDREW ZACHARAKIS. Copyright © 2011 by Andrew Zacharakis, Stephen Spinelli, and Jeffry A. Timmons. Excerpted by permission of The McGraw-Hill Companies, Inc..
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