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BAD TO WORSE

#1 BESTSELLER. Why Some Start-ups Go Down the Tubes … and Others Don't. BAD TO WORSE. GREG FISHER. Top 10 Mistakes of Entrepreneurs. 1. NO REAL PASSION FOR THE BUSINESS. “I don’t care about the product, I just want to make loads of money”.

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BAD TO WORSE

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  1. #1 BESTSELLER Why Some Start-ups Go Down the Tubes … and Others Don't BAD TOWORSE GREG FISHER

  2. Top10Mistakes of Entrepreneurs

  3. 1 NO REAL PASSION FOR THE BUSINESS “I don’t care about the product, I just want to make loads of money”

  4. Linking Market Demand with passion, skills and resources to create an entrepreneurial opportunity Skills Market Demand Passion Resources

  5. The Key Elements in Creating an Entrepreneurial Opportunity Entrepreneur Opportunity Market Demand Passion Skills Resources

  6. Key questions to sourcing the right opportunity • What do people need? Whowill buy it? Why do they want it? How can I reach them? • What am I (are we) deeply passionate about? • How can I leverage my (our) unique skills? • Where can I (we) get the resources to make it happen?

  7. 2 NO UNDERSTANDING OF THE MARKET “We want one so everyone will want one”

  8. Researching an Idea

  9. 3 NO DIFFERENTIATION “We are going to be just like Amazon.com, only better”

  10. Assessing an Opportunity High Market Size Market Growth Differentiation Customer Need [VENTURE] Concept Attractiveness Low Skills Resources Passion / Energy Network High Low Competitive Advantage [ENTREPRENERIAL TEAM]

  11. Response High Build / hire / develop the required capabilities Invest and pursue the opportunity [VENTURE] Concept Attractiveness Identify / exploit a specific under served niche Revise product or business model Avoid / Wait & Reassess in Future Low High Low Competitive Advantage [ENTREPRENERIAL TEAM]

  12. Strategy Formulation Questions

  13. 4 NO COMPETITORS “We are so unique that we have no competition in the market”

  14. If no competitors … WHY?

  15. Be REAL about your competition

  16. Competitor Analysis

  17. 5 NO BUSINESS MODEL “We will work out our revenue and cost model as we go along”

  18. Business Model

  19. Key questions for building a business model • What are the sources of revenue for the business? • Single or multiple revenue streams? • Payment terms – upfront, over a period of time or post delivery? • What are the cost drivers for the new business? • Major costs incurred to generate revenue? • Nature of costs – fixed, variable or semi-variable? • Payment terms – upfront, over a period of time or post delivery? • What size capital investment is required to launch and sustain the business? • To sustain a positive cash balance? • To make profit? • What are the critical success factors for this business? • Identify the issues that will determine the success or failure of the business?

  20. Business Model Diagram Inputs Required (Cost Drivers) People Product Premises Marketing etc. Input Investment $ Up Front Investment Equipment Premises Branding Training Working Capital Etc $ Critical Success Factors What are the factors that are required to ensure that this model works? Costs New Business Input $ Output Revenue Buyers What they buying Range of products or services Volumes; Frequency How they pay Timing of payment

  21. 6 NO BALANCE IN THE TEAM “We are four CAs so all is okay”

  22. Types of Entrepreneurs Extremist Revolutionary Rands Growth Entrepreneur Revenue Lifestyle Entrepreneur Survivalist Breadline 0 Time Investment

  23. The Entrepreneurial Team High Creativity and Innovation Low High General management skills, business know-how and networks Source: Timmons & Spinelli. New Venture Creation.2004. McGraw Hill.

  24. Quality of the team Entrepreneurial Attributes Commitment and Determination Opportunity Obsession Tolerance for Risk, Ambiguity and Uncertainty Creativity, Self-Reliance and Ability to Adapt Motivation to Excel Leadership Management Attributes Marketing Operations / Production Finance Administration Interpersonal / Team Law Source: Timmons & Spinelli. New Venture Creation.2004. McGraw Hill.

  25. 7 NO CASHFLOW FORECAST “Who cares about cash when you’ve got the profit margins we’ve got ”

  26. Financial Plan • Sales forecast • Startup expenses • 12 Month profit and loss statement (monthly) • 12 Month cash flow statement (monthly) • 3 – 5 Year profit & loss (high level – quarterly) • 3 – 5 Year cash flow (high level – quarterly) • Opening balance sheet • Projected balance sheet • Breakeven analysis

  27. Financial Plan • Sales forecast • Startup expenses • 12 Month profit and loss statement (monthly) • 12 Month cash flow statement (monthly) • 3 – 5 Year profit & loss (high level – quarterly) • 3 – 5 Year cash flow (high level – quarterly) • Opening balance sheet • Projected balance sheet • Breakeven analysis

  28. Cash Flow Forecast (NB)

  29. Sales Forecast * State the assumptions on which these numbers are based

  30. Start Up Expenses

  31. P & L Forecast

  32. P & L Forecast EXAMPLES Direct cost of goods sold EXAMPLES Salaries & wages Other operating expenses Interest payments Depreciation

  33. Cash Flow Forecast (NB)

  34. Cash Flow Forecast EXAMPLES Cash sales of goods or services Collection of accounts receivable Interest earned Sales of fixed assets or investments Capital from investor Loan received EXAMPLES Payment of cash expenses Payment to creditors Payment of salaries and wages Purchase of inventory for cash Purchase of fixed assets or investments Payback loans Payout dividends

  35. Balance Sheets

  36. Balance Sheets Goods or resources owned by the business to be transformed utilized / realized in 1 year Goods or resources owned by the business that have a life span exceeding 1 year Total amount OWNED by the business Amounts owed by the business to be paid back within 12 months Amounts owed by the business to be paid back after 12 months Portion of the business attributable to the owners Total amount OWED by the business to lenders or owners

  37. 8 NO MOMENTUM UNTIL CAPITAL IS RAISED “We need R10m in venture capital and then we will get going”

  38. New venture financing and the equity gap Pre-seed Seed / Start-Up Early Stage Later Government Funds Founders Family Friends Venture Funds Private Equity Angels / Angel Alliances Source 100k 500k R5-10 mil R20 mil Demand Supply Equity Gap Adapted from a model proposed designed by Jeffery E Sohl – Center for Venture Research, University of New Hampshire

  39. Sources of finance for a business

  40. The Art of Bootstrapping • Focus on cash flow, not profitability • Forecast from the bottom up • Ship, then test • Forget the “proven” team • Start as a service business • Focus on function, not form • Pick your battles • Understaff • Go direct • Position against the leader • Take the “red pill.” Source: Kawasaki, G. The Art of the Start. 2004. Portfolio.

  41. Funding Realities • More likely sources of funding for startup: • Bootstrapping • Personal funds • Close connections • Some chance of getting funds for a startup: • Corporate investor • Government enterprise creation funds • Low chance of getting funds • Bank loan • Venture capital

  42. 9 NO FRUGALITY “We have hired offices in Sandton, acquired Hummer’s for the directors and will pay the most to get the best”

  43. Entrepreneurial Financial Management • Budget for CASH FLOW • Build your OWN models • Its not just about HOW MUCH but also about WHEN. • Know the NATURE of different cash flows • SHORT TERM = DETAIL; long term = big picture BUDGETING MONITORING • Your BANK BALANCE is your truth • Know your BASELINE (breakeven) • Keep UP TO DATE • Balance off being overly PEDANTIC versus dangerously LACKADAISICAL REPORTING 10.Report results with PURPOSE

  44. 10 MISGUIDED MARKETING PLAN “Our marketing plan will be a combination of print, TV and internet advertising”

  45. Simple Marketing Plan

  46. Simple Marketing Plan

  47. New Venture Creation Model STRUCUTRE Business Model Legal Form Tools / Facilities Team BUSINESS PLAN OPPORTUNITY Demand Passion Skills Resources SALES Product Price Promotion Place Word of mouth Research Growth FUNDING Traditional financing Bootstrapping Cash flow

  48. Focus points in a business plan • The People. The men and woman starting and running the venture, as well as outside parties providing key services or important resources for it such as suppliers, lawyers and advisors. • The Opportunity. The need in the market for the proposed product or service. The size and growth of the potential market and the attractiveness of the industry in which the business will operate. • The Business Model. A summation of the core business decisions and trade offs employed by a company to earn a profit. The decisions and trade offs include revenue sources, key expenses, investment size and critical success factors • The Strategy. The methods and means of creating sustainable competitive advantage for the new business. • The Context. The big picture – the regulatory environment, interest rates, demographic trends, inflation and the like – factors that inevitably change but cannot be controlled by the entrepreneur. • Risk and Reward. An assessment of everything that can go wrong and right, and a discussion of how the entrepreneurial team can respond.

  49. Business In A Box www.biz-box.net Email – Slidesgreg@learninglab.co.za Blog – Slides fisherg@blogspot.com Go out and do it…

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