Bad To Worse

Slide 1: #1 BESTSELLER Why Some Start-ups Go Down the Tubes … and Others Don't BAD TO WORSE GREG FISHER

Slide 3: Top 10 Mistakes of Entrepreneurs

Slide 4: 1 NO REAL PASSION FOR THE BUSINESS “I don’t care about the product, I just want to make loads of money”

Slide 5: Linking Market Demand with passion, skills and resources to create an entrepreneurial opportunity Skills Market Demand Passion Resource s

Slide 6: The Key Elements in Creating an Entrepreneurial Opportunity Entrepreneur Market Demand Opportunity Passion Skills Resource s

Slide 7: Key questions to sourcing the right opportunity • What do people need? Who will 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?

Slide 8: 2 NO UNDERSTANDING OF THE MARKET “We want one so everyone will want one”

Slide 9: Researching an Idea What needs to be researched? How can one gather the information? Customers  Market size.  Trade journals, market reports and  Growth industry associations.  The needs pf customers  Interviewing experts in the industry.  The buying decision of customers  Interviewing, observing or surveying potential customers. Competitors  Number of competitors  Become a customer of the  Product or service offerings of competition. competitors  Visit competitor websites, stores and  Where the competitors are situated. read their promotional material.  The strengths and weaknesses of  Interview competitors customers competitors Collaborators  Suppliers  Visit suppliers  Funders  Discuss funding options with other  Partners entrepreneurs  Discuss funding options with the banks  Obtain and read the national venture capital association handbook  Search the web The Company  Revenue  Consider different revenue models:  Cost drivers  Evaluate the costs and the costs Model  Investment drivers. Distinguish between fixed,  Critical success factors variable and semi variable costs. Consider the source of costs:  Do cash flow projections  Speak to industry experts

Slide 10: 3 NO DIFFERENTIATION “We are going to be just like Amazon.com, only better”

Slide 11: Assessing an Opportunity High 10 9 Market Size Market Growth 8 Differentiation 7 Customer Need 6 5 [VENTURE] 4 Concept Attractiveness 3 2 Low 1 Skills 1 2 3 4 5 6 7 8 9 10 Resources Low High Passion / Energy Competitive Advantage Network [ENTREPRENERIAL TEAM]

Slide 12: Response High 10 9 Build / hire / Invest and pursue 8 develop the the opportunity [VENTURE] 7 required capabilities Concept 6 Attractiveness 5 Identify / exploit a 4 specific under Avoid / Wait & served niche 3 Reassess in Future 2 Revise product or business model Low 1 1 2 3 4 5 6 7 8 9 10 Low Competitive Advantage High [ENTREPRENERIAL TEAM]

Slide 13: Strategy Formulation Questions Why do we exist? What are our Purpose Whom do we What value do Why do we personal serve? we deliver? matter? objectives Where are we at? What are the What are the Current status What are our What are our opportunities for threats for the strengths? weaknesses? the business? business? How do we create value? What is our org What is our How will we Business Recipe What makes us sustainability value evolve as a different? model? proposition? business? What is our organizational character? What Organis-ational What turns us What is not How do we Character assumptions on? negotiable? behave? guide us? What must we do and how will we make it happen? Goals, Action & What needs to What are our 3 What are our 1 happen in the Who is Priorities year goals? year goals? responsible? next 30 days?

Slide 14: 4 NO COMPETITORS “We are so unique that we have no competition in the market”

Slide 15: If no competitors … WHY?

Slide 16: Be REAL about your competition

Slide 17: Competitor Analysis Importance My Competitor Competitor Competitor FACTOR Strength Weakness to Business A B C Customer Products Price Quality Selection Service Reliability Stability Expertise Company Reputation Location Appearance Sales Method Credit Policies Advertising Image

Slide 18: 5 NO BUSINESS MODEL “We will work out our revenue and cost model as we go along”

Slide 19: Business Model Income Income Income Stream 1 Stream 2 Stream 3 Source of Revenue Costs Investment Critical Success Factors

Slide 20: 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?

Slide 21: Business Model Diagram Inputs Required (Cost Drivers) People Product Premises Marketing etc. Input Investment $ Critical Success Factors $ Up Front Investment Costs Equipment What are the factors that are required to ensure Premises that this model works? New Branding Input Business Training Working Capital Etc $ Revenue Output Buyers What they buying Range of products or services Volumes; Frequency How they pay Timing of payment

Slide 22: 6 NO BALANCE IN THE TEAM “We are four CAs so all is okay”

Slide 23: Types of Entrepreneurs Extremist Revolutionary Rands Growth Entrepreneur Revenue Lifestyle Entrepreneur Survivalist Breadline 0 Time Investment

Slide 24: The Entrepreneurial Team High Entrepreneurial Inventor Team Creativity and Innovation Manager, Promoter administrator Low High General management skills, business know-how and networks Source: Timmons & Spinelli. New Venture Creation.2004. McGraw Hill.

Slide 25: Quality of the team Entrepreneurial Attributes Management Attributes 2. Commitment and 2. Marketing Determination 3. Operations / Production 3. Opportunity Obsession 4. Finance 4. Tolerance for Risk, 5. Administration Ambiguity and 6. Interpersonal / Team Uncertainty 7. Law 5. Creativity, Self-Reliance and Ability to Adapt 6. Motivation to Excel 7. Leadership Source: Timmons & Spinelli. New Venture Creation.2004. McGraw Hill.

Slide 26: 7 NO CASHFLOW FORECAST “Who cares about cash when you’ve got the profit margins we’ve got ”

Slide 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

Slide 28: 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

Slide 29: Cash Flow Forecast (NB) M1 M2 M3 M4 M5 M6 M12 Total Budget Budget Budget Budget Budget Budget … Budget Budget Units Sold Opening Cash + + + + + + + Balance Cash + + + + + + + Inflows Fixed Cash _ _ _ _ _ _ _ Outflows Variable Cash _ _ _ _ _ _ _ Outflows Closing Cash = = = = = = = Balance

Slide 30: Sales Forecast M1 M2 M3 M4 M5 M6 M12 Total Budget Budget Budget Budget Budget Budget … Budget Budget Cat 1 Units Sold* a Sales Price Per Unit* b Category 1 TOTAL axb=Z Cat 2 Units Sold* c Sales Price Per Unit* d Category 2 TOTAL cxd=Y Monthly Z+Y Total * State the assumptions on which these numbers are based

Slide 31: Start Up Expenses Start Up Expenses Real estate XXX Capital equipment XXX Location and admin XXX Opening inventory XXX Advertising and promotions XXX Other expenses XXX Reserve for contingencies XXX Working capital XXX TOTAL XXXX Sources of Capital Owners investment XXX Bank loans XXX Other loans XXX TOTAL XXXX

Slide 32: P & L Forecast M1 M2 M3 M4 M5 M6 M12 Total Budget Budget Budget Budget Budget Budget … Budget Budget Revenue + + + + + + + Cost of Sales _ _ _ _ _ _ _ Gross = = = = = = = Profit Expenses _ _ _ _ _ _ _ Profit = = = = = = = before tax Tax _ _ _ _ _ _ _ Expense Profit after = = = = = = = tax

Slide 33: P & L Forecast M1 M2 M3 M4 M5 M6 M12 Total Budget Budget Budget Budget Budget Budget … Budget Budget Revenue + + + + + + + Cost of _ _ EXAMPLES _ _ _ _ _ Sales Direct cost of goods sold Gross = = = = = = = Profit Expenses _ _ _ _ _ _ _ Profit = = = = = = = before tax Tax Expense EXAMPLES_ _ _ _ _ _ _ Profit after Salaries & wages tax Other operating expenses= = = = = = = Interest payments Depreciation

Slide 34: Cash Flow Forecast (NB) M1 M2 M3 M4 M5 M6 M12 Total Budget Budget Budget Budget Budget Budget … Budget Budget Units Sold Opening Cash + + + + + + + Balance Cash + + + + + + + Inflows Fixed Cash _ _ _ _ _ _ _ Outflows Variable Cash _ _ _ _ _ _ _ Outflows Closing Cash = = = = = = = Balance

Slide 35: Cash Flow Forecast EXAMPLES M1 sales of goodsM5 services M2Cash M3 M4 or M6 M12 Total Budget Budget Budget Budget Budget Budget Budget Collection of accounts receivable … Budget Units Sold Interest earned Sales of fixed assets or investments Capital from investor Opening Loan received Cash + + + + + + + Balance Cash EXAMPLES + + + + + + + Inflows Payment of cash expenses Fixed Payment to creditors Cash _ _ _ _ _ _ _ Outflows Payment of salaries and wages Purchase of inventory for cash Variable Cash _ Purchase of fixed assets or investments _ _ _ _ _ _ Outflows Payback loans Closing Payout dividends Cash = = = = = = = Balance

Slide 36: Balance Sheets Opening End Y1 End Y2 End Y3 Assets Current Assets Cash Inventory Acc receivable Fixed Assets Property Equipment Furniture Vehicles TOTAL ASSETS Liabilities & Equity Current Liabilities Accounts payable Long Term Liab. Loans Owners Equity Capital Retain earnings TOTAL LIAB & EQUITY

Slide 37: Balance Sheets Opening End Y1 End Y2 End Y3 Assets Current Assets Cash Goods or resources owned by the business to be transformed Inventory utilized / realized in 1 year Acc receivable Fixed Assets Property Equipment Goods or resources owned by the business that have a life span Furniture exceeding 1 year Vehicles TOTAL ASSETS Total amount OWNED by the business Liabilities & Equity Current Liabilities Amounts owed by the business to be paid back within 12 months Accounts payable Long Term Liab. Amounts owed by the business to be paid back after 12 months Loans Owners Equity Capital Portion of the business attributable to the owners Retain earnings TOTAL LIAB & EQUITY Total amount OWED by the business to lenders or owners

Slide 38: 8 NO MOMENTUM UNTIL CAPITAL IS RAISED “We need R10m in venture capital and then we will get going”

Slide 39: New venture financing and the equity gap Stage Pre-seed Seed / Start-Up Early Later Government Funds Founders Family Angels / Venture Private Source Friends Angel Alliances Funds Equity 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

Slide 40: Sources of finance for a business Equity Funding Sources Debt Funding Sources  Personal savings  Loans from family and friends  Family and friends  Loans from government agencies or NGO’s  Informal individual investors supporting entrepreneurs  Venture capitalists  Bank loans  Government agencies  Partnerships / strategic alliances with corporations  Private equity investors (for established businesses)  Listing on stock exchange ● Alt-X ● Main Board Advantages Disadvantages Advantages Disadvantages  Often comes with  Lose a portion of the  Founder maintains full  Loan must be paid useful management ownership of the ownership of the back which can input and advice. business. business. create strain on  Equity investors can  Equity owners can be  Founder can manage cash flow for the give access to a controlling which can and run the business new business. network of useful cause friction with the as he/she sees fit  Bank is unlikely to contacts founders assist in opening  No immediate strain  Difficult to value an doors, giving advice on cash flow in entrepreneurial or introducing terms of business when founders to useful repayments of the allocating contacts. capital shareholdings

Slide 41: The Art of Bootstrapping 1. Focus on cash flow, not profitability 2. Forecast from the bottom up 3. Ship, then test 4. Forget the “proven” team 5. Start as a service business 6. Focus on function, not form 7. Pick your battles 8. Understaff 9. Go direct 10. Position against the leader 11. Take the “red pill.” Source: Kawasaki, G. The Art of the Start. 2004. Portfolio.

Slide 42: 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

Slide 43: 9 NO FRUGALITY “We have hired offices in Sandton, acquired Hummer’s for the directors and will pay the most to get the best”

Slide 44: Entrepreneurial Financial Management 1.Budget for CASH FLOW 2.Build your OWN models BUDGETING 3.Its not just about HOW MUCH but also about WHEN. 4.Know the NATURE of different cash flows 5.SHORT TERM = DETAIL; long term = big picture 1.Your BANK BALANCE is your truth MONITORING 2.Know your BASELINE (breakeven) 3.Keep UP TO DATE 4.Balance off being overly PEDANTIC versus dangerously LACKADAISICAL REPORTING 10.Report results with PURPOSE

Slide 45: 1 MISGUIDED MARKETING PLAN 0 “Our marketing plan will be a combination of print, TV and internet advertising”

Slide 46: Simple Marketing Plan Marketing Description of the Key questions to be Considerations mix component answered by the component entrepreneur Product Good marketing Does it meet a specific need? Product variety begins with a good What is that need? Quality product or service. Must we customize our Design product or service? Features Do we deliver the appropriate Packaging quality for the customer? Services Warranties Returns Price You need to find a What does it cost us to List price balance between produce the good or service? Discounts attracting customers What are the competition Allowances and making profits. charging for similar goods or Payment period services? Credit terms Why are we charging more or less than the competition? How would revenue and profits be affected if we increased or decreased the price?

Slide 47: Simple Marketing Plan Marketing Description of the Key questions to be Considerations mix component answered by the component entrepreneur Place This is about getting the Are we going to sell Channels product or service to the locally, regionally, Coverage customer. Customers will nationally or globally? Transport only buy products or How will we reach the services that they have customer? access to, thus it is Do we need more than critical to have one channel for reaching distribution channels that the customer? reach the customer. Should we create our own distribution channel or partner with an established distributor? Promotion Promotion is about How will we make Advertising communicating the customers aware of the Sales force merits of the product or benefits of buying our Public relations service to target product or service? Direct marketing customers and persuading them to buy.

Slide 48: New Venture Creation Model STRUCUTRE Business Model BUSINESS PLAN Legal Form Tools / Facilities Team OPPORTUNITY SALES Demand Product Passion Price Research Growth Skills Promotion Resources Place Word of mouth FUNDING Traditional financing Bootstrapping Cash flow

Slide 49: 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.

Slide 50: Business In A Box www.biz-box.net Email – Slides greg@learninglab.co.za Blog – Slides fisherg@blogspot.com Go out and do it…