Periods of economic meltdown seem to inspire a do-it-yourself approach to new business development. Commenting on the fallout from recent corporate scandals in the August issue of Inc. Magazine, Editor-in-Chief George Gendron noted "if you want to work for a good organization, you may just have to build your own."
While uncertain times offer would-be entrepreneurs a chance to enter the marketplace without the pressure to grow too fast, this economy is no place for amateurs, either. But if you can't find a great opportunity or have witnessed the deep devaluation of your career aspirations, it may be tempting to grow your own. So what would be the wisest path? Well if you start strategically, it might be more than just an adventure.
In my column last June, I asserted that "tough times make great companies." If you have completed a personal risk assessment, identified a market opportunity based on a problem you can solve and determined that you have a business idea and not just a project, you are well on your way. Next step -- a business plan. Or, if you are aiming for high growth -- a venture plan -- which is more than just a business plan on steroids. A solid venture plan positions your enterprise for growth and is designed to be a strategic element in your plan to attract investment capital.
The venture plan
Assuming that you have a product or service idea, what's your business model? The elements of a venture plan are fairly straightforward, but you will need to craft a clear strategy as an anchor point for decision making. A typical business plan might cover the operating strategy in detail but will fall far short of defining a business model -- that is, all of the elements which will position this organization to reach the kind of market success that are the basic requirements of professional investors. The key elements of your venture plan should cover the market opportunity along with your plans for profitability, management and strategic operations, and it should provide a clear vision for growth. Moreover, a venture plan should demonstrate a sophisticated approach and a credible strategy for executing on your technology, product or service, capturing strong marketshare and generating revenue.
The market opportunity
I personally define a market opportunity as one in which there is a compelling problem and a validated measure which demonstrates that people will pay to have it fixed. So the first step here is research. You will need to uncover everything you can about the particular slice of the market you plan to address. If there is a real need, you can be sure there is a solution available now, regardless of how inefficient, ineffective or inelegant that solution might be. How can you address this market in a "better, faster, cheaper" or otherwise differentiated way? And if there is really "no competition," maybe there is really no market.
But your research has to go much deeper than a superficial survey of companies in the sector. You will need to understand the dynamics of this marketplace. What is likely to push back when you pull? What are the idiosyncrasies of the particular customers in this niche? Is this market subject to governmental or regulatory quirks? And, just as important as what you know -- how do you know? If you have experience in this market -- whether you have learned by your own success or by close observation of failure -- your venture is likely to be stronger. And whether you are out of your league or just outside your comfort zone, you may need to identify partners who can help you take advantage of complex markets and address predictable problems in a proactive way.
Knowing the whims of your marketplace is just the beginning. How will you validate your opportunity and sell into it? Will you find "reference customers?" Having corporate customers from recognizable companies can give you market credibility when you are introducing a new product. How will you determine reasonable prospects, gain introductions and build relationships? Will you create raving fans by offering free beta versions? What about pursuing an alliance? Sometimes nimble firms can gain support from Goliaths by providing an innovative new product. But a sales strategy is key. And plan to tweak it indefinitely, using feedback from prospects to help you target with laser precision.
The plan for profitability
Whether you are designing your venture for a family fortune or the Fortune 500, you had best create a formula for generating revenues and cash flow early. Profitability went out of fashion for a time, but in this back-to-basics environment, it is a critical element. Will you self-finance while you work part-time until cash is flowing? How much can you borrow against your house or your 401(k)? Can you sell Idea One while the designs for the real breakthrough version are in development? Will you get vendors and suppliers to give you attractive terms and collect C.O.D. from customers? In this cash-is-king universe, how clever can you be? The thing about profitability is that cash doesn't lie. Either you earn more than you spend, or you spend less, or you generate more.
And with regard to the great American myth -- you know the one: get a concept, get venture capital, retire rich from your IPO -- if you've had a previous venture capital success, then perhaps you can start down the angel-to-professional-money path. If you're new in the game, I suggest you don't even look there unless and until you have demonstrated the validity of your business model, the enormity of your market and your ability to guarantee a handsome return.
Management, management, management ... most entrepreneurs have been told that this is the key to success. It is often said that, "an A-Team can succeed with a B-opportunity," but the reverse is rarely the case. There is no great mystery here. Fundamentally, business is an acquired skill. We may not make the right decision the first time a problem arises, but by the time lessons two through 10 have come our way, we are seasoned.
Your depth of experience -- in the industry, in production processes, in the markets -- will absolutely make a difference. So if you aren't quite credible, recruit a great team. There is a lot of great talent in this town, and while "sweat equity" isn't the only approach, it may help ease some of your management gap. If you can't afford real salaries -- and stock options won't work anymore -- then find advisers, mentors or board members who can cover some of the holes in your team for the short term. (If your ego is too fragile for you to load up on talent, chances are your venture is doomed anyway, so it won't matter if you go-it-alone.)
And your venture plan should look far beyond your launch date. While you are crafting your team, what will your framework for managing this enterprise look like? What are the key competencies that your enterprise will require as each new turning point approaches? You may not start out with a full complement of leadership, but you should have those objectives clearly in sight.
More important than your mission statement are your values and operating principles "in action." No matter how brilliant your technology or how perfectly you can meet market demand, execution is key. How exactly will you handle the details, the day-to-day activities of buying, selling, producing? What kinds of legal or professional services will you need? How will you attract, screen, hire and retain dedicated employees? What type of information technology will you need, and how will you factor that into your overhead? What will your infrastructure requirements be in order to support your plans for growth and development? What lessons learned from the current crises of confidence will you incorporate into your corporate value systems? What kinds of process controls will ensure the quality of service and support you plan to deliver? How will you meet your milestones every step of the way?
Finally, the one thing I can promise you is that change is likely to be the only constant. How will you commit yourself to building your business while recognizing that your business model will evolve? If you can navigate through these rough waters, perhaps you will be able to grow your own.
Orion is president and CEO of the San Diego Regional Technology Alliance. He can be reached at firstname.lastname@example.org.