My framework is somewhat inspired by the “Strategic Framework” on the right, which I got from an excellent, but fat book, called “Valuation – Maximizing Corporate Value.” Along with explaining valuation very well, including what all the financial inputs mean and where (!) they can be found, it’s really meant to be a tool for building sound business-strategies. A good book for consultants, if you’re interested in a simple book on finance, and a concrete book on strategy (hard to find in that combo)!

Let’s do it!

Step 1 – the idea

This can really be sub-devided into three separate parts: the vision, the mission, and the plan. The vision is like the cloud in the sky which you spot while taking a walk. You don’t know if and how it will work yet. The mission is a long-lasting platform for you to run your company on; it’s a set of parameters, which come from both your values, your strengths, and your objectives, e.g. “I want my business to be fast, honest, and affordable.,” or Google’s: “…to organize the world’s information and make it universally accessible and useful.”

The plan is not the business-plan per se, but the action plan that is something like this post here. It’s meant to be a set of steps that brings you from the idea to the business, and includes developing your business-idea, writing the business-plan, selecting the team, approaching investors & partners, where to locate, what technologies to use, etc.

Good knowledge to have at this stage: technical about your product, development, the industry; creative techniques; planning techniques.

Step 2 – a short market-research

Just to get an overview of the market and to what extent the problem you’re trying to solve is already being solved. I think step 1 needs to be quite far-developed before proceeding to step 2, because being confronted with a market filled with giants isn’t exactly a great motivator to develop your yet vapourous idea. The same applies to talking to other people (step 4), as those can be quite reality-distorting also.

So a short market-research, using mediums relevant to your industry. Google is always a good start, but sometimes you need to do a patent-search or a scholar-search for high-tech; at other times you need to look at Crunchbase for Web X.0; and sometimes a phone-book or the chamber of commerce databases for local stuff. And sometimes there’s no material out there (a very tricky situation!), in which case you need to look at substitutes for your product/service as well as new entrants from related industries. While that’s already substantial in terms of work, it helps with step 3: the pitch.

Good knowledge to have at this stage: marketing, both in terms of what to focus on, where to search for stuff, and how to write it up so that it makes sense.

Step 3: Pitch v. 1 – convincing your peers

The most important quality an entrepreneur must have is the ability to sell. And there’s a phrase in selling, which goes something like: you can’t sell what you don’t believe in… and vice versa. The more your idea is worked out, the more you know about the market, the more confident you can defend your ideas from the many, many sceptics that are out there.

A pitch v.1 needs to be a mini-business-plan of one to a few pages and include as much information as possible about the product, about how (you think) you will produce it, who you will (need to) hire, where you will be located, what need you are meeting, how you will market your product, how you will make money, how you will defend yourself from the competition. The more specific, the better!

And then that needs to be summarised into a pitch of ca. 2 mins, summarising all the vital data + a touch of personality & charisma!

Good knowledge to have at this stage: apart from the data from steps 1 & 2 (technical, marketing, your industry, your customers), you need some business-planning skills, which includes some (not much) financial techniques; as well as presentation skills & passion.

Step 4: find your team

There’s different philosophies about idea-generation (step 1), with many, I’m sure, arguing that you should be brainstorming with your friends on the idea from the start, that more heads have more/better ideas than one, etc. etc. I completely agree with this. But my philosophy is that without a clear direction, a team can quickly lose focus and follow political objectives, rather than pragmatic ones. While, I’ve been blessed with a few groups of people, where the chemistry was excellent and everyone was intelligent enough to be willing to listen & learn from others, many other groups have been a complete failure, because politics & brains definitely don’t always come hand in hand. So, I’m of the opinion, that an idea needs to be very well-developed & thought out before presenting it, after which it can be refined and adapted, and even rejected, according to the more specialised knowledge of group-members.

About finding team-members; for myself I have to say, after spending a long-long time on my thesis—a solitary activity—it’s not that easy. Again, networking, LinkedIN/Facebook, blogging, university (very important!), family, highschool-friends, former employers/co-workers, etc. , all good choices. Luckily for me, my thesis also brought me into contact with a large number of incubators, which are also good places to run into smart people; I worked for a venture-capital-tracking firm, ditto on the smart people; and there’s Tech IT Easy, Ditto 3x! So, really, never a shortage of smart people, when you look for them!

Good knowledge to have at this stage: material from steps 1-3; people-skills, in terms of choosing the right group of people; leadership & sales-skills; and the ability to form rational arguments & present your ideas well.

Step 5: write a business-plan

Read Jeremy’s post here.

Step 6: pitch v.2 – approaching early-stage investors

Somewhat different from later-stage investors, these are people you talk to, usually before launching your company (except maybe in web-world), and for which you don’t have that much tangible evidence to convince them with yet. So your pitch needs to be somewhat like pitch v.1 (step 3), but will include more data that you collected for your business-plan, but presented concisely and clearly showing how you will meet a need, how you plan to make your investors their money back + some more, how you will reduce the risk for them (very important!), and what you see their role to be in your business, apart from cash-cow—this only applies to active investors, such as business angels, not banks or subsidies, though not all business angels are able to be active (though they should always be able to help with contacts), and some bankers may surprise you.

Good knowledge to have at this stage: all the material from the previous steps, and similar skills as for pitch v.1. You need to speak a language that early-stage (!) investors understand!

Step 7: approaching early-stage investors

Banks & subsidies are easy to find, though sometimes you still need a little help and/or an intro; generally, banks want a lot of securities, sometimes already having a subsidy agreement and working with other, more experienced investors helps a great deal. Subsidies are a b*tch, as they make you do a lot of paper-work and impose some rules, and they generally work best for innovative, sustainable, or export-related ideas.

Business angels are a little harder. Usually, it helps going through trustworthy (& older) people that have built a network themselves. I can’t say more about that, except that entrepreneurs should avoid acting predatory and avoid predatory investors (both happen way too frequently), and you can mostly control the first (yourself), not so much the latter (though it helps going through someone you know).

Good knowledge to have at this stage: know your business-plan inside out; know how to present it and the financial data concisely; people-skills, in terms of evaluating the people you meet and selling yourself; having a network helps; having a good team in place helps a lot; having collateral helps with banks; having a tolerance for bureaucracy helps with subsidies, as does an association with a public research-institute (e.g. an incubator or your university).

Step 8: preparing an action-plan

Technically, this should’ve been part of your business-plan (step 5), but the point is that you now have money, you’ve made certain agreements based on it, and your objective is to use that money wisely to get your business off the ground. So now you need to decide what spending needs to be done, preferably as little as possible, and how to quickly get to the next stage. If you’re in web/software, you should already have a prototype, and focus on developing it, and build an early customer-base. In which case, you need someone to do the developing and someone to do the marketing/selling; usually technical staff outweighs the marketing staff at this stage, the latter often being the role of the entrepreneur himself. If you’re into high-tech, a prototype still needs to be built, which means technical work. This stage is really too specific to generalise; it depends on the type of product, business, and industry. Something in bio- or meditech, for instance, can take a decade to complete.

You also need to decide on whether your basement/garage will be enough, and on what type of legal protection your product needs, as well as the legal structure of your business. Which includes talking to lawyers, like this one.

Good knowledge to have at this stage: an understanding of what the new stakeholders in your business require; the ability to focus on what matters most for your business; a holistic understanding of a wide variety of business-matters, including hiring-practices, location-choice, development, legal & accounting tasks.

Step 9: spend (wisely)

Hire the people that you need, try to find smart ways to get smart people for cheap, either through internships, summer-programmes, or stock-options. And some smart people obviously need to be paid more or less what they are worth.

Locate cheaply while developing. For software, I’d suggest Eastern Europe, close to software-universities, but a basement in Paris/Berlin/London/Amsterdam also works of course, though both the location and the people will come at a premium. Important is to consider that many investors prefer you to be geographically accessible, as do customers.

Find viral ways to market, if you’re at that stage already. Thank you, internet, for existing, but free press also helps. Find smart ways to acquire customers, e.g. involve them in product-development, use them for word of mouth and case studies, partner up with good companies, etc. This is again very product-, company-, and industry-specific.

Build synergies between partnerships & investors; again really a step 7 problem, but it helps when your lawyer or your US/Asia-based marketeers are also investors. I’m also a fan of synergies in the HR-department; giving employees stock-options is not only cheaper, but also serves as a motivator. Of course always be careful who you choose to give part of your company to!

Good knowledge to have at this stage: everything from the steps until now; people-, negotiation- & management-skills, guts to market & sell; the dedication to work as many hours as it takes; etc.

Step 10: pitch v.3 – approaching round 2 (series A round) investors

While building your business, you should also build your business-plan and have a much better idea of the inputs for your valuation and the (projected) revenue-potential. And you should have surrounded yourself with a nice set of advisors and “network-nodes” that get your business-plan to be placed on top of a pile somewhere. You’ll still need a pitch of course, but that shouldn’t be a problem anymore at this stage.

Good knowledge to have at this stage: everything from before, especially how to pitch and what to pitch; and a network helps tremendously.

Step 11: round 2 (series A) investors

Bearing in mind that over 80% of businesses don’t make it this far, in theory, a business goes through a number of stages, before ultimately going public or being acquired. Web-businesses have distorted that process somewhat, as has the Enron-aftermath. But many early-stage investors may wish to be bought out at this point, an exit for them, and you may even want to do the same. VCs like replacing entrepreneurs with experienced CEOs, especially if the entrepreneur is a technical person, who will then likely be “promoted” to something like CTO or CIO. Investors do this because they have to account for the money they invest in you, and hence have to show their “bosses” that they do everything possible to mimimise people-risk.

While there are cultural & VC-specific differences, the risks that you need to have already covered here are usually both technology- and market-risk, translating into a workable product and one that preferably already has customers (lined up).

Good knowledge to have at this stage: either the ability to grow with the business; i.e. become more of a manager, less of an entrepreneur; or the ability to step back.

Step 12: launching the rocket-ship

A good VC will take your business far, and that’s where I’ll end it.

Some further reading

If you haven’t read enough already…

• “Valuation – Maximizing Corporate Value.”
• “Crossing the chasm” – on tech-marketing, -sales, and -strategy.
• Venture Hacks’ Term Sheet Hacks – on investors, mostly
• Ask the Wizard – on lot’s of interesting entrepreneurship problems
• TechITEasy.org – on lots of interesting tech & business-subjects, if you dig deep, i.e. use the search.

This may qualify as the longest post on Tech IT Easy, I don’t know. I think I covered the main topics on a global level and obviously there are plenty of feedback loops and some short-cuts, but please let me know if there’s things I missed!

Vincent

P.S. I’m always interested in building great companies, as well as discussing this topic. So if you’re a smart (tech-)person, looking for a biz dev. guy, or you just want to discuss you idea in confidence, feel free to give me a shout.

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The opinions expressed within this blog are those of the authors alone. ©2011 Tech IT Easy. All Rights Reserved.

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