New Business

Unit 11

Navigare necesse est ...

Navigare

necesse est, vivere non est necesse (To sail is necessary; to live is not necessary).

Odysseus/Ulysses

He was one of the most famous seafarers and travellers of the Ancient world. Ulysses had been equally famous for his wit, cunning and ability to find solutions in the most difficult situations. In many ways he had set up an example for future generations of adventurers ready to enter in the unknown.

Many pitfalls on the path to success

Entering the business world of today might seem to many unskilled and unexperienced persons both an easy task, but also a venture full of risks. In the UK alone more than half of all start-ups in new companies go out of business within the first 12 months of operation. While the fundamental principles of starting a business are not complex, in practice there are many pitfalls on the path to success.

How can one become a successful entrepreneur?

1. 2. 3.

Many people are attracted to the idea of running their own business. However, there is no blueprint for becoming a successful entrepreneur without several features any such person must have: A drive and determination to succeed, Thinking quickly Making good judgments and decisions

Entrepreneur in English is ...

a person who is willing to launch a new venture or enterprise and accept full responsibility for the outcome. Jean-Baptiste Say, a French economist, is believed to have coined the word "entrepreneur" in the 19th century - he defined an entrepreneur as "one who undertakes an enterprise, especially a contractor, acting as intermediatory between capital and labour".[

A broader definition by the same French Economist J.B. Say (1800): "The entrepreneur shifts economic resources out of lower and into higher productivity and greater yield. An entrepreneur is, therefore, a person who has possession of:

a new enterprise, venture or idea

and is accountable for the inherent risks and the outcome

Anyone can learn how to be an entrepreneur

Entrepreneurs often have similar traits and characteristics. Here are some of the qualities that can go a long way in bolstering business success. If you don't have all of these traits, don't worry. Most can be learned with practice.

Businesses are built on ideas. In fact, the first step to starting a business is to come up with an original idea. Therefore, entrepreneurs must be open to thinking creatively. Are you able to think of new ideas? Can you imagine new ways to solve problems? Do you have insights on how to take advantage of new opportunities? Many people believe that some individuals are just born with creative minds, while others are not. This might be true, but one can learn to be more creative if s/he wants to become an entrepreneur!

The world is not enough

The necessary qualities

Creative Inquisitive Driven Goal-oriented Independent Confident Calculated risk taker Committed

And other characteristics

Avid learner Self-starter Hard worker Resilient (able to grow from failure or change) High-energy level Integrity Problem solving skills Strong management and organizational skills

Thinking About Starting

If

youre thinking about starting a small business, you should start by weighing the pros and cons, so that you can make a wise decision. Starting a business involves planning, making key financial decisions and completing a series of legal activities.

Consultant or mentor?

Once you're ready to start a business, you'll have many important decisions to make. This is especially true in the first months of opening your business. You might worry that you'll have to make every decision on your own. Ultimately, you are responsible for the decisions you make, but you can always consult others to get guidance. A consultant or mentor could be an invaluable resource to you.

 A business mentor has more entrepreneurial and domain expertise than you and can help in improving productivity, streamlining marketing initiatives, build better business relationships and in retaining key human capital for your Startup.

Mentors can be the key to unlocking a network of business contacts and to spread word of mouth that your business is up and running and ready to perform for customers. Mentors can also provide knowledge, expertise, and support for your business. A mentor is more than just a contact in your network a mentor is a coach making a long term commitment to you.

A mentor

A mentor is someone who has been down the same path you're taking. A mentor is experienced, successful and willing to provide advice and guidance for no real personal gain.

In Greek mythology, Mentor (Greek: gen.: ) was the son of Alcumus. In his old age Mentor was a friend of Odysseus who had placed Mentor and Odysseus' fosterbrother Eumaeus in charge of his son Telemachus, and of Odysseus' palace, when Odysseus left for the Trojan War.

A father-like teacher

Near-paternal relationship with a protg

When Athena visited Telemachus she took the disguise of Mentor to hide herself from the suitors of Telemachus' mother Penelope. As Mentor, the goddess encourages Telemachus to stand up against the suitors and go abroad to find out what happened to his father. hen Odysseus returns to Ithaca, Athena appears briefly in the form of Mentor again at Odysseus' palace. Because of Mentor's and Eumaeus' near-paternal relationship with Telemachus, the personal name Mentor has been adopted in English as a term meaning a father-like teacher.

The student of a mentor

The student of a mentor is called a protg. More accurately, the protg would be called a telemachus (pl. telemachuses or telemachi). Sometimes, the protg is also called a mentee. The -or ending of the original name Mentor does not have the meaning of "the one who does something", as in other English words such as contractor or actor. The derivation of mentee from mentor is a kind of backformation (cf. employer and employee).

Identify your weak spots

One of the first things you need to do when seeking out a mentor is to identify your weak spots. And, then, start sking questions: What things do you need to improve? Where are the blind spots in your life that you know can be changed? Where do you often fail? Think about the things you need do you often fail in your finances? Find a numbers expert. Do you lack international experience? Seek out a global thinker. Do you need to grow a small business?

A few first steps

1. 2.

Find a successful CEO of a medium size business. Matching the right mentor to your needs is the first step to finding the right mentor. Find someone you trust. Search your network of contacts to find a mentor.

3.

4.

Check with your company, school alumni association, or local group you are associated with to see if they have a structured mentoring programme in place. These structured mentoring programmes often have years of trial and error presenting an opportunity for you to enter into a smooth running program. These types of coaching programmes often perform personality and goal assessments to match you with a compatible mentor. Compatible could be someone with similar personalities or could be someone who is very different. Some mentoring programmes find that dissimilar mentor/mentee relationships are best for success.

Some tips about mentoring:

Be organized, prepared and consistent. No one wants to waste their time. Time is precious. Plan your mentoring sessions in advance. These could be as simple as having a one-on-one consultation or lunch meeting once a month to discuss where you are against your business goals, how best to tackle business obstacles, getting advice on business processes or regulatory requirements that you dont understand, and so on. Casual one-on-one sessions are good, but also have more structured sessions that address different aspects of starting, running, managing and growing your business.

Your personal attitude

Take notes, own action items and review progress against these in your next session. Be respectful of your mentors time. Use their insight and apply as you best see fit. And last but not least, be thankful and communicative about the value they bring. This is about being in a mutually beneficial relationship, after all.

20 Questions Before Starting a Business

1.

2. 3.

4. 5.

Am I prepared to spend the time, money and resources needed to get my business started? What kind of business do I want? What products/services will my business provide? Why am I starting a business? What is my target market?

More questions ...

6.

7.
8. 9.

10.
11.

Who is my competition? What is unique about my business idea and the products/services I will provide? How soon will it take before my products/services are available? How much money do I need to get my business set up? How long can I have to finance the company until I start making a profit? Will I need to get a loan?

More questions ...

12.

13. 14.

15.

16.

How will I price my product compared to my competition? How will I market my business? How will I set up the legal structure of my business? How will I manage my business? Where will I house my business?

More questions ...

17.

18.

19.

20.

How many employees will I need to start up? What types of suppliers do I need to contact? What kind of insurance do I need to invest in? What do I need to do to ensure I am paying my taxes correctly?

Other questions Before Starting a Business

1. 2. 3.

4. 5.

Are you ready to start a business? Is Entrepreneurship For You? What are the Small Business Size Standards? Green Guide for New Businesses Conducting Market Research

Think and understand

6.

7.

Think about the possibility of an unexpected disaster Understand Your Market and Economic Conditions

Every entrepreniural venture needs to have a few fundamentals in place:

1.

2. 3. 4. 5.

a superior product or service that has been rigorously tested, extensive market research, an efficient supply chain, a motivated team, an adequate funding

10 Steps to Starting a Business

1. 2. 3.

4.
5.

Create a Business Plan Get Business Assistance and Training Choose a Business Location Finance Your Business Determine the Legal Structure of Your Business

And other five ...

6.

7.

8.

9. 10.

Register a Business Name ("Doing Business As") Get a Tax Identification Number Register for State, Entity/District and Local Taxes Obtain Business Licenses and Permits Understand Employer Responsibilities

Business Types

One of the first decisions youll make is the type of business you will open. You have several options to explore, including where youll do business, how you will structure your business, and how you will conduct business. Additionally, you should explore opportunities that exist for people with specific characteristics.

Possible choices of business types

Sole proprietorship, Partnership, Limited Liability Company (LLC), Corporation, S corporation, Nonprofit, or Cooperative.

Startups and High Growth Businesses

In the world of business, the word "startup" goes beyond a company just getting off the ground. The term startup is also associated with a business that is typically technology oriented and has high growth potential. Startups have some unique struggles, especially in regard to financing. Thats because investors are looking for the highest potential return on investment, while balancing the associated risks.

Self Employed & Independent Contractors

Are you ready to start a business? You must be able to better understand your readiness for starting a small business. Self-employment has its benefits, but, in the end, you are on your own.

Starting a Green Business

The explosion of organic and eco-friendly products on retail store shelves is more than just a passing fad. It's big business. This reality presents opportunities for environmentally minded entrepreneurs ready to start their own company.

Women Owned Businesses: five barriers

1.

2.

3. 4.

5.

They dont know how to access finance, A lot of business networks are set up and dominated by men They often display a lack of confidence, Women are often not reaching high positions in companies, so they often suffer from the range of skills most men have when starting a new business, Slow to adopt new technologies.

Nonprofit Organizations

A nonprofit organization uses its profit to improve its services, rather than pay dividends to investors. If your organization is registered as a nonprofit, you are eligible for certain programmes including, in most developed countries, grants, government surplus and other benefit for such a venture.

Home Based Business

What do Apple Computer, Hershey's, Mary Kay Cosmetics, and the Ford Motor Company have in common? These well-known corporations all started out as home based businesses. In fact, more than half of all U.S. businesses are based out of an owner's home. If you have decided you are ready to start a home based business, then you might already have an idea and/or the products you want to market. If not, think about your background, what you are good at, and what experience you have. This exploration can get you on your way to coming up with a sound idea.

Starting an Online Business

Establishing a business presence on the Internet can be a lucrative way to sell, market, and advertise your businesss goods and services. Regardless of where you choose to operate your business, certain general requirements always apply. Before you can begin completing specific online business steps you must follow the basic rules for starting a business.

People with Disabilities

Starting a business can be a great opportunity for many people with disabilities. In addition to meeting career aspirations and goals, owning your own business can provide benefits such as work flexibility and financial stability. In countries, such as B&H, physical and mentl disabilities are thought to be major obstacles for new business due to the traditional attitude to such persons.

Minority Owned Businesses

A number of people that happen to be outside the main social, ethnic or economic groups often find hard to compete with tose who belong to a certain interet group. In most European countries, Roma people fall into this category, but there are a number of other groups that can be clasified as minorities, so they deserve the equal chance nder the law and social sensitivity.

Veteran & Service-Disabled Veteran Owned

A former war veteran or a service-disabled veteran, should also have several options to choose from when starting their business. As a small business owner, they can be seen as continuing to serve themselves, their respective family, or, in a larger context, the whole local community, or society. Unfortuntley, in B&H this issue has not been dealt with properly after the 1990s wars in the region.

Equal opportunity policy

All these categories of population could and should try to become entrepreneurs or the owners of their own business. However, there should be many issues and factors to be properly considered before the idea for ones own business can become a reality.

A receptive business environment

Entrepreneurs also need a receptive business environment. Many small and medium-size business (SME) owners complain that government regulations, commonly known as red tape procedures, is one of their biggest headache.

Writing a Business Plan

Now that youve decided that youd like to open a small business, you should put your thoughts down on paper. This way, your business idea is expressed in a plan a living document that outlines every critical aspect of its operation. This step might sound intimidating, but its highly important.

Do you really need to make a business plan?

The

answer is yes !!!! The importance of a comprehensive, thoughtful business plan is huge. Many factors critical to business success depend upon your plan:

Factors critical to new business

Outside funding, Credit from suppliers, Management of your operation and finances, Promotion and marketing of your business, and Achievement of your goals and objectives.

Roadmap

Some people assume that if they are not going to seek financial support from lenders or investors to open their business that they dont need to prepare a business plan, but every business should have one. Writing a business plan serves as a roadmap for your venture when youre starting out.

Other benefits from business plan

It can help you figure out many key business elements, including:

1.

2.

3.

What you will need to do to get started and what resources (time, money, etc.) you will need to expand What it will take for your business to make a profit and how long that will take What information potential customers, vendors and investors will need to know in order for you to market your business effectively

Think about your business objectively

Writing your business plan also forces you to think about your business objectively. When youre done, you will have a more realistic idea of the effort it will require and whether it's a venture you want to pursue at this time. Don't be intimidated. The process of sitting down and writing out a business plan could spark your creativity and lead you to new business strategies you may not have considered previously. You'll also find that having your business goals written down enables you to refer to them at any time. This will ensure you don't lose sight of your original focus once you do start your business.

Essential Elements of a Good Business Plan

A business plan should be a work in progress. That's because your business will evolve over time, and can be largely influenced by outside factors such as the economy and local conditions. Even successful business owners should maintain a current business plan to ensure they remain knowledgeable on the elements that can affect continued success.

Elements of a Business Plan

Cover sheet Executive summary (statement of the business purpose) Table of contents Body of the document

Business
Description Marketing Competition Operating Personnel Business

of business

procedures

insurance

Financial data
Loan applications Capital equipment and supply list Balance sheet Breakeven analysis Profit and loss statements

 Three-year summary Detail by month, first year Detail by quarters, second and third year Assumptions upon which projections were based Pro-forma cash flow

Supporting documents
Tax returns of principals (partners in the business) for last three years, personal financial statements (all banks have these forms) Copy of franchise contract and all supporting documents provided by the franchisor (for franchise businesses)

 Copy of licenses and other legal documents Copy of resumes of all principals Copies of letters of intent from suppliers, etc.

9 elements for a solid Business Plan

Like many other planning activities for starting your own business, a solid Business Plan contains a number of important elements a future entrepreneur must be fully aware of in order to cover each step of the way and enter the business world without skipping any of them. There are nine basic elements present in any solid Business Plan.

Part 1 : Business Plan Executive Summary

It is the most important section of your plan. It provides a concise overview of the entire plan, along with a history of your company. It tells your possible financiers where your company is and where you want to take it. It's the first thing they can see; therefore, it is the thing that will either grab their interest and make them want to keep reading or make them want to put it down and forget about it. More than anything else, it tells the financiers why you think your business idea will be successful.

Contents of the Executive Summary: The Mission Statement

The mission statement briefly explains the thrust of your business. It could be two words, two sentences, a paragraph, or even a single image. It should be as direct and focused as possible, and it should leave the reader with a clear picture of what your business is all about.

Time & Human factor

Date

the business began Names of the founders and the functions they perform Number of employees

Location, facilities & products

Location

of the business and any branches or subsidiaries

Description of plant or facilities Products manufactured/services rendered Banking relationships and information regarding current investors

The company growth & management's future plans

Summary of company growth including financial or market highlights (for example, your company doubled its worth in a 12-month period; you became the first company in your industry to provide a certain service) Summary of management's future plans. With the exception of the Mission Statement, all of the information in the Executive Summary should be highlighted in a brief, even bulleted, fashion. Remember, these facts are laid out in-depth within the plan itself.

Part 2: The market analysis

This section should illustrate your knowledge about the particular industry your business is in. It should also present general highlights and conclusions of any marketing research data you have collected; however, the specific details of your marketing research studies should be moved to the appendix section of your business plan. This section should include: an industry description and outlook, target market information, market test results, lead times, and an evaluation of your competition.

Part 3: The company description

Without going into detail, this section should include a high level look at how all of the different elements of your business fit together. The company description section should include information about the nature of your business as well as list the primary factors that you believe will make your business a success.

When defining the nature of your business (or why you're in business), be sure to list the marketplace needs that you are trying to satisfy. This should include the ways in which you plan to satisfy these needs using your products or services. Finally, list the specific individuals and/or organizations that you have identified as having these needs.

This section should include who's on the board (if you have an advisory board) and how you intend to keep them there. What kind of salary and benefits package do you have for your people? What incentives are you offering? How about promotions? Reassure your reader that the people you have on staff are more than just names on a letterhead.

Part 4: Organization and Management

This section should include 1. your company's organizational structure, 2. details about the ownership of your company, 3. profiles of your management team, and 4. the qualifications of your board of directors.

1. Who does what in your business? 2. What is their background and why are you bringing them into the business as board members or employees? 3. What are they responsible for? These may seem like unnecessary questions to answer in a one- or two-person organization, but the people reading your business plan want to know who's in charge, so tell them. Give a detailed description of each division or department and its function.

This section should include who's on the board (if you have an advisory board) and how you intend to keep them there. What kind of salary and benefits package do you have for your people? What incentives are you offering? How about promotions? Reassure your reader that the people you have on staff are more than just names on a letterhead.

Part 5: Marketing and Sales Strategies

Marketing is the process of creating customers, and customers are the lifeblood of your business. In this section, the first thing you want to do is define your marketing strategy. There is no single way to approach a marketing strategy; your strategy should be part of an ongoing businessevaluation process and unique to your company. However, there are common steps you can follow which will help you think through the direction and tactics you would like to use to drive sales and sustain customer loyalty.

An overall marketing strategy

1.

A market penetration strategy. A growth strategy might include:

an internal strategy such as how to increase your human resources, an acquisition strategy such as buying another business, a franchise strategy for branching out, a horizontal strategy where you would provide the same type of products to different users, or a vertical strategy where you would continue providing the same products but would offer them at different levels of the distribution chain.

2. 3. 4.

5.

Channels of distribution strategy. Choices for distribution channels could include original equipment manufacturers (OEMs), an internal sales force, distributors, or retailers. Communication strategy. How are you going to reach your customers? Usually a combination of the following tactics works the best: promotions, advertising, public relations, personal selling, and printed materials such as brochures, catalogs, flyers, etc.

Sales strategy
A sales force strategy If you are going to have a sales force, do you plan to use internal or independent representatives? How many salespeople will you recruit for your sales force? What type of recruitment strategies will you use? How will you train your sales force? What about compensation for your sales force?

Your sales activities

1. When you are defining your sales strategy, it is important that you break it down into activities. For instance, you need to identify your prospects. Once you have made a list of your prospects, you need to prioritize the contacts, selecting the leads with the highest potential to buy first. 2. Next, identify the number of sales calls you will make over a certain period of time. From there, you need to determine the average number of sales calls you will need to make per sale, the average dollar size per sale, and the average currency size per vendor.

Part 6: Service or Product Line

What are you selling? In this section, describe your service or product, emphasizing the benefits to potential and current customers. Focus on the areas where you have a distinct advantage. Identify the problem in your target market for which your service or product provides a solution.

Give the reader hard evidence that people are, or will be, willing to pay for your solution. List your company's services and products and attach any marketing/promotional materials. Provide details regarding suppliers, availability of products/services, and service or product costs. Also include information addressing new services or products which will soon be added to the company's line.

Important elements to include in this section

A detailed description of your product or service Information related to your product's life cycle. Any copyright, patent, and trade secret information that may be relevant. Research and development (R&D) activities you are involved in or are planning to be involved in.

Part 7: The Funding Request

The Funding Request is Part 7 of your business plan. In this section, you will request the amount of funding you will need to start or expand your business. If necessary, you can include different funding scenarios, such as a best and worst case scenarios, but remember that later, in the financial section, you must be able to back up these requests and scenarios with corresponding financial statements.

Your current funding requirement, your future funding requirements over the next five years, how you will use the funds you receive, and any longrange financial strategies that you are planning that would have any type of impact on your funding request. When you are outlining your current and future funding requirements, be sure to include the amount you want now and the amount you want in the future, the time period that each request will cover, the type of funding you would like to have (i.e., equity, debt), and the terms that you would like to have applied.

Part 8: Financials
The

financials should be developed after you've analyzed the market and set clear objectives. That's when you can allocate resources efficiently.

Make sure that you include any strategic information related to your business that may have an impact on your financial situation in the future, such as: going public with your company, having a leveraged buyout, being acquired by another company, the method with which you will service your debt, or whether or not you plan to sell your business in the future. Each of these are extremely important to a future creditor, since they will directly impact your ability to repay your loan(s).

Part 8: Financials

The financials usually need to include:

1. Historical

Financial

Data 2. Prospective Financial Data

If you own an established business, you will be requested to supply historical data related to your company's performance. Most creditors request data for the last three to five years, depending on the length of time you have been in business. The historical financial data you would want to include would be your company's income statements, balance sheets, and cash flow statements for each year you have been in business (usually for up to three to five years). Often creditors are also interested in any collateral that you may have that could be used to ensure your loan, regardless of the stage of your business.

Prospective Financial Data

All businesses, whether startup or growing, will be required to supply prospective financial data. Most of the time, creditors will want to see what you expect your company to be able to do within the next five years. Each year's documents should include forecasted income statements, balance sheets, cash flow statements, and capital expenditure budgets. For the first year, you should supply monthly or quarterly projections. After that, you can stretch it to quarterly and/or yearly projections for years two through five.

Make sure that your projections match your funding requests; creditors will be on the lookout for inconsistencies. It's much better if you catch mistakes before they do. If you have made assumptions in your projections, be sure to summarize what you have assumed. This way, the reader will not be left guessing. Finally, include a short analysis of your financial information. Include a ratio and trend analysis for all of your financial statements (both historical and prospective). Since pictures speak louder than words, you may want to add graphs of your trend analysis (especially if they are positive).

Part 9: The Appendix

This section should be provided to readers on an as-needed basis. In other words, it should not be included with the main body of your business plan. Your plan is your communication tool; as such, it will be seen by a lot of people. Some of the information in the business section you will not want everyone to see, but, specific individuals (such as creditors) may want access to this information in order to make lending decisions. Therefore, it is important to have the appendix within easy reach.

The appendix would include:

Credit history (personal & business) Resumes of key managers Product pictures Letters of reference Details of market studies Relevant magazine articles or book references Licenses, permits or patents

And other paperwork

Legal documents Copies of leases Building permits Contracts List of business consultants, including attorney and accountant

Startup company or startup

A startup company or startup is a company with a limited operating history. These companies, generally newly created, are in a phase of development and research for markets. The term became popular internationally during the dot-com bubble when a great number of dot-com companies were founded. A high tech startup company is a startup company specialized in a high tech industry.

Funding startups

Startups encounter several unique options for funding. Venture capital firms and angel investors may help startup companies begin operations, exchanging cash for an equity stake. In practice though, many startups are initially funded by the founders themselves. Factoring is another option, though not unique to start ups. Some new funding opportunities are also developing in crowd funding

Venture Capital

Venture capital is a type of equity financing that addresses the funding needs of entrepreneurial companies that for reasons of size, assets, and stage of development cannot seek capital from more traditional sources, such as public markets and banks. Venture capital investments are generally made as cash in exchange for shares and an active role in the invested company.

Capitalists vs. angels

Unlike venture capitalists, who manage the pooled money of others in a professionally-managed fund, angels typically invest their own funds. Although typically reflecting the investment judgment of an individual, the actual entity that provides the funding may be a trust, business, limited liability company, investment fund, etc.

 The

Harvard report by William R. Kerr, Josh Lerner, and Antoinette Schoar tables evidence that angelfunded startup companies are less likely to fail than companies that rely on other forms of initial financing.

An angel investor or angel

An angel investor or angel (also known as a business angel or informal investor) is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. A small but increasing number of angel investors organize themselves into angel groups or angel networks to share research and pool their investment capital.

Friends, family and fools"

Angel capital fills the gap in start-up financing between "friends and family" (sometimes humorously given the acronym FFF, which stands for "friends, family and fools") who provide seed funding, and venture capital. Although it is usually difficult to raise more than a few hundred thousand dollars from friends and family, most traditional venture capital funds are usually not able to consider investments under US$12 million.

Booming market activities

Thus, angel investment is a common second round of financing for high-growth startups, and accounts in total for almost as much money invested annually as all venture capital funds combined, but into more than fourteen times as many companies (US$26 billion vs. $30.69 billion in the US in 2007, into 57,000 companies vs. 3,918 companies)

Still interesed in new business?

If you would like to have it, you must work hard to get it !!!!