GENERATING IDEAS AND EVALUATING OPTIONS
IDEA Generation
Entrepreneur.com - Business Ideas
Flowtown
Google Trends (Hot Searches USA)
idea evaluation
SBA 20 Questions, Biz Assessment, Entrepreneurial Aptitude
SBA Starting Up Assessment Tool
Evaluating Your New Small Business Idea
Evaluating Your Business Idea
Entrepreneurial Aptitude
Entrepreneur.com - What's Your Entrepreneurial I.Q.?
SAB - 20 Questions before Starting a Business
SBA - Is Entrepreneurship For You?
Business Planning - MODEL(the big problem along with your solution and approach)
the method, approach, or system that will be used to obtain money for your products or services
Description of means and methods a firm employs to earn the revenueprojected in its plans. It views the business as a system and answers the question, "How are we going to makemoney to survive and grow?"
Why Model matters
No matter how impressive the mousetrap, the world is not likely to beat a path to your door
Best quality does not always win in the marketplace
Convenience of transactions is becoming as important as the product/service
Lots of ingenious products with anemic sales
Needed to explain the very essence of the business
*Expect that technical feasibility of product/service has been proven
What to do about or “plan” for Model
Summarize Current Situation:
Describe the problem you are proposing to solve/address.
Explain current solution(s) commonly used to address this problem.
What are pitfalls to the current solution? What is the customer pain?
Establish Future Expectations Based on Introduction of Your New Product/Service:
Describe the preferred solution that you are proposing.
Explain the benefits to your solution - not just features.
Summarize how the product/service is produced and flows to the market.
Analyze Information and Present Evidence Supporting/Challenging New Product/Service Introduction:
Offer meaningful evidence that your solution is preferred/desired.
Discuss functional performance.
Describe customer response to prototypes/demonstrations.
Explain How Impact is to be Measured:
Provide measures of how capabilities are superior to alternative product/service.
Define magnitude, seriousness, cost of problem.
Quantify how much your solution reduces problem or improves situation.
Recognize and Address Challenges and Significant Uncertainties:
Describe IP status.
Action Items- How Model becomes part of your plan
Describe each of the specific product(s)/service(s) and bundles/packages that will be developed to produce revenue streams for the business.
Project the typical frequency and quantity of customer purchase for each type of revenue stream.
Explain your strategy for maintaining proprietary information and the business’ competitive advantage.
Know and clearly communicate the type of business you are conducting - manufacturing, wholesaling/distribution, or retailing.
Tools/resources to help with Model
- Start Up Nation – Choosing a Business Model:
- Choosing The Right Business Model For Your App:
Business Planning -MARKET(market, competition, advantage/barriers to entry)
the people or organizations that will pay for your product or service
The market for a particular item is made up of existing and potentialcustomers who need it and have the ability and willingness to pay for it.
Why Market matters
Your market creates revenue or sales
Strong, continuing market sustains revenue/sales
Large and growing market offers greater economic potential, helps attract investment, and indicates more promising future
What to do about or “plan” forMarket
Summarize Current Situation:
Characterize initial market - demographics: what they are like, where they are located.
Describe behavior of initial market - psychographics: what do they prefer, how they make purchase decisions, how you reach them.
Establish Future Expectations Based on Introduction of Your New Product/Service:
Describe anticipated future market, what changes are expected?
Analyze Information and Present Evidence Supporting/Challenging New Product/Service Introduction:
Obtain evidence of what motivates market’s behavior.
May provide information about industry trends or sales of competing/alternative products/services.
Explain How Impact is to be Measured:
Quantify how target market will produce revenue/sales for proposed product/service.
Compare in chart contrasting your solution with competition based on important purchase decision factors, like price and quality/performance measures
Recognize and Address Challenges and Significant Uncertainties:
Identify competitors, contingencies and threats (never none), all competitors/substitutes both direct and indirect
Action Items- How Market becomes part of your plan
Describe target market(s) and specific market segments that are most relevant for your enterprise.
Numerically quantify the addressable (initially feasible) target market size for each revenue stream.
Estimate the unit sales that can be logically justified for each revenue stream based on target market - monthly for initial year and quarterly/annually for years 2 - 5.
Explain introductory and long-term/continuing sales strategy.
Know and clearly explain whether you are selling to consumers, businesses, or government.
Tools/resources to help with Market
- These sites are useful for finding information related to the initial assessment of potential sales/revenue for a product/service or bundle/package. (Step 2 Worksheet)
- Information for market size and industry statistics can be found at the Census Bureau website More specifically, factfinder2.census.gov/.
- The Doubleclick Ad Planner by Google provides information about websites, including number of visitors, how long each visitor stays, the breakdown of male versus female visitors, etc.
- The statistical abstract from the Census Bureau provides consumer spending on very broad types of expenditures for estimating the amount that households typically spend on a type of product or service,
- Industry publications and professional market reports may be helpful, but expensive. Occasionally these reports may be obtained by contacting a library or SBDC, but typically reports for specific industries must be purchased.
- Also use personal observation, primary data gathering such as Survey Monkey, and social media. Consider use of the polling tool on facebook or on twitter to ask for response to a question with a tweet containing your business name as a hashtag (also builds awareness for business).
Business Planning -MARGIN (revenue model and profitability)
the amount of profit your business will generate to keep the founders motivated, to repay the investors, and provide for growth
Difference between the cost price and selling price of a product.
Why Margin matters
Most businesses operate on very small profit margins
If profit margins are large, competitors will enter
Many founders do not understand pricing and distribution channels
What to do about or “plan” for Margin
Summarize Current Situation:
Document price and profit information for similar products/services.
Describe how similar products/services are priced and sold.
Establish Future Expectations Based on Introduction of Your New Product/Service:
Detail components used in cost of goods for your product/service - materials and labor cost.
Describe expected pricing and selling methodology
Analyze Information and Present Evidence Supporting/Challenging New Product/Service Introduction:
Obtain competitor pricing and industry margin percentages for benchmarking.
Justify your cost estimates with actual quotes.
Explain How Impact is to be Measured:
Contrast your projections against industry standards - justify any significant differences.
Recognize and Address Challenges and Significant Uncertainties:
Anticipate competitor response (existing and potential market entrants).
Explain protection measures that may deter competitive response.
Consider other factors influencing margin - raw materials, labor, etc.
Action Items- How Margin becomes part of your plan
Project your cost of goods sold: estimate raw material and labor cost to produce a unit/bundle.
Establish prices for proposed units/bundles for each revenue stream.
Establish projections for revenue (price per unit * unit sales) - preferred to market share percentages, OK to validate projections through market share estimates.
Understand the basics: Sales/Revenue – Cost of Goods = Gross Margin – Operating Expenses = Profit
Tools/resources to help with Margin
- These sites assist with information relating to the simple estimate for cost of goods sold per unit. (Step 1 Worksheet)
- For information about the cost of labor in your specific area, please refer to Labor Market Information: Occupational Wage Data.
- The Economic Census provided by the Census Bureau contains information on businesses by specific industry category for certain geographic areas.
- Biz Stats provides limited, but free business statistics and financial ratios.
Business Planning - MANAGEMENT(team – internal/external)
the group of people with talent, experience, and commitment to start and run the business
The directors and managers who have the power and responsibility to makedecisions to manage an enterprise.
Why Management matters
Owner cannot do everything needed to operate business
Even if owner can do everything at the beginning, to grow, others will be needed
Easy to become confused about best suited role for founders
Complementary skills and extended networks make the business stronger
Investors generally fund people, more so than ideas
What to do about or “plan” forManagement
Summarize Current Situation:
Inventory and plan to utilize founder’s strengths and capacity.
Determine what needs to be accomplished.
Define essential characteristics for chief executive.
Establish Future Expectations Based on Introduction of Your New Product/Service:
Identify current talent/skill gaps and those needed within 3 years.
Determine how to supplement founder’s abilities with additional capabilities.
Complete management needs through advisory board, contracts, or hiring.
Analyze Information and Present Evidence Supporting/Challenging New Product/Service Introduction:
Develop organizational chart and job descriptions.
Obtain resumes/credentials, conduct interviews, seek referrals.
Research competitive salaries/wages, plan and budget for staffing, consider incentive pay options.
Explain How Impact is to be Measured:
Project hiring needs and estimate cost.
Recognize and Address Challenges and Significant Uncertainties:
Challenges of attracting to existing business location.
Difficulty offering pay commensurate with value.
Effective utilization of founder(s) abilities.
Action Items- How Management becomes part of your plan
Establish hiring priorities by creating a to do list, then group into “jobs” by common tasks or around people/founder(s) strengths.
Identify the tasks that can be contracted/outsourced.
Project staffing budget.
Build advisory team to supplement existing capabilities and fill gaps.
Tools/resources to help with Management
- For help with developing a job description, America’s Career InfoNet: Job Description Writer is a great resource.
- Non-Technical Entrepreneurs Need the Right Partner:
- How Startups Can Use Metrics to Drive Success:
Business Planning - MONEY(financial projections, funding options)
the resources, financial and otherwise, that are required to start and operate the business
Providing financialresources to finance a need, program, or project. In general, the term funding is used when a firmfills the need for cash from its owninternalreserves, and the term 'financing' is used when the need is filled from external or borrowed money.
Money committed or property acquired for futureincome
Why Money matters
Almost all businesses require initial investment
Resources are needed to get started, survive, and grow
Most businesses need much more money than anticipated
Access to capital determines rate of growth
Money is expensive
What to do about or “plan” for Money
Summarize Current Situation:
Quantify value of resources currently invested in venture, categorize as sunk cost with no remaining value or as asset with value and calculate cost/value of each type.
Establish Future Expectations Based on Introduction of Your New Product/Service:
Estimate pre-venture and startup needs (one-time and ongoing) as well as the cost of these items, include cost of financing.
Project the business needs and cost of items through initial 3-5 years of operation.
Analyze Information and Present Evidence Supporting/Challenging New Product/Service Introduction:
Document assumptions for all estimates and include footnotes with projections.
Explain How Impact is to be Measured:
Combine estimate of revenues and expenses to create basic cash based budget presented in conventional accounting format.
Recognize and Address Challenges and Significant Uncertainties:
Prepare what-if budget scenarios integrating contingencies.
Action Items - How Money becomes part of your plan
Project revenue - monthly for initial year and quarterly/annually years 2 - 5.
Project cost of goods - monthly year 1 and quarterly/annually years 2 - 5.
Project operating expenses - monthly year 1 and quarterly/annually years 2 - 5.
Identify potential sources of funding/financing for the venture.
Tools/resources to help with Money
4 Essential Ways To Attract Investors
Cash is King: 8 tips for Optimizing your Startup Financing Strategy
SEC may let startups use social networks to raise money
Business Planning -MOTIVATION(timeline, milestones and measurements)
the passion and inspiration that compels the founders to persist against incredible odds and tremendous obstacles
Internal and externalfactors that stimulate desire and energy in people to be continually interested in and committed to a job, role, or subject, and to exert persistent effort in attaining a goal.
Motivation results from the interactions among conscious and unconscious factors such as the (1) intensity of desire or need, (2) incentive or rewardvalue of the goal, and (3) expectations of the individual and of his or her significant others.
Why Motivation matters
Begin with an exit strategy
Need to know where you are going in order to get there
Entrepreneurship is a full-contact sport, be prepared to commit everything, absolutely everything
Best to pursue only those things so totally engrossing that you would do them without pay or the promise of any tangible reward
Most overnight successes represent decades of grueling work, punishing hours, and enormous sacrifice
What to do about or “plan” forMotivation
Summarize Current Situation:
Inventory meaningful outcomes already achieved for venture.
Describe personal factors compelling your decision/desire to launch venture – interests, resources, entrepreneurial tendencies, your history with venture and others.
Establish Future Expectations Based on Introduction of Your New Product/Service:
Highlight significant next steps for venture along with resources/funds needed to reach them, and how success will be measured at each step, more detailed 1st year and on through break-even or exit.
Describe personal rewards expected – intrinsic, monetary, societal, your future with venture, potential payback, ultimate personal goals for founder(s).
Explain preferred business exit scenario.
Analyze Information and Present Evidence Supporting/Challenging New Product/Service Introduction:
Provide examples of commitment – demonstrated personal investment of time, talent, and money.
Explain How Impact is to be Measured:
Measures demonstrating you have “skin in the game” – hours/years invested, dollars, opportunities foregone - factors that make it hard for founder(s) to bail out.
Recognize and Address Challenges and Significant Uncertainties:
Foreseeable obstacles and challenges related to personal commitment of founder(s) and key management.
Action Items - How Motivation becomes part of your plan
Establish timeline with measures of success for major steps - investment needs, hiring, product/service introduction, sales levels, break-even, exit.
Tools/resources to help with Motivation
- Famous failures and comebacks:
Developing the Budget
Worksheet #1 – Cost of Goods Sold
Worksheet #2 – Potential Revenue Streams
Worksheet #2 – Potential Business Revenue
Operating Expense Estimate & Estimated Profit Potential
FUNDING ALTERNATIVES
Top Sources of Small-Business Financing in 2012:
Funding from Family and Friends
There are many resources available for documenting a loan. Begin by reading the resources and articles provided below to develop an understanding of the process and the potential implications that may arise with intra-family loans.
There are several websites that can help to prepare loan documentation. Once that delivers substantial benefits for minimal investment is loanback.com. It cost only $30 to build the loan document, compute the math automatically, provide interest rate guidelines, issue optional email alerts, and access many more features. Having an intermediary service the loan is another option. One potential service provider is lendfriend.com.
Speaking with a CPA before entering into any self-generated loan agreement is recommended. Reading these articles below should get you started in the right direction and prepare you for a meeting with the CPA. The IRS looks for ways to consider loans from family and friends as a gift, so it is important that the agreement be documented very clearly. Ask the CPA about gift tax implications in the event the loan is forgiven. Another question to clarify is how far in the future you can set repayment without the IRS considering the loan a gift.
Private Loans & Investments: Raising Money from Family and Friends
Learn the basics of raising small business capital from family and friends.
Book: Business Loans from Family and Friends (Book $28.49 and eBook $17.99)
Getting Money from Family and Friends for a Business
5 Things to Consider When Lending Money To a Family Member:
Structuring Family Loans To Avoid Tax Liability (this talks about debt forgiveness):
Accepting Money From Friends & Family: 4 ways to get your cash without wreaking havoc on your personal relationships:
Asking Friends and Family for Financing - Heed our warnings before you play this dangerous game:
Loans Among Family Members:
Structure Family Loans: