This can be one role of your board of advisors or board of directors. Many start-up businesses leverage their limited resources through creating an advisory board of industry veterans or functional experts. These advisors often get paid in options in the company so their success is tied to the company’s success. Selection criteria for advisors should include their ability to spend time with you and the company, their own network of contacts that might be valuable for the company, and an expertise that fills a gap you have in your team.

A successful entrepreneur is a strong communicator. Whether you are trying to raise capital, hire good management, attract a valued advisory board or board of directors, or sell your product and service it is important to be able to articulate simply and concisely your mission and business proposition. It is also important to do it in a way that communicates your enthusiasm and commitment for the business. Entrepreneurs need to convince people to do something they were not intending to do. The chapter highlighted earlier the importance of the elevator pitch, executive summary, business plan and “in person” presentations. Add to that customer and distributor presentations, public, banking and employee relations. These are all forms of selling and communicating your strategy and building confidence in you and your business.

A successful entrepreneur knows what his/her strengths are and tries to complement them, not replicate them. He/she also knows when to move aside. Oftentimes the person who has the vision and ability to get the business off the ground is not the best person to manage the business once it gets to a certain size. We have all heard stories of companies that have failed because the founder maintains operational control when it is not his or her strength. Even Bill Gates turned over the CEO job to his Chief Operating Officer, Steve Ballmer, to allow himself to focus on what he knows best, technology.

A successful business stays focused and prioritizes its resources accordingly. It is very easy to get distracted and spread too thin. Given the limited resources of most entrepreneurial businesses it is important to focus those resources on the critical tasks that need to get done that will determine success. As a former entrepreneur, I kept a list of the top six priorities of our company, made sure everyone in the company knew what these priorities were and reviewed them at every staff meeting. The budget and plans always reflected these priorities, and if we decided to allocate resources outside these efforts, there always had to be a good reason or maybe we needed to reevaluate our priorities.

A successful company knows its customer. This doesn’t mean just your sales and marketing department but also includes your product development, manufacturing or operations and even finance staffs. A strong customer orientation permeates throughout successful companies. Remember the customer is the fuel that drives the engine. And the customer is always right. Even when the customer is unhappy, if you spend time with him/her and try to rectify the situation, you may find an even more loyal customer. A successful company also knows when the customer needs are changing and how it must change in order to serve the customer. Some companies put customers on the board of advisors or even the board of directors to insure sufficient customer input.

Entrepreneurship is taught entirely using clinical methods at the Smeal College of Management. The introduction to the entrepreneurship course requires each student to find an idea that they would like to champion, using the methods outlined earlier in this chapter. Their output is actually an executive summary describing their opportunity and targeted to generate interest in a specific person or group of people that they’ve identified as their most appropriate stakeholders. If the opportunity best matches a venture capital firm, they have to identify not only the one or two firms that are the best fit, but also the actual partners that specialize in the area addressed by the opportunity.

If the opportunity fits a corporate partner’s route to commercialization, the student must define the actual person in that company who will be most likely to be receptive to the opportunity they’re putting forward. If it’s suitable for a group of angel investors, then they have them call them up and get an audience to listen to their pitch of the opportunity. And so, in the introductory course, the students actually feel comfortable that, in fact, there are a hundred or even a thousand ideas that they can identify with and get excited about sufficiently to create the arguments and the resource and financial plans – in outline, not a detailed business plan – so that they can pitch it to somebody who ought to be receptive. I would recommend a similar exercise for anyone contemplating an entrepreneurial career. Finding an idea and engaging with someone to be a champion is a great way to learn.

Next, we do two things that I think are also very interesting from a learning perspective. The students have to write a business plan, and they can either write it around the idea that they conceived in the previous class, or they can take a bad business plan and convert it into a good business plan. But generally, they have to learn how to write a concise business plan. Every entrepreneur must be able to put their ideas into a convincing, well-argued document. There are several excellent templates that can be accessed on the Internet that can help you through this process. Do not underestimate the importance of a good plan and how difficult it is to put one together. Only when you try to put your ideas on paper in a cohesive way, do you uncover the holes that need to be filled.

In parallel with the idea generation and planning exercises, the students are placed on the other side of the table and act out the role as a potential investor in someone else’s opportunity. Now you’re a venture capitalist and you’re looking at business plans to determine where to invest. This is another important way of learning – by challenging another’s plans you can directly experience the areas where significant risks lie, or there is insufficient information to make a decision whether to invest or not. At the University we actually have a venture fund, which the students manage. We find companies that are looking for investment, and they make a presentation to the class, and then the class does all the due diligence and decides whether to make an investment or not.

So it’s interesting to observe the learning process: on the one hand, the students are trying to create arguments to attract money, and, in parallel, they’re looking at somebody else’s arguments and taking them apart to determine whether this would be a good investment or not. By simultaneously playing the role of both promoter and potential investor, the students learn to be more critical of their own ideas and, therefore, able to build them into more robust opportunities.

Although you may not have money to invest in others’ plans, you can learn to critique plans by either going to presentations made to your local entrepreneurs’ club, for example, or getting yourself onto a review group to examine new opportunities within your existing company. This will help you when the time comes to create your own plans and sell them to stakeholders.

After reviewing several plans, you will begin to see certain patterns of weakness. The main area of concern is usually associated with a lack of customer input. An idea has no value unless someone will eventually pay for it. Getting input from potential customers that indicates that they will buy what you plan to offer at the price, which will make you a profit, is the most important checkpoint for investors. Without customers there is no business opportunity. Entrepreneurs often underestimate the need to complement their own management skills. A major cause of failure for new enterprises is the originator not recognizing the need to bring in additional talent. Owning a large percentage of a failure is no compensation for owning a small part of something large and successful. Honest self-examination, with the input of trusted advisors, should be done regularly. The willingness of founders to forgo the leading position is viewed as a positive attribute by investors.

Because bringing in additional managers with complementary skills adds to the chance of success, we teach a basic knowledge of such skills. These include cash management, team building and motivation, and negotiating partnerships, as well as managing and growing a start-up through its various phases. An understanding of the value of these skills makes the entrepreneur more likely to accept that others can bring value to the management team.

Finally, the students learn to practice their learned entrepreneurial skills using a set of different business scenarios where they play the role of CEO. For example, we take a real case biotech start-up company that has taken several wrong steps along the way. The “acting CEO” must create a new innovative strategy to extract the lost value.

In another scenario, we take a major company that is threatened by an aggressive start-up and must therefore re-examine its business model – perhaps to shift from a product to a service model. The “acting division manager” has to present the rationale and plans for what might be a radical change to the “board” of the company.

In another case, the students are presented with a series of rather disparate press clipping, product literature, market research reports and recently issued patents from around the world. They are issued with the following challenge: “Somewhere in here is an opportunity. Go figure out who’s going to make the move or where the business opportunity is.” For example, one case uses the idea of so-called “intelligent appliances” in the home that are connected to the Internet and what this might do to the detergent market. Will a company such as GE get into the detergent market? Will the consumer lease washing machines with a supply of detergent delivered by UPS to match their pattern of usage? Will the major supermarket chains be shut out of the detergent market – a major part of their revenue? I want to make them look at a very complex situation and figure out where the real opportunities might be and to use their learned skills in making the arguments to various stakeholder groups.

Successful business start-ups tend to need a lot of different kinds of expertise. One of the important content areas is finance. This is a matter of understanding what independent elements cost, and how one gets the money to cover those costs in order to create a product or service. One of the big challenges that we face with start-ups is, of course, cash flow. An ongoing business normally has a steady cash flow, so there is cash coming in and cash going out. People are paying bills, but they’re selling products. In a start-up technology commercialization, normally that is not the case. Cash goes out but doesn’t come in, at least until the new product or service is up and established in the marketplace. So you have to work out the sequence of how that’s going to happen, and what kind of money needs to be spent at what stage. A big part of this – and I think a much overlooked part – is the management, which is deciding what tasks have to be done and in what sequence in order to reach the marketplace. Then, the process needs to be optimized, so that you’re minimizing the number of dollars you have to spend before dollars start coming in the door. Matching up those cash flows is, of course, important in any kind of start-up – reaching that break-even point where the dollars going out start matching up to those coming in. You are by no means out of the woods when that happens, but you’re way down the road.

Large and successful organizations run on standardized systems and procedures, and what the entrepreneur needs to do is to build good standardized operating procedures. That’s absolutely critical because it will build reliability and replicability into the products and services that are provided, and that’s really going to be key. Once those standard operating procedures are created and implemented, then it takes a lot less management time and intervention and effort to get work done. I think very often entrepreneurs don’t think in terms of those standard operating procedures. This is fundamentally a management challenge and doesn’t require brilliant thinking as much as plain old hard work and analysis.

Goals and planning are very, very important, but they’re often not used effectively. In my mind, the best thing about planning is that it clarifies in the minds of entrepreneurs and their teams what they are trying to do and how they are going to accomplish it. In fact, as you start to implement those plans, many things can (and will) go wrong, and they are liable to worsen significantly if the plan is blindly implemented. At the same time, the act of developing the plan is critical. The plan is extremely important in helping both the entrepreneur and the team find unity of purpose and a clear focus on what they’re trying to do and the things they have to nail down in order to make that work. But you can’t kill yourself trying to stay with the original business plan. You learn an awful lot the first few months, and it can make you deviate quite a bit from the original plan.

One of the things I mentioned earlier was standardized operating procedures, and while these can accomplish wonders, when change comes suddenly, they can also bite you. There are a couple of things that have to be recognized here. One is that there is a fundamental rate of change in the environment that any ongoing business has to deal with. That’s one rate of change on the outside. But there is a second thing that entrepreneurs have to deal with, and that is the deviation between their plan and reality. That’s quite different. In other words, the entrepreneur sets up a plan and makes some projections about the nature of the world and how it’s going to be; however, it may turn out to be very different from those projections, and that person has to have some flexibility to adjust. That’s really important for the survival of that start-up. Once the company gets up and running, then it has to adjust as times change. Again, these are qualitatively different kinds of changes. One is a miscalculation – a planning error. The other is just a changing state of the world, if you will. What I emphasize to people is that it’s important not to get too married to any one product or service or customer or procedure – just try to be open and flexible. But there is a tension that you have to manage there, and I think it’s wrong to believe that every organization needs to be extremely flexible. I don’t think that’s correct at all. Organizations need to be flexible when they have to, but they don’t need to be flexible all the time; flexibility costs money, and it costs time and effort and frustration. So I think it’s really important to have it, but you don’t want more of it than you need.

A lot of people think entrepreneurs are a breed apart. As I noted earlier, I don’t think that’s true in general. I think entrepreneurs are pretty much like everybody else. They’re willing to take some risk, but in many cases, they don’t perceive the risk. They believe in something pretty deeply, and they want to make it happen. So in many cases I think it’s a matter of a person in a particular situation who really feels like they can do something and be successful with it, and once that decision is made, they move ahead and do it. But serial entrepreneurs often aren’t that successful on their second and third attempts, and often those who are successful are successful on their third but not their first, second, and fourth – so I just don’t feel that there’s a set of characteristics that separates entrepreneurs from everybody else. I think they’re a lot like other people, but they find themselves in a situation where they feel like they can make a big difference, and they go for it.

To be a successful entrepreneur, you normally have to work very hard, but you also have to think carefully. You have to balance this business of bowling through things – just working your way through things – with reflection. There’s a lot of hard work, but you also have to think about where you’re going and what you’re doing. Balancing that out is really quite important. We encourage people to believe and be dedicated and so forth, but at the same time, you need to recognize when you’re pushing a cause that’s not going anywhere, and before you ruin yourself, pull out of it and find something else or make adjustments. So you certainly have to pay attention to this business of balancing working very hard with thinking very carefully. Henry Mintzberg calls this balancing thought and action.

Also, entrepreneurs tend to be optimistic people. If there is a personality characteristic that would separate entrepreneurs from other people, I’d say optimism might do it. Of course, optimism is pretty widespread in the non-entrepreneurial population too. Also, I wouldn’t try to predict who would be and who would not be an entrepreneur based solely on knowledge of their optimism.

Many good entrepreneurs, especially in technology commercialization, are good at the technical side and are good salespeople. If they really believe in what they’re doing, they can relate to other people on an emotional level about that product or service. In my view, a big part of successful entrepreneurship is really believing in the product or service and being able to relate to others and reach others on an emotional level about the product or service, because normally it’s a product or service that has not existed previously. Now, if you’re doing a start-up of a more standardized business – let’s say a consulting business – then I think your key is, in a sense, similar. It’s trying to convince the buyer that you’re legitimate, that you can do this, and that you can actually deliver the goods. But in that case, it’s more belief in you, I think, than in the service per se, because people are already familiar with the service. The buyer has to have confidence in the product, and, normally, in the seller as well.

There are three main reasons for an entrepreneur to develop a business plan and continue to update it and expand it as the business evolves:

First, it is a planning tool. The business plan helps an entrepreneur plan out the business, define his/her need for resources, understand the marketplace and customer needs and evaluate the best strategies for accomplishing the plan objectives.

Second, it is a sales document for raising capital or attracting management talent or advisors to the company. Whenever you approach a potential investor or even a bank, you will be asked to send them a business plan or at least the executive summary of the business plan. Similarly as you build a management team or seek advisors for your business, the business plan will be an easy, concise way of sharing your vision and strategy for the business.

Third, the business plan is a monitoring tool. Once your business is up and running, the plan serves as a way to measure and monitor your performance against your original objectives. As you modify the objectives it will also be important to update the business plan so it becomes a living document, not something relegated to a shelf.

So what are the key elements of the business plan? There have been many articles and books written about business plans and how to write them so I do not intend to go into that level of detail. However I will focus on some of the critical elements of the business plan, some of the topics that must be covered and some common do’s and don’ts of writing business plans.

All business plans are expected to cover information that answers the following questions:

What is the product or service being sold?

What is the problem being solved?

Who are the customers for the product; why are they going to buy it and how much are they willing to pay?

How large is the market for this product or service?

Who else is trying to solve this same need (e.g. competitors) and how are you going to compete against them? What might be their reaction to your product or service?

Do you have any particular proprietary advantage to your product or service (patents, trademarks, strategic alliances)? Are there any barriers to entry?

What is the cost of your product/service and how are you going to make money?

How are you going to market and distribute the product? Are there any specific distribution channels you need to develop for this product/service?

Who is the management team and why can they make this happen?

What are the risks to this business?

What are your key milestones?

If you have outside investors or employee owners, how will they make money? What is the exit strategy?

All of these questions should be addressed in formal sections of the business plan. A sample table of contents for these sections might look like this:

• Business Mission
• Company Background/Description
• Market Overview
• Revenue Model
• Competitive Landscape
• Technology (if relevant)
• Operations Strategy
• Management team/advisors/partners
• Timetable/Milestones
• Business Risks
• Financial Forecasts for three to five years including first and second year by month or by quarter
• Detailed sales projections and assumptions
• Income Statement
• Balance Sheet
• Cash Flow Statement
• Capitalization required including sources and uses of capital

Appendices (which might include resumes of management team, customer testimonials, market research, patent information, copies of relevant articles or marketing materials)

Once the above detailed sections of the business plan are developed, you will need to synthesize all this information into an executive summary, which is the introduction to the business plan.

Others contend, and arguably so, that the most important consideration is personnel. I understand their contention. Entrepreneurs must be willing to identify and hire individuals that, at least in their judgment, are brighter, by some set of specific indicators, than they are. And, more importantly, the entrepreneur should not be threatened by the possibility. In general, and I offer this consideration based upon a half century in the business sector and in higher education management, there exists a general tendency for individuals to not make hires or appointments once they sense that a prospective employee has skill sets, competencies, or a level of literacy that is greater than their own. However, as an entrepreneur you should calculate the competency sets required by the firm and determine how these skills complement those already existent within your business. In the final analysis, it’s all about the quality of individuals that you hire—individuals who understand where and how they fit within the organization, what needs to accomplished now, in time period T+1, T+n, etc.

With regard to the “ideal” business model, I tend to introduce the Jack Stack Model. Jack is the CEO of the SRC Holding Company of Springfield, Missouri. In his book, The Great Game of Business, he presents the “open-book management” model. In this model, all employees are engaged in the business’s decision making – whether its marketing, finance, operations, new business development – in a very orderly manner. The concept is underpinned by profit sharing. Profit sharing is the driver. Employees have access to the company’s books, i.e., the company’s finances, in great detail. Openness generates employee trust, empowerment, and creativity that fuels interesting innovation and invention. The latter has led to the conceptualization and development of nearly three-dozen new enterprises in which employees have equity share.

A sometimes overlooked phenomenon of this model is the value of the literacy that is residual, often latent, in the firm’s employees (he may prefer to call them associates). Reciprocally, the respect generated in individuals is expressed through their commitment to the firm, in their willingness to bring forward product enhancement ideas, new product possibilities, and to incur risk-with its associated success or failure. In a word, the model identifies and nourishes the entrepreneurial traits of a firm’s most critical resource – it’s human capital. Overall, SRC is an exemplary illustration of how an entrepreneurial venture can lead to the continued creation and growth of new ventures and, by example, of how an injection of entrepreneurship into a business’s modus operandi can contribute to the success of the company. I see the valuation of competencies as an example of how best to advance both the interests of the organization and its personnel. The great game of business model is an exemplary example. It’s required reading for every entrepreneur.

The third concept that I advocate is that as an entrepreneur you should “walk, not stalk.” Understandably, the entrepreneur has a great deal at stake. However, as the CEO, the leader, the president, the visionary, you must embrace the collaborative model. If you can develop a personalized collaborative model you will be successful, without expecting it, in developing employees that literally “walk through fire” for the firm and for you. The key is to view employees as more than just persons on your payroll and more as individuals who will join the 24/7 club. They will embrace your vision because they see themselves as individuals who seek to fulfill the same purposes as the firm’s founder.

Two other concepts merit consideration and serious contemplation. The two concepts are profit maximization and loss minimization. In the United States, we tend to emphasize profit maximization. I stress that there are occasions, particularly with regard to new start-ups, when the other side of the coin should be considered and questions should be asked: “When is it time to exit? When does the entrepreneur, however painful, walk from the business? When do you sell, even if there is loss involved? Who do you merge with? When do you seek to expand the business through merger or partnership? And, under dire conditions, close it?” There is a certain kind of marketplace efficiency that dictates that if there is no compelling need for this particular venture, at this point in time or in this geographical area, the business should close. This is when the concept of loss minimization becomes crucial; in other words, do not continue to resuscitate a business and give it a life beyond what the marketplace intends. I underscore that you should not ignore the signals of the marketplace – it has a very interesting way of market self-correction.

All of these concepts and considerations should be incorporated into your business plan. The business plan for those not acquainted with the term is the roadmap for your enterprise—from conceptualization to implementation to modification. In preparing the business plan, a variety of questions must be addressed. How do you know if you have a product or service or product/service? How do you conduct appropriate market research to determine whether or not you can confirm that the market is expressing a need for the proposed product or service? Or, are you trying to create a need in the market? If there is a demonstrable need in the market, how will you calculate your share of the market? How do you know if you have properly priced the product or service? Have you built a dynamic financial model using market and price information that will provide answers to all of the “what-if” questions?

To me, the business plan is always a work in progress and never a finished product. At best, the business plan is a snapshot of a business at a specific point in time. So how can the entrepreneur move forward at the margin to measure the vitality of the business? What are the milestones? How do you measure whether or not you are realizing planned goals and whether or not your organization can truly move to the next stage and beyond?