Upfront Planning – The Key To Floating Your Entrepreneurial Boat

The numbers vary, but they all end up in the same place. Four out of five entrepreneurial companies fail in their first few years of operations. More than half of all corporate or industry start-ups fail in the first three years. Veteran venture capitalists expect 90% of portfolio profits to come from 10% of the portfolio. 

No matter which statistic you are reading, you are clearly working your way upstream. But don't worry, to complete your voyage, successful entrepreneurs agree, the best work you can do is what you do before you open for business.

Emotions Aside, Now Plan Ahead

You have already been through the emotional aspects of the decision and you and your family have a good understanding of why you are voyaging the entrepreneurial river. Now comes the rational side of the journey: the business model and planning. Before you push your boat off into the water, what are the three most important areas of planning for the start-up company?

Market & Product Research

You have a good concept or think that you do. The key element to increase your chance for successful introduction is to analyze the market need you think is missing. What problem(s) are you solving in the marketplace? How and why do customers use existing products and services? Who are the competitors? What makes your product or service better? Will you use conventional market channels or are you traversing a new path? These are the basic questions you ask to try to gauge the size of the target market, plan your pricing and schedule your production and distribution.

TIP: If you are not experienced in the targeted industry, you are fighting against the current. A basic rule of thumb for any entrepreneur is to realize that very smart people have spent their entire lives doing almost everything you can think of in any field. But that does not mean you should go back to your day job. Use those industry sources. In order to polish their concept into a successful product, the most successful entrepreneurs, even industry veterans, tap into industry talent through professional organizations, friends and business advisors. Don't forget recruitment and executive search firms as a resource. Their end goals are the same as yours: a successful business for whom they seek the best possible employees. And you will be happy to pay them for finding those employees.

Share as much or as little of your concept or product with these industry sources as you are comfortable, bearing in mind that while you have little protection against a stolen idea, these people can help you navigate your way upstream.

Management Business Plan

After you have completed your market research and have a good idea of what you expect to deliver, how are you going to deliver it? What roles and functions are going to be necessary to deliver that product to the first customer…and the one thousandth customer? And who is going to help you do it? The most valuable investment any businessperson can make, often the primary reason for success or failure, is in the people who are going to help run the business.

TIP: Experience in running a business or even a large department is important. If you are not used to directing the efforts of others toward a common goal, it can be a challenge beyond any other. In order to make sure that your business does not go over the waterfall, beyond your own skills, make sure that you have the most experienced managers that your budget can buy.

Financial Business Plan

This is not just a spreadsheet. This is the numerical equivalent of your market research and management plan rolled into one, the absolute core of your entrepreneurial enterprise. You start with the "easy" part, expenses. Simply put down every cost of what you are going to provide and how and from where you are going to provide it. Don't forget your direct costs of selling - sales commissions. Revenue projections are the hard part. You have to make assumptions out of basic research and anticipated need, but try to be realistic. If at all possible, use current market statistics in areas such as pricing, customer acquisition and order fulfillment. It is easiest to use number of customers times the number of products purchased over time as your lowest common denominator in projecting revenue. Ultimately, all revenue and cash flow will come from customers.

TIP: Undercapitalization is the business equivalent of not having enough life vests in your boat. If you are not sure of how many life vests you need, the standard rule of thumb is to double your original expenses and cut your revenue projections in half. Everything costs more than you anticipate and every sale takes longer to close, so be conservative. And don't forget, every customer takes longer to pay, so cash flow and timing are critical components of your financial business plan. Just ahead is the capital dam, with the funding you are going to need. As you make your way to the causeway, a realistic set of financial projections is the best first impression the capital source can have of you and your future enterprise.

So congratulations on your river journey. You have successfully paddled against the market current, avoided the management waterfall and tapped into the capital dam. From here on out, the waters will be smoother. You must have planned well.