Becoming a Successful Techpreneur

By Dr. Jelena Vucetic

Written from personal experience, this book focuses on the unique challenges of starting, growing and selling a high-tech business. It addresses the following issues for aspiring first-time entrepreneurs:
making a decision to start a business;
ownership and control;
organizational, legal, and administrative issues;
creating new high-tech products and markets;
effective financing and strategic alternatives as the business grows;
understanding intellectual property and other business laws;
dealing with the global competition;
leveraging on information technology;
hiring and managing traditional, virtual, and global employees;
exit strategies.

• Language: English
• Publisher: Xlibris US
• Release date: Oct 14, 2008
• ISBN: 9781453583517

Dr. Jelena Vucetic

Dr. Jelena Vucetic has been a leader in the telecommunications and computer industry for more than twenty years. She holds a PhD in electrical engineering, an MBA, an MS in computer science, and a BS in electrical engineering. She is the author of four patents in the area of wireless telecommunications. Dr. Vucetic is the founder of a consulting firm for start-ups, Fortune 500 companies, and government agencies. Her firm also provides expert and forensic consulting services for legal, valuation, and venture capitalist firms. She also founded a start-up providing equipment and software for the wireless telecommunications market. The company was recently acquired by its large, publicly traded customer. Dr. Vucetic’s most recent venture is BoomerGeeks.com, an online employment agency for seasoned high-tech professionals. Dr. Vucetic also lectures at graduate business and technology schools in the United States and advices Ph.D. and MBA candidates. She lives in Northern Virginia with her husband and son.

Book preview

Copyright © 2008 by Dr. Jelena Vucetic.

Library of Congress Control Number: 2008906581

ISBN: Hardcover   978-1-4363-5834-7

ISBN: Softcover     978-1-4363-5833-0

ISBN: Ebook         978-1-4535-8351-7

The information contained in this document is proprietary to Dr. Jelena Vucetic (author).

This text and all accompanying audio-visual material, manuals, and software (collectively, the Materials) are copyrighted with all rights reserved. Under the copyright laws, none of the Materials may be copied in whole or in part without prior written consent of the author.

No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, for any purpose without the express written permission of the author.

All information in this document is provided as is without warranty of any kind. The information in this document is subject to change without notice and should not be construed as commitment by the author. The author and all her representatives and employees disclaim all other warranties, either express or implied, including but not limited to implied warranties of merchantability, noninfringement and fitness for a particular purpose. In no event will the author or her representatives or employees be liable for any consequential, incidental, or indirect damages (including damages for loss of business profits, business interruption, and the like) arising out of the use of or inability to use the systems or procedures described in the Materials.

This book was printed in the United States of America.

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46364

To Martin and Nik

Contents

1.    INTRODUCTION

2.    BEFORE STARTING YOUR BUSINESS

    FIRST, LET’S TALK ABOUT YOU

    SWOT YOURSELF

    YOUR PERSONAL SITUATION AND RISK TOLERANCE

    YOUR RISK TOLERANCE AND IDEAL BUSINESS MODEL

    WHAT ARE YOUR VALUES?

    WHY DO YOU WANT TO BECOME AN ENTREPRENEUR?

    HOW CAN YOU SUCCEED AS AN ENTREPRENEUR?

    HAVE YOU HAD THE TALK WITH YOUR FAMILY?

    HOW WILL YOU LEAVE YOUR CURRENT JOB?

    NOW LET US TALK ABOUT YOUR VENTURE

    PRIORITIZE INNOVATION IN YOUR NEW VENTURE

    WHAT IS YOUR COMPANY’S PURPOSE, VISION, AND MISSION?

    WHAT IS YOUR COMPANY’S STRATEGIC PLAN?

    YOUR COMPANY’S COMPETITIVE STRATEGY

    FORECASTING YOUR COMPANY’S FUTURE SUCCESS

    WHAT PRODUCT WILL YOUR COMPANY MAKE?

    WHAT CONSULTING SERVICES WILL YOUR COMPANY PROVIDE?

    TACTICAL PLANNING FOR YOUR VENTURE

    PREPARING YOUR BUSINESS PLAN

    HAVE YOU PREPARED YOUR PRESENTATION?

    HAVE YOU FOUND YOUR ATTORNEYS YET?

    MANAGING INTELLECTUAL PROPERTY

    WHO WILL BE ON YOUR BOARD OF DIRECTORS?

    HOW ARE YOU GOING TO DIVIDE THE PIE?

    HOW WILL YOU SECURE THE SEED CAPITAL?

    GOING IT ALONE OR WITH COFOUNDERS?

    OPERATING AGREEMENT

    DO YOU HAVE BUSINESS ADMINISTRATION EXPERIENCE OR EDUCATION?

    WHAT ARE YOU WAITING FOR? TAKE A DEEP BREATH AND JUMP

3.    STARTING YOUR BUSINESS

    NOW YOU ARE ON YOUR OWN

    HOW WILL YOU HANDLE UNCERTAINTY AND RISK?

    WHAT WILL BE YOUR COMPANY’S CULTURE?

    INITIAL ORGANIC STRUCTURE

    LEADING A NEW VENTURE

    COMMERCIALIZATION AS A KEY TO BUSINESS SUCCESS

    MARKETING FOR A NEW VENTURE

    COMPETITION

    RESEARCH AND DEVELOPMENT (R & D)

    WHERE IS THE CLIFF?

    HAVE YOU FOUND YOUR ACCOUNTANT YET?

    VENTURE CAPITALISTS—WHO IS REAL, WHO IS NOT?

    CONTRACTS

    HAVE YOU FOUND ANY CUSTOMERS YET?

    SECURING YOUR FIRST SUPPLIERS AND EXTERNAL PARTNERS

    HIRING YOUR FIRST EMPLOYEES

    YOUR FIRST OFFICE

    YOUR PROTOTYPE IS READY—DEMO OR DIE

    TESTING, TESTING, TESTING

    FROM PROTOTYPE TO PRODUCT

    KEEPING YOUR COMPANY STAKEHOLDERS IN THE LOOP

4.    GROWING YOUR BUSINESS

    FROM GEEKS TO EXECUTIVES

    ARE YOU STILL LOYAL TO YOUR VISION, MISSION, AND STRATEGY?

    CUSTOMER DEMAND AND AGGREGATE PLAN

    REORGANIZING YOUR COMPANY AS IT GROWS

    YOUR COMPANY’S STRUCTURE CHANGES WHILE GROWING

    FINANCIAL MANAGEMENT AND SECOND-TIER FINANCING

    ORGANIZING OPERATIONS

    EXPANDING THE SUPPLIER BASE

    INVESTING IN TECHNOLOGY

    THE INFORMATION SYSTEM

    HIRING, HIRING, HIRING

    TO OUTSOURCE OR NOT?

    EXPANSION TO FOREIGN COUNTRIES

    LEGAL CHALLENGES

    INTERNAL CONTROL STRUCTURE

    FINANCIAL REVIEWS AND AUDITS

    BUSINESS VALUATION

    THE 51 PERCENT—GOING PUBLIC OR SELLING OUT?

    GOING PUBLIC (INITIAL PUBLIC OFFERING)

    SELLING OUT THE BUSINESS

    SELLING YOUR INDIVIDUAL INTEREST ONLY

5.    CRUISING, SITTING ON BOARDS, STARTING AGAIN, OR . . . ?

    TAKING CARE OF FINANCES

    FUTURE (AD)VENTURES

    COACHING NEW ENTREPRENEURS

    SERIAL AND PARALLEL ENTREPRENEUR

SUGGESTED READINGS

1

Introduction

When I was eight years old, one of the favorite games in our neighborhood was hopscotch. Hour after hour we played, small groups and large, often well into the dark. But sometimes kids can be cruel. One day, just for spite, the kids decided not to let me join in. Words can’t describe how much it hurt. I went running home with tears streaming down my face. My mom asked me what happened, and I explained.

Go back to the playground, she said with both compassion and a quiet confidence. Go to another side of the playground, draw your own hopscotch squares, and start playing. You’ll see, some of the kids will join you.

I did go back. My hand was shaking as I started drawing the hopscotch. I could feel the eyes of the kids behind my back, and I could hear them giggling. But when I started jumping from box to box with a huge smile on my face, it became all too tempting for them. Within minutes, those same kids who hurt me so deeply came running over and asked if they could join. One voice inside of me wanted to tell them, Buzz off. Instead, I just said, Sure. I knew I had won.

That one moment has stayed with me into adulthood and in many ways helped shape me as a person. Since then I have never feared starting on my own path whether it meant a new career in a foreign country, a new business, or writing this book.

Becoming a Successful Techpreneur is about discovering the courage it takes to strike out on your own. It is also about having the knowledge and tools to succeed.

Many years after that day on the playground, I decided to leave my job as a high-tech professional at a major corporation and strike out with a small team of fellow entrepreneurs to do our own thing. It took courage, but it was one of the wisest decisions I have made. We had great success, but also made mistakes from which we learned some painful lessons. This book is about both.

I created my own high-tech company, and today it went public.

I created my own high-tech company and sold it.

Wouldn’t you like to say these words at least once in your lifetime?

We read stories every day in the media about companies that created the latest high-tech inventions—whether it is a new thumbnail that holds huge amounts of information or a new way to connect people in the cyberspace. The entrepreneurs who started these companies not only saw their dream come true, they became rich in the process. And while they often had to overcome countless obstacles in their path, they most often did it on their own terms.

While most of us are aware of the many risks, temptations, traps, and illusions related to starting our own enterprise, most of us are very attracted to the idea of being on our own, making our own decisions, and enjoying long-term financial security.

But what are you willing to do in order to reach these goals? How are you going to start to develop a successful high-tech business? Why would you do that at all? And once you have built it successfully, what is next?

For some people, a discussion about starting their own business never seems to get beyond the discussion phase. For example, my two friends would start their typical let us start our own business conversation every time they would meet at a party, in a restaurant, at a ball game, and so on. This kind of conversation became so common that other friends would chide them saying, Is it time for your start-up talk yet? In fact, they have never started that business.

At the other extreme are those who never seriously weigh the pros and cons of starting their own business and simply jump in feet first, which can often be more dangerous than procrastinating. For example, Mike thought that it would be a good idea to get a bank loan to support the production of his product, fully expecting a large order from a client. Mike even put his house as the collateral to cover the loan. Unfortunately, the client went bankrupt and never placed the order. Mike got stuck with a huge inventory and eventually lost his home.

This book is written for any aspiring first-time techpreneur, including the procrastinator and the thoughtless risktaker.

It is not going to persuade you to start a business. Too many inspirational books have already been written telling you that you can do it, explaining how to write a business plan, and usually ending right there—at the start of the business. Not so many books tell you what happens after the start and where to take it next.

Instead of simply pumping you up to run off and start your business, this book provides you with objective, balanced insight into the challenges and issues you’ll confront at the various stages of your business’s growth and development. My intention is neither to paint a rosy picture nor to scare you off. Rather, I invite you to think critically whether entrepreneurship in the high-tech world is right for you and, if the answer is yes, help you succeed.

Becoming a Successful Techpreneur is organized in five chapters that will illustrate the key milestones along the complete life cycle of a high-tech business. After the Introduction, chapter 2 discusses critical issues to be addressed before you start your new business. Chapter 3 focuses on the activities, challenges, and responsibilities that you will face in the starting stage of your business, from the first official day of its operation until the first product is launched to the market. Chapter 4 presents major challenges your company may expect while the business is growing and transforming from an informal start-up into a structured, organized enterprise. Chapter 5 explores various scenarios after your successful exit from the business—either through a buyout or an initial public offering.

Every day, technology is attracting the brightest and most adventurous minds in the world. Those minds will transform the future; make our lives safer, more efficient, and more fun. For those who chose to create their own path, this book is for you. Draw your own hopscotch.

2

Before Starting Your Business

You have been thinking about starting your own high-tech business for a long time. But before you move any further, get to know yourself well enough and understand why you want to become an entrepreneur.

First, Let’s Talk About You

Why is it important to discuss who you are?

First, your background reflects your personality and previous life-defining decisions. Thoughtful self-reflection on your personal history can help you define your entrepreneurship idea and how to pursue it.

Second, your background may reflect your risk exposure and risk tolerance at the current stage of your life. Your entrepreneurship plans must be in sync with your understanding of risk. Otherwise, the financial and emotional consequences of any venture you undertake could be very serious.

Third, throughout your life, your family situation, health condition, hobbies, priorities and lifestyle change may significantly affect your decision to start a business. While a single formula never fits all, certain business models may be more or less suitable to your situation. It is very important to be realistic and honest with yourself while considering how to best align your entrepreneurship plans with your personal situation.

SWOT Yourself

Businesses are often analyzed using Strengths, Weaknesses, Opportunities, and Threats (SWOT) approach, one of the simplest and most effective business analysis methods.

Present and future business owners may also apply the SWOT analysis to themselves to identify how to find the best match between their own personal situation (profile) and their business model.

Table 1 presents a snapshot of several examples illustrating the Personal SWOT Analysis. Even if you cannot recognize your own profile here, you may use these examples as a model to analyze your own situation.

Table 1: Personal SWOT Analysis

Your Personal Situation and Risk Tolerance

Typically, the more risk you are willing to take, the more profitability and growth your business could achieve. However, the greater the risk, the greater the potential for failure.

As presented in Table 1, your risk tolerance should be aligned with your personal situation. No one but you knows if you are too old or too young to start a business. However, before you make the decision, be objective and seriously consider what risk level you can handle successfully.

If you have dependents or certain health care needs, having a health care insurance should be your high priority. A working spouse with good family health care coverage or a generous government retirement package can provide the necessary comfort zone.

Your personal situation dictates your availability and flexibility as well. What kind of lifestyle do you really want? Are you willing to compromise family time, hobbies, and other normal life fixtures to achieve your goals?

Think about your daily and long-term patterns. Here are a few questions you should ask yourself before deciding which business model to pursue:

-    Do you have a mortgage or any other financial obligation that has to be regularly paid?

-    Who will make these payments if you don’t earn regular and sufficient salary?

-    How many hours a day do you usually work?

-    How many days a week do you usually work?

-    Do you prefer predictable business hours, or are you comfortable with changes?

-    Do you prefer telecommuting to a traditional office environment?

-    Do you participate in sports or hobbies that require regular attendance?

-    Do you need to drive your children to/from school or extracurricular activities on a regular basis?

-    Who takes care of your children if you need to travel or work late?

-    Are you involved in a committed romantic relationship, getting married, or expecting a baby in the near future?

-    Do you have any other substantial time-demanding commitments that you don’t want to compromise?

High-risk business models typically involve changes in the plan on a short notice. Sudden business opportunities, emergencies, and many other unpredictable situations have to be handled immediately as they arise, often involving short-notice travel or work over the weekend.

-    Are you flexible enough to succeed in this mode?

-    Do you have resources and support available to reorganize your personal schedule on short notice?

-    Most of all, are you willing to give your new business top priority in your life for an extended time?

High-risk business models typically involve high personal financial exposure, as well as outside investments. These other investing parties usually demand a certain role in the company’s decision making as well as your personal accountability for the business decisions.

-    Are you comfortable with the shared control of the business, or you would rather make all business decisions by yourself?

-    Who are the outside investors? Will you be comfortable working with them and reporting to them?

-    How are you going to share the profits of your business with these investors?

-    What will happen if your business does not provide the expected results?

-    How will you exit from this business relationship?

Low-risk business models typically offer more flexibility, lower financial exposure, and a more predictable personal schedule. Very likely, there won’t be outside investors, and you can be your own boss. On the other hand, the profit potential may not be as attractive as in high-risk businesses.

Your Risk Tolerance and Ideal Business Model

Using Table 1, select the type of business model for your company based on your risk tolerance.

Three general business models are identified:

1.    High-risk Model: A venture-capital funded start-up characterized by fast growth, aggressive expansion into new global markets, and frequent introduction of new products and services.

2.    Medium-risk Model: A small company supported by long-term contracts with customers and product development funded by down payment from customers. Characterized by moderate growth and cautious expansion into new markets.

3.    Low-risk Model: A small company supported by consulting services that leverage on the principal’s professional, government, and business networks and unique skills and experience. Product development funded by retained earnings. Characterized by slow growth and cautious introduction of new product lines and/or new markets.

If your risk tolerance is relatively high, you may want to pursue business opportunities that are potentially more profitable and fast growing. Here are a few examples:

-    Develop a radically new technology or process: If this is your dream, you are probably thinking of those lucrative patents and licensing fees that you will be able to collect over the next twenty years of the patent’s life cycle. However, don’t forget the high legal expenses for patent filings, challenges, and enforcements.

-    Leverage high market acceptance of a radically new technology: You want to become the leader in development of new applications for a new technology. Remember the initial success and growth of dot-com companies after the emergence of the World Wide Web? Although many dot-com companies failed after their initial success, those that survived created a lot of wealth by leveraging their core competences in e-commerce, integrated supply chain, Web design, strategic alliances, and cost-effective marketing strategies.

-    Compete in existing high-margin markets: You have a certain competitive advantage in these markets, such as: access to capital, access to customers willing to purchase certain products or services from you in high volumes, strategic alliance with suppliers of certain rare materials, effectively streamlined processes and procedures, etc.

-    Develop new international markets: If you have done a thorough research, here is a potentially very profitable opportunity. However, despite the fact that many international markets can be anxious to acquire your products or services, it is not easy to do business overseas. Language and cultural barriers represent a serious challenge. Export/import regulations and tariffs may be difficult to navigate. Economic, political, and social conditions in these countries may be unstable and difficult for you to follow. Finally, each international market has its own set of specifics, and you should be familiar with each one of them.

If your risk tolerance is relatively low, you may want to pursue those slower-growing business opportunities that don’t require substantial capital resources and financial exposure.

What Are Your Values?

Most of us don’t just wake up one morning and say, Today, I’ll start a business. Typically, we spend many days, even years, thinking and planning for the leap, evaluating the pros and cons.

While analyzing your personality, it is also essential to identify the values you hold as important. These values will underscore all your business decisions in your daily operations.

Table 2 shows the values people often identify as their own. You may decide which ones are important to you, rank them, and relate them to your business model.

Table 2: Your Values, Lifestyle and Business Model

Do You Have Personal Traits of a Successful Entrepreneur?

Researchers have been trying to identify common behavioral and psychological characteristics of successful entrepreneurs as a way to recognize future leaders early on and support their growth.

Do these characteristics describe you?

-    Visionary, determined to make a difference

-    Highly competitive and persistent

-    Competent, always on the lookout for a new opportunity, information, or skills to learn

-    Experienced in the relevant disciplines

-    Risk-taker, open-minded to change

-    Effective under stress and pressure

-    Focused on the established goals

-    Self-reliant, takes charge

-    Responsible and accountable

-    Communicative, open, positive, inspiring, trusting and empowering others

-    Excellent time- and money-management skills

Why Do You Want to Become an Entrepreneur?

You have probably heard about many success stories of other entrepreneurs. Maybe you even know a successful entrepreneur personally. The media loves success stories because people view them as something inspirational.

However, according to the Small Business Administration, four years after the start-up, only half of all small businesses with employees remain open. The risks involved in starting and growing a new business can be very high, and the prospects of success uncertain.

Before you evaluate all the pros and cons of starting a business, ask yourself why you want to become an entrepreneur.

Here are some reasons that may apply to you:

-    You want to take control of your life

In times of mergers and acquisitions, corporate downsizing, reengineering, restructuring, outsourcing, and other competitive trends in most industry sectors, many people rightfully feel they have no control over their lives. Today, you may be considered the most respected and valued employee in your organization. Tomorrow, you may find yourself downsized or transferred to another part of the country.

Radical life changes can be very frustrating for you and your family. Some people spend a significant part of their lives relocating from place to place, never having a chance to develop roots.

Starting your own business puts you in charge of the decision where you live and work. You decide how long your commute will be and what time schedule you will maintain. Typically, entrepreneurs work longer hours than those working for someone else. However, entrepreneurs use their time the way it suits them while their overhead (commute time, sitting in meetings, etc.) is usually very low. Although many organizations allow flexible hours and telecommuting for their employees, this still cannot compare with the freedom of being your own boss. An entrepreneur does not worry that his/her job will be in jeopardy because of too many telecommuting days or because he/she has to leave the office due to a child-care issue.

-    You want to take control of your career

Closely related to taking control of your overall life is taking control of your career. Instead of letting an employer decide what career path you will pursue, take control of it yourself. For a number of years, your career may have been developing the way you wanted—from junior assignments to more challenging and attractive leadership positions. But your employer could be acquired by another company, or it downsizes and you are laid off or given a dead-end job position.

You may decide to make a radical shift in your career by changing the function within the same organization (hoping that this new function won’t be downsized or outsourced later). Or you may decide to become an entrepreneur and continue to develop your career within the industry you love.

It is interesting that so many people feel safer working in a large organization, with benefits package and other corporate perks, than working for themselves. A couple of decades ago, this might have been a reasonable choice, knowing a job with a large organization most likely meant a lifetime career and a nice retirement package. But the workplace of the ’90s and early 2000s has become much more volatile. The time of employer-employee loyalty and golden watches is gone. Typically, employees stay with one employer between three and five years, continuously monitoring the job market and switching employers as soon as a better job opportunity shows up. Retirement with a single employer has become the exception when it once was the rule.

-    You want to do what you love

If entrepreneurs have one thing in common, it is the genuine love for what they do. They work with passion, motivation, and dedication. Rather than an employer telling you which projects to work on, you make all the decisions yourself. By controlling these decisions, you create a workplace that fulfills you professionally and keeps the focus on projects that match your interests and enthusiasm. Most often the result is high achievement and success.

-    You want to pursue a unique business opportunity

Maybe you’ve identified the market need for a certain kind of product or service. You have an idea how to satisfy the need, and you want to develop the idea into a product or service and sell it.

Some people never dreamed of being entrepreneurs, but when they recognized a business opportunity, they couldn’t resist. For example, Mark had been a senior product manager with a large satellite communications equipment manufacturer for many years. He had a nice employment, including an above-average salary, benefits, professional growth opportunities, promotions, etc. He had no thoughts of looking for another job and certainly no thoughts to start his own business.

But over a year period, several major clients asked him if his company intended to offer certain software upgrades that would enable them to integrate their own customized equipment into the satellite communication system. Mark brought the request several times before his senior management team and the response was always no. The satellite manufacturer did not consider the development of the software upgrades a priority and preferred to stay focused on its own core competences. The software upgrades catered to too small a market for the large satellite manufacturer. However, the opportunity was not too small for Mark.

He researched the market potential, estimated the development costs, and put a business plan together. And Mark was not the only one to see the profit potential. His clients offered to finance some of the development efforts, and his current employer (the satellite manufacturer) even provided some financing, with expectation that the new software upgrades would be integrated into its satellite system solutions. With all the pieces in place, Mark decided to leave his full-time job with the satellite manufacturer and start a software engineering business focused on satellite communications applications. He never looked back.

-    You want to fulfill your long-time dream

Your independent nature has always driven you to be an entrepreneur, have your own business, and make your own decisions. Maybe a friend or someone in the family is an entrepreneur, someone you’ve always admired. As in so many other aspects of life, a positive role model can make all the difference in new business.

-    You want to make a difference in the world

You have a noble idea, a belief that your products or services can enhance the quality of people’s lives. You want to develop these products or services for the benefit of humanity.

Lila had been in wireless telecom for many years. She had always wanted to apply her expertise in the world of health care, especially helping people in emergency situations far away from any medical facility. She had been familiar with death statistics related to heart attacks, strokes, and car accidents and realized that many of these lives could have been saved had treatment started sooner—at the accident site, or on the way to the hospital. With advances in broadband wireless technology, Lila realized effective emergency telemedicine was feasible. She created a business to develop telemedicine systems for ambulance fleets, connecting them wirelessly to emergency medical centers. She interviewed medical and IT staff from several emergency centers and created a system based on their needs. She also secured her first clients and sources of financing. With outstanding recommendation from her initial clients, a good number of foundations, health care organizations, and insurance companies wanted to finance her new business. People recognize a good idea and want to be part of its creation.

-    You want to prove you can do it

You like a good challenge and are not afraid of the risks involved. You’re not afraid of the failure and see it only as a valuable learning experience on your path to success. You are willing to make attempt after attempt to start your new businesses until you finally succeed. According to Small Business Administration, approximately 13 percent of entrepreneurs who filed bankruptcy will start a new business within eighteen months from the filing. Meanwhile 11 percent are already in planning stages to start another business. Refuse to fail.

-    You want to prove yourself to investors who support you

Most entrepreneurs struggle to raise sufficient capital to support the growth of their businesses, so consider yourself very lucky if you have access to capital through wealthy relatives, friends, or financial institutions. Most entrepreneurs spend enormous amount of time looking for capital, giving presentations to potential investors, explaining how they intend to generate profit, and most often their efforts go unrewarded.

Venture capitalists are swamped with business plans from start-ups soliciting investment. Typically, VCs invest in one or two start-ups a year out of the several thousand proposals received. Add to that the dot-com disaster where many venture capitalists got burned, and no wonder they are much more cautious now with their investment decisions.

Already having someone willing to invest in your business is the ultimate stroke of luck. It will save you a lot of time and energy (usually called the cost of financing). Remember, each business hour spent on anything else but developing your product is overhead for you. The more time you spend on overhead, the more delayed your product launch to the market will be.

First of all, your revenues will be delayed and potentially reduced if the competition comes to the market with the similar product before yours. Second, your costs will be higher as a result of all the overhead activities that don’t advance the development of your product. The lower the revenues and the higher the costs, the lower profits you will make—if you ever complete the product development. Many entrepreneurs never finish the development phase because they simply run out of money.

So if someone you trust wants to support your business financially, don’t pass on the opportunity. However, don’t underestimate your personal responsibility because the investor probably only gave the money because he/she trusts you and believes you can succeed with your venture. Just imagine how you would face this investor (who may be a friend or family member) and admit you have spent all his/her money and failed.

-    You have a strong network of business advisors

It is very difficult to start a business alone, without anyone’s advice, help, or referrals. Most successful entrepreneurs have wide, reliable networks of friends, business acquaintances, and colleagues. These relationships are typically developed over a long time, through various professional and personal situations.

Even if you start your business alone (without cofounders), you will often need a support network for recommendation of reliable suppliers, new employees, or financing sources. A support network may connect you with new clients, venture capitalists, or strategic partners.

In the long run, you may consider offering certain individuals from your support network a seat on your company’s board of directors. Be very careful about this decision. The board should include seasoned, well-intentioned individuals who will provide a substantial value added to your business through their contacts, expertise, experience, advices, image, and genuine support.

-    You want to get rich

Who doesn’t? However, starting a business just to get rich may lead you to an unsatisfying end. The last thing you want to do is to own a boring, unfulfilling business—just for the money. You may end up being a wealthy, but bored, dull and unhappy person. At the end, you are the one who knows best what your priorities and values are. If it’s money alone, OK. However, most people value their families, friends, professional growth, and general intellectual and spiritual growth more than just money. If you spend the majority of your time focusing on getting rich while doing a job that doesn’t fulfill you, over time your world will narrow.

So while deciding what business opportunities to pursue, use the balance sheet, but don’t forget where your heart and soul are. Creating a new business should be an exciting, challenging, and motivating experience that enriches you in all possible aspects—intellectually, emotionally, and financially.

How can you succeed as an entrepreneur?

Success is never having to apologize for your gross margins.

—L. B. Helzel, A Goal is a Dream with a Deadline

Before you proceed with the planning for your new business, think about what success means for you. Unless you define success and set your own measurable performance targets, you may never be content with what you achieve.

Indicators of Business Success

In general, a business is successful if its management can see:

-    Survivability—Ensure positive cash flow, otherwise the business cannot support its operations.

-    Profitability—Generate revenues that exceed expenses.

-    Growth—A business needs to grow in its core competences as well as advance into new, strategically important areas. It needs to continue to develop products, markets, resources, and value.

-    Competitive Advantages—A business needs to build barriers to entry for the competitors by developing exclusive core competences, intellectual property, production capabilities, brand as well as capitalization.

-    Human and Capital Resources—The stronger the resources, the more sustainable a company’s competitive position.

-    Sustainable Corporate Strategy—Including consistent vision, mission, strategic objectives, tactics, and implementation plan.

Strategies for Successful Entrepreneurship

There are many fascinating examples of entrepreneurial success in every industry. Although there is no unique recipe for success, certain strategies seem to always be present:

-    Prepare—Preparation is critical for success in any venture. Research and planning are the best tools for reducing risk and effective decision making.

-    Always sell—Timing and salesmanship are crucial for any successful venture. The entrepreneur’s personal charisma and presentation skills often make the vital difference. Always be ready to present your company, its products, and people to potential customers, media, and investors.

-    Inquire and listen—Listen to what customers want. Doing so will help you find a market niche for your business.

-    Focus on a niche market—Being a small company has its advantages. Very often, a small company can better serve small orders than a large company.

-    Be honest with customers—Tell customers honestly what your company can and cannot provide. In the long run, honesty always pays off. Don’t promise what you cannot deliver.

-    Price your products to sell—Product pricing should be based on accurate, substantive information. Keep current with your market and competitors’ products and set realistic expectations for revenues.

-    Promote your company and products—Advertising and publicity is always critical for business success.

-    Continue to learn—Keep pace with new products, trends, and technologies. Continue to research relevant markets, read about new technologies, monitor what your competitors are doing, regularly network and socialize with people in your industry. You will always learn something new.

-    Stay lean—Keep your company’s operating costs and overhead low by aggressively monitoring, managing, and controlling your operations based on the total quality management (TQM) principles.

-    Empower your employees—This management style is very popular with employees because it places more decision-making power in their hands. It boosts motivation, productivity and job satisfaction, reduces absenteeism, lowers turnover, and improves workplace safety.

-    Promote and value team effort—Organizing employees into teams to achieve a common objective improves communication and cooperation, reduces internal competition and duplication of effort, and maximizes the talents of all employees.

Very often, a small company can bring a new product to market much faster than its larger competitor. The most successful businesses are not bureaucratic, centralized institutions, slow to adapt to changing times. Instead, they tend to be:

-    Small—Younger and smaller companies prosper as the titans of the industry struggle to adapt to changes in the market. Small businesses have an easier time adapting to the competition and making the necessary adjustments in order to stay successful.

-    Decentralized—Large companies are starting to decentralize and act small through downsizing, reengineering, outsourcing, and offshoring as they recognize the importance of entrepreneurship and agility in the twenty-first-century global economy.

-    Focused on the customers—With a closer insight into the marketplace, small businesses have the ability to serve their customers on a more personal level than large companies, which are typically less in tune with their customers.

-    Innovative—Lower-level employees’ ideas may have a larger impact in small companies, whereas they would probably not be heard in a large organization. Innovation is the key to staying competitive.

How can your new product succeed in the market?

Most new product successes are not the result of radical innovation. Rather, they are simple, familiar responses to new market demands, changing customer behaviors, and technological trends. They are successful because they represent small, incremental, innovative steps that combine ideas from diverse disciplines and avoid past mistakes.

The following strategies can contribute to new product success:

-    Keep It Simple, Stupid (KISS)—Many successful new products represent an incremental, improved version of an existing familiar product. Familiarity with the existing product’s features is the key success factor because it eliminates the need to educate customers about the overall benefits. Instead, promote the new product by advertising the new feature only. In addition, introduce only one or two new features in the new product so that the promotion message is simple, clear, and responsive to customers’ needs.

For example, iPod customers have already downloaded thousands of songs, and sooner or later, they run out of memory. Logically, the manufacturer (Apple) has realized that offering the customers new iPod models with more memory can boost revenues over time by gradually offering familiar benefits in a sequence of new models: more music downloads, more picture downloads, and more video downloads. Since the customers had already been familiar with the previous solutions, Apple did not have to explain what iPod was and how it could be used. The basic product concept including the usage, computer interface, shape, and packaging has been held constant; and customers feel comfortable adopting the new features and buying new iPod models.

-    Focus on customer satisfaction—Rather than trying to put together too many new features in a single, radically new product, identify the baseline features that are high on the customers’ wish list. Develop them first. Spend time promoting and educating the customers about the new product. Explain to the customers how the baseline features respond to their high-priority needs, and introduce the baseline product to the market first. After the customers adopt the new product and start to buy it in larger volumes, introduce new, more complex and advanced models. Unfortunately, many companies get impatient to make high returns on their substantial R & D investments quickly. Instead of a gradual new product launch, they overload the product with all kinds of features, which may result in customers’ confusion rather than satisfaction.

-    Brand extension—It is possible to successfully extend brands into new product categories. However, a major challenge with brand extension is to extend the old, familiar product image into a new form. For example, the introduction of Lexus cars by Toyota into the Japanese market in 2005 was a challenging brand-extension attempt. This news raised the concern of whether the Japanese would buy luxury brand cars from Toyota, traditionally recognized as a brand for economy car models. For a successful brand extension into the luxury cars market, Toyota established a new, unique luxury brand for selling Lexus cars. This new brand was promoted in the luxury car market and distanced from the traditional, economy Toyota brand. The key to success of the extended brand is to ensure the competitive value of luxury cars while recognizing that cars are typically purchased on emotion. If the customers are confused about the brand and what it stands for, they may feel reluctant to buy the new products.

How can your new product fail in the market?

Bringing a new product to market takes more than innovation, talent, and capital. Only approximately 3 percent of all new ideas ultimately achieve commercial success. It is generally agreed that 80-95 percent of consumer products fail in the long run. Many products fail because companies either do not recognize potential risks, or simply conclude that they cannot sufficiently reduce the risks associated with their products’ development, launch, and commercialization.

Numerous studies have been done to identify the most common reasons for new products’ failure. The findings indicate that new products typically fail due to:

-    Ignorance of reality—Sometimes, the company’s management gets so excited about a new product idea that they ignore reality. They simply declare that an idea is brilliant and there will be a huge market for it. While you should be enthusiastic about your new product, research the market and find out how big it is, what market share you could capture, who are the competitors, and what competitive advantage they have over your company. For example, assume that during the market research you find out that a much larger competitor has a patent on a technology that is very similar to yours. This may mean in order to develop your product, you will have to pay an obscene amount of money to license the patented technology; and when you start to sell the product, you will also have to pay royalties to this competitor as a percentage of your sales. Based on the discovery of the existing patent, you may decide it does not make economic sense to start the new product design; or you may decide to compete with the competitor that owns the patent rights by designing and patenting a totally different, innovative technical solution for your new product and get around the competitor’s patent.

-    Lack of customer need for the product—If you skip a thorough market research before the new product design, you may not notice that—there is no market at all! If the market research shows that there are no competitors offering the same or similar kinds of products like yours, maybe there is wisdom to it. Seriously investigate whether customers are looking for your products and whether they represent a significant-enough market segment.

-    Poor market timing—Your new product launch should occur when the timing is right—not too early, not too late. An early launch happens if the product is so innovative and unfamiliar that customers are not ready to buy it. You would need to spend a significant amount of time and resources educating customers about your product, its purpose, use, and potential benefits.

A late product launch happens if you are trying to enter a mature market with well-entrenched competitors and declining profit margins. It may be too late for you to try to enter this market.

The key again is thorough market research before you launch.

-    Internal politics—Too many new products are created in a corporate environment where a single champion can push through a development project despite negative research results—and even against any common sense. If you recall your previous career, internal politics and power struggles may be the reason you left the corporate world to start your own company. Now when you are on your own, avoid the temptation to act like a champion who pushes his or her pet project just because you can.

-    Technical failures—If the new product is not well conceptualized, designed, developed, manufactured, or deployed, various kinds of technical failures, defects, and malfunctioning are possible. The longer into the product development cycle the errors propagate, the more expensive the corrections will be. Therefore, provide extensive testing and quality assurance measures from the product conception through its mass production and deployment. This strategy will save you substantial amount of resources and aggravation down the road.

-    Higher costs than projected—Throughout the new product life cycle, your company will incur various kinds of costs. Some will be anticipated based on your competence to plan the whole product life cycle ahead of time, and some will come as a total surprise to you. Your goal is to minimize both anticipated and surprise costs. If you don’t analyze your future venture and identify potential threats, risks, and obstacles, you may underestimate the costs and get into the venture poorly prepared. Many companies have gone bankrupt or encountered serious financial hardship because of higher-than-expected costs.

-    Too high prices—Pricing is a critical component in your new product launch. If you price the product too low, your profit margins may be too low or nonexistent. If the price is too high, the product won’t sell well in the competitive market. Once again, the key to proper product pricing is a comprehensive market research and comparative analysis of competitive product offerings. In the preliminary market research, you should find out the pricing and the sales volumes of competitors’ products. Based on this information, you should determine if your new product can be offered at a lower price and with innovative features and still provide sufficient profits to your company. You don’t want to start a new product design if it is clear that this venture would generate loss to your company or that it may not sustain the expected long term growth.

-    Inadequate marketing effort—Even the most advanced product can fail if it is not properly promoted. Here is an example from my own experience. Long time ago, I worked for a company that developed an innovative infrastructure product for wireless telecommunications market. The product was based on a new approach, state-of-the-art technology with a number of attractive applications that the customers had been waiting for (e.g., wireless text messaging, transfer of picture and slow-motion video, etc.). The engineering team was highly motivated, and competitors were anxiously kicking the product tires at important trade shows where the product was announced. Huge success! However, the top management totally neglected the marketing effort that was required for the promotion and sales. Even worse, when they received the estimates of the marketing costs from the marketing team, they (a) let