I was part of the jury at Conquest 2015, the annual startup fest and B-Plan competition of BITS Pilani. Conquest is perhaps, one of the most meaningful Business Plan competitions in the country. The Conquest team makes efforts to provide mentoring support to shortlisted teams, so that their plans are refined by the time they get to the finals. The program is designed and executed entirely by students.
Investors will be interested because you have a plan to address an opportunity well, not just because you have identified an opportunity that is interesting. That’s why, while having a good idea is certainly a good starting point, it is not enough for investors to invest.
Most entrepreneurs make the mistake of detailing out their product or service or concept. What most investors are looking for is your plan for building a strong, profitable, scalable, defensible business around that product or concept.
The success of an entrepreneurial venture depends entirely on the quality of execution. Many companies fail to implement their ideas well. Hence what investors seek in the plans they review is evidence that this team will be able to execute well on a concept that appears to address a potentially large market.
What should a business plan cover?
Employee Stock Options (ESOPs) is a powerful tool available to startups to attract as well as retain talent. However, often I have seen it being undervalued or under-utilised by startups.
ESOPs are shares that are given to employees so that they can enjoy significant monetary benefits if the startup is successful. Since the monetary value of selling equity of a successful startup can be several times higher than the salary, ESOPs alter the risk-reward equation and makes it attractive for potential employees to consider joining a startups, which otherwise at just salary levels may not be such a lucrative option.
ESOPs are especially useful when startups or early-growth stage companies have to hire senior talent with experience, and they don’t have monies to pay full market salaries.
In fact, investors too encourage founders to carve out an ESOPs pool – often between 5 – 20% of the equity depending on how well balanced the existing founding team is. If the team has gaps that need to be filled in, it is important to carve out a higher percentage of equity, as that will allow you to hire the right resources to complete the team.
As an entrepreneur, it is important for you to communicate the ‘value’ that your enterprise is likely to create and thus explain to potential employees the potential value of the stock they are getting under the ESOP. If the company is successful, the stock can provide a significant upside to employees.
Not just in hiring, but ESOPs can also be a very useful retention tool. That is because a well-structured ESOPs plan ensures that the equity is vested over a period of time (i.e. it is given to the individual in instalments spread over a period of time), and if the startup is successful, the individual is incentivized to stay on even if there is a matching salary offer from another company.
I often get asked this question: “I have an idea. But I just don’t know what to do next. How do I start implementing it?”
It is not unusual to get stuck with the idea without knowing how to take it forward. Often the fear of having to manage operations, finances and staff is what stops people from getting started on their idea.
Having an idea is a good starting point. The first thing to do is to let that idea rest for a few days. Think about it every day. But don’t act on it. Think through all the positives AND all the negatives. Think of how great it can be. And also think about what could go wrong and how worse can it get. You will start seeing different aspects about the idea. Not all will be good. And that’s OK.
When testing the proof of concept, you could be testing not just the product itself but also a few other assumptions about the business around that product. I.e. Product testing is just one of the aspects that could be tested during a proof of concept test phase. Within this, a MVP is an early version of the product, finished enough to get a few early customers to try the product and give you some useful feedback which can be incorporated into the final product.
Below are a few things that are tested in a concept test stage/pilot phase:
- The concept – the power of the idea itself: Do the consumers/customers see the value proposition in what you offer?
- The business model: A business model is about ‘who will pay how much and to whom’. Each element of this should be tested in the pilot phase. i.e. are the consumers/customers seeing the value proposition as you meant it to be, how much are they willing to pay – is there price sensitivity, and if so, how much.
- The assumptions for your business case: As mentioned above, list all the possible assumptions you have made in your business plan and see if there is a way to validate those in your pilot. In a pilot, some of the operational outcomes may NOT be as per your plan. However, it is expected that in the initial phase your operations will be inefficient and that cost and operational efficiencies will improve as your business matures.
- Understanding operational challenges: Entrepreneurs often tend to underestimate the operational complexities and challenges of managing a business. While startups often manage operations with a limited number of people who are stretching themselves beyond practical limits, it is often not sustainable in the long run. A long-term business case cannot be made on the basis of the enthusiasm and give-it-all commitment of the founding team. A business case has to be based on what is practical and sustainable with an average set of people managing your larger teams.
- Testing processes and operational capabilities: Processes help organizations scale up. Processes are nothing but just a set of guidelines on managing activity and handling situations. Processes are usually centrally planned and locally implemented. Processes. They reduce the dependence of individual brilliance, and instill a discipline that results in operational efficiencies and consistency of experience. It also allows individuals to be clear on how a certain activity/situation is to be handled. The quality of processes can make or break an organization. Not only should processes be implemented, but they should also be measured and evaluated periodically to ensure that inefficiencies and redundancies are eliminated. In a startup, it is critical to define some processes, but yet be flexible to adjust processes quickly as soon as you see some processes becoming bottlenecks or inefficient. It is therefore important for startups to test these in the pilot phase.
This is a summary of my talk at the Startup Weekend Next pre-accelerator program on the topic: Why customer discovery is critical to a venture(For the purpose of this article I am using the word customer very broadly – for this article by customers I mean all entities that will either use, or pay for or influence the purchase of your product or service).
Wrong assumptions kill more companies than bad products.
I spent this weekend (15th and 16th of March 2014) at the first conference organized for creative entrepreneurs by The Coalition. Great initiative, awesome experience. Check out www.thecoalition.in.
Here’s a para from their website about what this initiative is about. The Coalition is a new platform to support creative entrepreneurs in India. Whether it’s music, film, design, fashion, arts, creative technology or something completely radical, The Coalition gets young creative thinkers together with the people, skills and money that can turn their passion into successful businesses – and connects them to the resources that can help their business grow.