It is useful to break the entrepreneurial process into five phases: idea generation, opportunity evaluation, planning, company formation/launch and growth. These phases are summarized in this table, and the Opportunity Evaluation and Planning steps are expanded in greater detail below.
Although it is
natural to think of the early steps as occurring sequentially, they
are actually proceeding in parallel. Even as you begin your evaluation,
you are forming at least a hypothesis of a business strategy. As you
test the hypothesis, you are beginning to execute the first steps of
your marketing plan (and possibly also your sales plan). We separate
these ideas for convenience in description but it is worth keeping in
mind that these are ongoing aspects of your management of the business. In the growth phases, you continue to refine you basic idea, re-evaluate the opportunity and revise your plan. This website is focussed on the early phases of new ventures. It does not delve into the process of generating the original idea. Nor does it cover the phases of growing a company much beyond it's initial launch. However, the topics of evaluation and business planning remain relevant well into the early life of the company. The focus here is the evaluation and planning phases. We first develop a framework for understanding and analyzing this process. This table summarizes this framework:
To take this analysis one level deeper, we can break down each of these phases as follows. Opportunity EvaluationIt is helpful to think of the evaluation step as continually asking the question of whether the opportunity is worth investing in. You are actually constructing and then continually revising an "investment prospectus." There are five basic questions that you should ask as you evaluate an opportunity.
If you can answer all of these questions affirmatively, then you have persuaded yourself that this opportunity is worth investing in. This is the first step toward being able to convince others, whether they be prospective customers, employees, partners or providers of capital. These ideas are developed in the Opportunity Evaluation section PlanningStrategy There
are four main areas of strategy: determination of the target customer
set, business model, position and objectives. These are described
briefly below and in more depth in the sections devoted to these topics.Target customers
The target customer is the set of potential buyers who are your focus as you design your company's solution. The more you know about them, the better off you are. Your characterization should be both qualitative and quantitative. You should investigate any alternatives the customer has for solving or working around the problem or need that you are targeting. You should understand the buying process in detail, including who are the decision makers and who influences the decision. Business Model
The business model is your theory about how you will make money. It involves a definition of a solution to the customer's need, an hypothesis about how and how much the customer will pay for that solution. If there are any assumptions required for your theory to be true (such as the existence of complementary product or services, or the customer's willingness to change business processes) these should also be articulated. Position "Position" refers both to how your company is differentiated from any competitors and also how it relates to other companies in the value chain. This is an opportunity to define, at a fundamental level, what your company will do and what it will not do. An element of position is your company's vision: how it wants to be known or thought of. A compelling vision is necessary to inspire investors, recruit and motivate employees, and to excite customers and partners. Milestones / Objectives As a first step toward creating your operating plan, you should create a set of high level objectives for your business. This should include:
These ideas are developed in the Strategy Development section Operating plan Your
operating plan is where you spell out all of the things that you plan
to do and what they will yield for your business. The activities will
cover all areas of the business: marketing, selling, engineering, etc.
These activities should yield products by a certain date, possibly partners, customers, etc. These activities will drive the financial performance of the company.Your operating plan will be a combination of plans, i.e., these people working on this topic for this period of time will produce result X, and forecasts or projections, i.e. predictions about what results will occur. The primary and most important forecast concerns revenue, but predictions about costs of materials and other things may be important as well. The operating plan is the core of your business, and you should make it as good as you can - your plans should be as thorough as possible and your forecasts should be based on the best and most complete evidence you can compile. Begin with your strategy and break down what needs to be accomplished to achieve your objectives - this is the basis of your plan. The more detailed and fine grained analysis you can develop, the more accurate and reliable your plan will be. Company timeline This is a representation of all the major accomplishments or deliverables that are necessary for you to achieve your strategy. Staffing plan This is the document where you capture all of the hiring your firm will do (skills, experience and timing). The
budget is where all the pieces of the operating plan come together and
are expressed in financial terms. This is a critical document for
managing your business. Financing plan This includes the capital needs of the company, the timing of those needs and the desired/expected sources of that capital. Planning process |
Entrepreneurial process - a framework |