Why you should read this book?

Things to Remember:

Why you should read this book?

Entrepreneur’s Handbook is your essential resource for getting your company off the ground. The one primer you need to develop your entrepreneurial skills. An entrepreneur is someone who not only perceives an opportunity but also “creates an organization to pursue it.” The same formula has been repeated throughout history: recognizing opportunity and addressing it through an organization. This book takes a linear approach to entrepreneurship, from initial questions that you should ask yourself before you begin (“Am I the type of person who should start a business?”) to the last issue that you’ll need to consider as a successful business owner (“How can I cash out of the business I’ve built?”).

Things to Remember:

“You need to feel comfortable reaching out to people you don’t know—sellers, . . . investors, your employees—and when you do reach out, you need to project an air of confident optimism.”

Passion, long considered an important part of entrepreneurial work, keeps entrepreneurs going when the going gets tough.

It’s the spark that inspires an investor to sign on; it’s the vision for the change you’re going to usher into the world through your new product or service.

One of the most common mistakes in selling a new offering was entrepreneurs’ failure to listen to their customers’ complaints about the product: “Some realized that their passion and ego made them respond negatively to criticism and discount ideas for changes that they later saw would have increased the marketability of their offerings.”

Successful entrepreneurs know when to stick to their guns—and when to take the advice of others and shift course.

Successful entrepreneurs are intrinsically motivated by the problems they see around them and the solutions that they envision; they can’t sit still while there’s work to be done (and there’s always more work to be done).

Walter Kuemmerle, an associate professor at Harvard Business School, identified comfort with stretching the rules as a common characteristic of successful entrepreneurs.

successful entrepreneurs are willing to shift strategies quickly. As they want their goal to be achieved. They Want to reach their destination no matter what transport they are using.

Entrepreneurship runs in families to a surprising degree. Children of business owners are more likely than others to start or purchase their own enterprises. Similarly, anecdotal data indicates that children of business owners are more likely than others to enroll in the entrepreneurship courses offered by undergraduate and MBA programs

A successful enterprise is a combination of personal qualities and quality planning. Ideas are an important element of success for entrepreneurs, but they’re not sufficient—you also must consider your personal background, inclinations, motivation, and skills.

You need to be sure that the problem exists and be able to describe it in some detail before you begin to invest heavily in building your solution. What is the right business model? Will it scale? What will competitors do? What will be the unexpected glitches in the supply chain? And there is the biggest question: Is there really a market for the product or service as conceived, and if so, how big is it? What is the problem you are trying to solve for your customers or users? How many people have this problem? In other words, what is the size of the market?

Are your potential customers or users aware of this problem, or is the need latent, that is, undiscovered? Is the market stable or growing? If it’s growing, at what annual rate? How will your solution benefit customers or users? What percentage of the total market could the product or service reasonably hope to capture over the next few years?• Is another product or service from competitors available to fill part of this demand?• Who exactly are the potential customers? Can you name them? Can you describe them?

How can you reach potential customers and make a transaction—directly, on your own website or bricks-and-mortar location; through distributors like the Apple or Google app stores; or through already-existing retail channels?• How does the utility of the product or service compare with substitutes? For example, a tablet device is easier for a customer to carry around than a laptop. But it may not have all the functionality of the full computer.

In a design-thinking approach to creating a new product or offering, innovators actively experiment with their idea to better understand the market and its needs before proposing a solution. One common formulation of this approach is the lean startup methodology, which focuses on finding a repeatable and scalable business model for a new offering (see the box “The lean startup”). The lean startup and other similar models of entrepreneurship are iterative and nonlinear—not a step-by-step path—but they really reflect how companies change as they grow and learn.

The lean startup incorporates three elements:

·      A business-model canvas: A business model canvas is a one-page document that captures your hypotheses about your businesses—your guesses about what you do not and cannot know about your business plan in advance. Seeing these unknowns all on one page allows you to imagine how the different parts of your business might fit together.

·      Customer development: To test your hypotheses, you need to interact with your customers. Gone are the days when you’d keep a product in development a secret from the world, afraid that your competitors would steal it before a big splashy launch. Instead, as Blank explains, most industries recognize that “customer feedback matters more than secrecy and . . . constant feedback yields better results than cadenced unveilings.”

·      Agile development: To generate useful feedback from your customers, create prototypes to share with them—and do so quickly.

As you try different elements of your business model in the market, you’ll learn more about the problem you’re trying to solve—and your solution’s viability in the marketplace. What you learn about customers will help you continually evaluate your idea.

To qualify as a good opportunity, a business must offer the potential for a significant profit. A successful entrepreneur must understand the economics of a business opportunity. The next set of questions will help you think through and evaluate the economics of your opportunity.

Will the business be a price setter or a price taker? What are the constraints on pricing what the business sells? What is the supply-and-demand situation for your product or service? Is demand elastic or inelastic—that is, would a price increase dramatically reduce buyer demand (elastic), or would demand be only slightly affected (inelastic) in the short run? What substitutes do prospective customers have for your product or service? Will the business be dominated by fixed or variable costs?

To what extent can suppliers and employees enforce cost increases on the proposed business? Some opportunities are durable—that is, they are opportunities that businesspeople can exploit over long periods. They are long-lasting and destined to grow over time.

Some opportunities lack durability even though demand remains high for a long time. Low barriers to entry create these situations. Visible opportunity with low entry barriers to new competition is a deadly combination. The supply of the product or service can quickly exceed demand, resulting in price reductions and business distress all around.

Now try to answer the next set of questions, which address your competitive landscape. If you’re entering an existing market, you’ll be up against competitors. Some may be entrenched and capable. If your market is new and attractive, you can be sure that it will attract other profit-seekers like you.

How are customers currently satisfying the need you’ve identified (e.g., going to their auto dealer rather than seeking alternative places to get their car serviced)? What are the strengths and weaknesses of the main competitors (e.g., high quality, poor customer service, high price)? How would a smart competitor respond to your entering the market (e.g., by reducing price, bundling with other desirable offerings, or improving customer experience)? Are the barriers to market entry high or low? Low barriers usually mean that competitors will continue to enter the market until returns are driven to a low level. If entry barriers are high, how will you surmount them?

Have current competitors shown themselves to be agile and responsive to customer needs and technical change? What is the single worst thing that a competitor could do to your business prospects (e.g., drop the price by 20 percent)?

After you’ve identified an opportunity and evaluated it in terms of the market, competition, and economic value, ask yourself two other questions: Is it still attractive in terms of the risk-to-return relationships? Is it more or less attractive than other opportunities available to you?

If your initial findings and experiments suggest a business opportunity, you’ll want to start to solidify your business model and strategy. Ask yourself the following questions: 1. How will our new business create value for customers? 2. How will it make a profit for us and our investors? 3. How will the business differentiate itself from competitors?

How will the business defend its assets and position from competitors? 5. How will the business be discovered?

The business model identifies your customers and describes how your business will profitably address their needs. Strategy, on the other hand, is about determining how you will do better than your competitors. Both a business plan and a strategy are required for your business to succeed.

Understanding the power of the business model In the most basic sense, a business model describes how an enterprise proposes to make money.

The business model is some variation of the value chain that supports every business. “Broadly speaking,” she writes, “this chain has two parts. Part one includes all the activities associated with making something: designing it, purchasing raw materials, manufacturing, and so on. Part two includes all the activities associated with selling something: finding and reaching customers, transacting a sale, distributing the product, or delivering the service.”

A useful starting point for understanding different possibilities for business models is the list of existing models assembled by Mark W. Johnson in his book on business model innovation. How might each of these be applied to the problem you are trying to solve?

How would you describe your company or business concept in terms of these model elements? Have you nailed down your revenue sources and the factors that will drive costs for your business? Do you know which costs will be fixed and which will vary with sales volume? Have you calculated the capital you’ll need to launch and operate the business? What factors are essential for success? Try to answer each of these questions unambiguously, and do so before you approach any investors.

A key element of your business plan is how your customers will find out about you. Marketing often considered a downstream step of the original business concept, really needs to be at the center of your model from the beginning.

For example, consider a new business idea that is a mobile application. There are only two ways for your customers to get your app at any kind of scale: the Apple and Android app stores. But the Apple iTunes app store has more than 2.2 million products, and Google Play has more than 2.8 million. How do you get your app discovered in that busy space? You can engage in optimization—understanding as much as you can about how the stores’ search algorithms work. With this knowledge, you can help make sure your app is ranked high in search results (after all, one in four apps gets discovered through search). You can buy ads on Facebook or Instagram. But anyone (like your competitors) can do those things as well—they’re table stakes. To be competitive, you also need to be creative about getting broader marketing, endorsements, and interactions with your customers beyond those ecosystems wherever possible.

The business model will help you—and anyone you approach for funding— to understand what your business will do and how all its key parts fit together. But a well-conceived and promising business model is only half the equation for success because it doesn’t take into account the market competition. Dealing with competition is the job of strategy. Strategy is a plan to differentiate the enterprise and give it a competitive advantage.

Bruce Henderson, the founder of Boston Consulting Group, has written that competitive advantage is found in differences: “The differences between you and your competitors are the basis of your advantage.” Henderson believes that no two competitors could coexist if they sought to do business in the same way. They must differentiate themselves to survive. He writes: “Each must be different enough to have a unique advantage.” “Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value.” Strategies can be based on low-cost leadership, technical differentiation, or focus. They can also be understood in terms of strategic position.

You just need to bring a high-value differentiating factor in one or more of the 4Ps.

What is your strategy for gaining a competitive advantage? Will it differentiate your company in ways that attract customers from rivals? Will it draw new customers into the market? Will it give you a tangible advantage?

Simply being different, of course, will not keep you in business; something that is different must be perceived as valuable. And customers define value in different ways: lower cost, greater convenience, greater reliability, faster delivery, or more aesthetic appeal. The list of customer-pleasing values is extremely long. What value does your strategy aim to provide? Can it deliver?

Steps for formulating a strategy

STEP 1: LOOK OUTSIDE TO IDENTIFY THREATS AND OPPORTUNITIES: What is the economic environment in which we must operate? How is it changing? What opportunities are there for profitable action? What are the risks associated with these opportunities?

STEP 2: LOOK INSIDE AT RESOURCES, CAPABILITIES, AND PRACTICES.

STEP 3: CONSIDER STRATEGIES FOR ADDRESSING THREATS AND OPPORTUNITIES.

STEP 4: BUILD A GOOD FIT AMONG STRATEGY-SUPPORTING ACTIVITIES. 

STEP 5: CREATE ALIGNMENT.

STEP 6: BE PREPARED TO IMPLEMENT.

The goal of strategy in this world is to build a moat around the business that protects it from competition and channels competition toward other firms.

A business plan is a document that explains a business opportunity, identifies the market to be served, and provides details about how the entrepreneurial organization plans to pursue it. entrepreneurs are opting for shorter, less formal, more narrative, and highly visual ways of seeking funding. They use newer formats such as pitch decks and demos. These documents often overtly reflect the spirit of experimentation and acknowledge that the future of a startup cannot be predicted accurately. You will need to determine the right approach for the type of business you are building.

Whatever the length and style of the document that you create—we’ll call it a business plan in this chapter—you’ll want to think through several core elements, including descriptions of the opportunity, the solution, the market, the model, and the team involved.

You should follow the first rule of every form of writing: know your audience. The goal is always to give readers the information they need to make a decision.

A business model is about how you plan to make money; strategy is about differentiation and competitive advantage.

Is your competitive advantage based on a proprietary technology or process? Is the technology or process patented or patentable? Does the company own patents, copyrights, or valuable trademarks? If it does, when will they expire?

Where are the founders and other key team members from? Where did they go to school? Where have they worked—and for whom? What are their current roles? What have they accomplished—professionally and personally— in the past? What is their reputation within the business community? What aspects of their experience are directly relevant to the opportunity they are pursuing? What skills, abilities, and knowledge do they have? How realistic are they about the venture’s chances for success and the tribulations it will face? Who else needs to be on the team? Are they prepared to recruit high-quality people? How will they respond to adversity? Do they have the mettle to make the inevitable hard choices? How committed are they to this venture? What are their motivations?

If the team section of your business plan gets the most attention from readers, the marketing plan runs a close second. Investors know that marketing is the activity most associated with success or failure. All ventures need an attractive product or service, but a company will fail if its potential customers never hear of it. A sound and realistic marketing plan is the best assurance that your company will have a solid connection with its customers. Who your customers or your primary market are—the type of customer you have to reach to capture your full market potential• Market size, namely, the number of potential customers and your projected potential sales revenues• The requirements of various customer segments—for example, the importance of purchase convenience, rapid delivery, product customization, and so on• Ways to effectively access each segment through, for example, distributors, e-commerce, and a captive sales force.

Appropriate sales and promotion approaches—social media campaigns, a creative content marketing strategy, a freemium model, direct email• An analysis of how your customer makes purchase decisions• Customer price sensitivity• Acquisition cost per customer, and the cost of retaining customers• The strengths and weaknesses of competitors and how they are likely to react when the company enters the market To make your plan credible, you should support these issues with solid market intelligence. Summarize the supporting intelligence here, and refer readers to whatever market research you’ve provided in the business plan’s appendix.

In the business world, shorter is always better if it communicates the required information.

Money greases the wheels of the enterprise. Without it, even the best-conceived business plan would remain nothing more than a document.

If you’ve broken out of the startup phase and are experiencing revenue growth, ask yourself three questions: Is our strategy sustainable? Do we have unique advantages that would let us expand into other markets? Is scaling up the business a practical possibility?

Growth strategy By definition, strategy is what differentiates a business in a way that confers a competitive advantage. Robust revenue growth is evidence that your strategy is working. The question is, How much longer will it continue working? Perhaps your strategy is based on a new and superior product or technology or on your ability to deliver an ordinary product at a lower price or in a manner that is extremely convenient for customers. But what happens if your competitors improve their offerings, the technology matures, new technology arises, or the context changes in some other way?

Eventually, some change will undermine the competitive advantage: new regulation, de-regulation, the introduction of new and superior technology, or a new process for making a product faster, cheaper, or better. In other cases, an entrepreneurial firm (such as yours) creates a new market; if that new market is profitable and expanding, other entrepreneurs will recognize its potential and enter with products or services of their own. To sustain growth, keep looking several steps ahead. Recognize patterns in your industry to anticipate solutions offered by your competitors. Find ways to bar the door to new competitors.

Don’t price for maximum profits. Competitors are drawn to markets with high-profit margins. If you are first in your market, you can make the market unappealing to rivals if you and your investors are willing to price low and accept a modest profit margin. Faced with modest profits, would-be competitors are likely to stay away.

Continually refresh your offer to customers. Think of all the ways you can make your product more appealing: by adding new features or color choices, lowering the price, making it more convenient to purchase, eliminating quality problems, or providing amazing customer service. And think more broadly: how can you reinvent your product to solve an as-yet unmet customer need?

Be constantly vigilant about competition. As you grow, who is going to notice you and try to stop you? How can you change course or refine your strategy to avoid or beat a competitor’s challenge? Such initiatives can create barriers to competition or make you the vendor of choice in a crowded field. Together, they will help you sustain growth.

Other untapped markets may be found within your current geographic range. Here are a few ideas for doing so:

Find new uses for the same product. Find ways to alter or customize your product to the needs of other niches.

What plan does your enterprise have for recharging the growth engine? A steady stream of new products can help, but new-product development is risky and expensive.

Scaling up your organization's Sales growth challenges the entrepreneurial firm’s capacity to keep pace. A service venture that bases its production on employee output must keep hiring qualified people if it hopes to grow. Consider a management consulting firm. Its production is handled by professional employees. Thus, to fuel its growth engine, the firm must hire individuals who can sell and deliver consulting services. Only people with unique skills and experience. Product-based businesses must also scale up to meet the demands of growth. For these companies, scaling up ordinarily involves substantial commitments of capital made well in advance of actual sales.

Product-based businesses must also scale up to meet the demands of growth. For these companies, scaling up ordinarily involves substantial commitments of capital made well in advance of actual sales.

Avoid outsourcing any activities that connect you directly with customers—such as sales, customer service, market research, and product or service development. These interfaces provide communication links between you and your constituency, enhancing your ability to learn about them and their ability to learn about you. If you outsource these links, your customers will become your outsourcing partner’s customers.

You and your core team contribute important assets to the company: a common vision, technical skills, management skills, and personal energy and time. Growth puts a strain on each of these contributions: The right leadership approach for your size To remain relevant and effective, you and the rest of the leadership team must find new ways to operate. Harvard Business School professor Michael J. Roberts has described the four possible approaches to leading a startup faced with rapid growth: Managing content• Managing behaviors Managing results• Managing context Roberts.

These questions will help you determine whether your company is losing its creative edge: Is our current success making us self-satisfied and complacent? Are we inwardly focused? Do we punish risk-takers who fail? Are creative people and new ideas unwelcome or unappreciated in this company? Do we fail to reward acts of creativity? Do we handle new ideas too bureaucratically? Are hierarchy and its symbols creeping into our culture?

 HAPPY READING!