Every day, new entrepreneurs start a high-tech business, hoping to become the next Steve Jobs or Bill Gates. The reality is that over 90% of such businesses fail. But some smart business owners do live to realize their dreams. Among successful high-tech business owners, there are some commonalities as to how they started their empires.
Items you will need
- PC with an Internet connection, basic accounting software, Microsoft Office and all needed engineering tools
- Database of contacts
Validate and Solidify Your Great Idea
Call your target customers using your contact list––put them under NDA (non-disclosure agreement) if required––and find out if they think the idea is as good as you think it is. You must be confident that your great idea has a market!
Perform market research. Most research firms charge a great deal for their reports, but if you read their press releases and the press releases of competitive firms, you can often extrapolate to find the Total Available Market (TAM) and Served Available Market (SAM). The difference between the two is that the TAM covers every way a customer can currently meet this need, and the SAM is the portion of this TAM that your product will cover.
Glean each data point from the analyst firms for relevant supporting quotations. Keep them in a computer file to be inserted in your investor pitch and business plan.
Create a go-to-market plan that covers how you are going to market your product or service (Web-based advertising, use of PR, sales channels, etc.). Write a comprehensive plan, and make sure it can be inserted easily into the business plan you will write.
Recruit your team members from the best engineering and business talent you know. Offer them equity in the firm; a VP should have between 1% and 2% of the company, a director between 1/2% and 1%, and a senior manager between 1/4% and 1/2%. Keep your team lean and mean, and shoot for no more than 15-20M outstanding shares at your exit event, which will be an M&A (merger and acquisition) or an IPO (initial public offering).
Create a comprehensive first-year sales forecast based on the customers you spoke with in Step 1, and extrapolate it to five years based on who you think you can penetrate and their potential dollar volume.
Figure out where you are going to be incorporated and where your office space will be located. If you need offshore manufacturing, get quotations and choose your partner. Write a comprehensive operations plan with this information.
Choose trusted business and technical gurus to serve as your advisory board and board of directors. These people can help you solidify strategy, win funding and gain bank approval if you need short-term credit.
Create Your Business Plan, Executive Summary and Company Pitch
Choose your CFO or CFO firm to help truth-test your sales forecast and create a set of balance sheets for your business plan, as well as a capital structure for the issuance of stock. The CFO can be the most important person in the company. Also, get a corporate attorney on the back burner.
Create your business plan outline. It should look something like this:
Summary and Overview Mission Statement and Value Proposition Market Snapshot The Product and Key Defensible Advantages (should include info on any patentable intellectual property and road maps with credible timelines!) Go-to-Market Plan Operations Plan The Team Financials Addendum: comparable companies as case studies; include IPO date and current market valuation
Fill in each section from what was created in Section 1. Add key quotations reserved from market research companies, and use tables and graphs whenever possible. Make sure the overall document is relatively thin.
Create your executive summary from the business plan with a paragraph for each of the major headings in Step 2. This document must be no more than two pages.
Create a comprehensive Microsoft Powerpoint presentation using both of the above documents as guides. Use pictures to convey key concepts whenever necessary, try to make each slide readable and keep text to a minimum.
Go for Funding
Talk to everyone you know in your contacts database, and see who can give you recommendations for venture capitalists. Alternatively, you may want to consider "angel" investors who contribute a smaller amount of capital but take a smaller portion of your equity. Make a list of these companies, and visit each Web site to see who is the best fit.
Approach no more than three investors after receiving an introduction; give them a strong cover letter that clearly highlights your key value proposition and attach your executive summary. If you get no response from these three in a week, try three more investors, all with introductions. If you mail an executive summary to a venture capitalist without an introduction, chances are slim that you will get a response.
Brainstorm a list of potential questions that investors will probably ask, and be prepared to answer them succinctly. Bring your key technical people, as much of the validation they will do determines how strong your technical team is.
Prep your potential customers for the questions potential investors will ask them, and prepare yourself for what investors will ask of you. You may be asked to prepare spreadsheets with very little turnaround time; they are testing you, so be sure to meet the deadline.
If you pass these phases, you will be given a "term sheet" that clearly spells out what the venture capitalist expects from you in terms of equity and milestones. Engage your attorney on retainer, and have him or her review this document for fairness and ability to comply.
Getting Off the Ground
Establish your initial branding by hiring a good firm to create a color palette and logo for your business. Create a corporate identity package with letterhead and business cards.
Create a Web site with compelling content. Divide the content per vertical market you are serving, and have a good navigation system so that potential customers can find the content specific to them easily and quickly. Use the same color scheme to maintain branding and identity, and tie in social networking tools such as Twitter and blogs to increase traffic to the site.
Refine engineering tasks, timelines and deliverables. Stay on schedule even if you have to outsource.
Set up sales channels and create collateral to win business. This step may not take place right away, depending on the time it takes to develop the initial product. Sign up a few beta customers who can help work out the kinks and bugs, if possible.
Set up solid financial milestones to measure your success.
Make sure that you plan for any possible design flaw, and have a contingency plan. Many a company has failed over lack of careful contingency planning!
Be conservative in your sales forecast, but not too conservative. Most investors want to see a company become a $100M business in three years. If you are not working toward venture capitalist funding, this forecast is much more lenient.
Don't overspend on advertising and PR until you are on solid ground. Use WebVan as a case study!