Developing the Business Idea PREVIOUSLY COVERED In Chapter 1, we presented an overview of enrepreaculflaance and, we hope, ka ‘led yous interest ia learning more about the financl management tools and metnods {tut cas belp eauepreacurs succeed. We aligned the types of Enaaciag, souces, nd investors with 3 successful venfure’s stages of revense growth, We explained how the ‘progression trough thin bok follows dhe venture fe eee LOOKING AHEAD a2 focuses on staring anew venture and sirviving the fs yea or two of ope tions. Chapter 3 covers the pres and cons of alternative business orpinzations Inca Ing ax and liability considerations the entrepreneur should consider when making cholces regarding « new ventures formal organization, We discuss important ine tual propery eights issues that can factor heavy in Whether the venture survives and prospers. We consider potential sed and strap Rancng sourees. CHAPTER LEARNING OBJECTIVES In this chapter, we examine how one can move from an ides to an ansesament of the ‘inte busine opportunity feasiey We introduce both qusittive and quate tools to aia this anseament We conchide the chapter with an overview ofthe mone formal document that incorporates, extends and reinforces the inital feast asess- ‘meats anass the business plan. After completing this chapecr, you Wil be abet: 10.2.1 Describe the proces of moving ftom an idea toa business modeV/ plan, 110 22 Understand the components of a sound business mode! 10.23 Adeatty some of the best peacties for high-growth, high-performance fms. 10.24 Understand the importance of timing in veature success. 10 25 Describe the use ofa Serength Weakness Opportunity Threats (SWOT) analy: fleas a dntal “lamas text” Lo 26 Describe types of questions a feastilcy assessment should address and ten ty quanttive cera used in the screening process 10.27 Desesbe the primary components of atypical business plan. aa Chapter 2. Oonieping te Buse ea a Diluting the Angels’ Shar fy now yovve elie hat many new Typically. te lngerhe lites to“ the mrbtplae dei Some sete fe fndedbyargelwha inthe Rage the angels shate, andthe ‘turn asa ownetip. pore higher he prc rat eae ih financing. 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Transforming the concept in one's mind {nto product or service tht sae, or creates an then stn, conmumer nec i the Fit scp inthe enteprencuial process. Onl a small number of ew busines ens become viable busines opportunities with funded busines plans. We ‘know that venture capitalists invest in only 1 Yo 3 percent of business plans presented to them, To survive the massive winnowing, particularly when seeking professional ‘venture capt soccessfl entrepreneurs overcome substantially Yong odes Mow do we know wheter an idea has the potential to become a vable business ‘oppoctnity? The answer shat we don't know with absolute cera. There are many examples of good ideas that have Hopped as business veatures. Likewise here are ‘mary examples of Ideas that were cummed down by venture investors (2nd professors) before ultimately making the persistent entrepreneur 2 wealthy inviual. While theseChapter 2. Dewioning te Buns es ‘so tfalile screening process there are oo and techniques that can help you and ‘rospective investors examine siarities berween your potential venture ind other ‘octet vente json 29 PROCESS FOR IDENTIFYING BUSINESS OPPORTUNITIES In Chapter 1, we defied an entrepreneur as aa individual who thinks, seasons, and acto conver ideas into commercial opportunites and to create value. An enteepee- ‘peur may start a numberof diferent types of busincases including > salary replacement fms; > ‘fesye firms, > enteprencurial ims or ventures Salary-replacement firms provide thls owners with income levels comparable to what they would have exmed working for mich lsge firms. Examples include singlestore settlers, eetaurunt owners, and finaaclal and tax services providers. [Lifestyle rma slow their omners to pusnie specific ifetyes while being paid foe doing what they like to do. Examples include owning and operating ak ierrction for whitewater rafting business Entrepreneurial ventures strive for high growth ruts for revenue, roi, and ‘ash flow Typlealy, eneprencural ventures will not Be able to grow a the targeted "ate withovr attracting extemal investment shee and beyond that provided By the entrepreneur and retained profs. Salarereplacement and lifestyle firms experience some ofthe trauma and ewards ofthe entrepreneurial lfesyle, but remain centered fon stall scale format with United growih and employment opportunities. In the United Stats, smal business are predominanly slay-eplacement oe Heap firms; ‘many provide their owners with perceived busiaess enjoyment and 2 reasonable ‘mount of wealth For such fans, pid growth and interatonal market domination fre of secondary, if any interest to the ones: While we dot want to dimini the Contribution of this wey Lange and economically crcl clan of entreprenetral ems, ‘wr do want to make it clear that our focus i the subeet of entrepreneurial firme, ‘eking growth and macket domination. Suck firme experience traumatic gronth ine fad ate the primary targets for profesional ventore investing, To ermpasize the par- ticular challenges faced By soch fms, we wll refer t our growth Subset 35. ‘entrepreneurial ventures. In chapter 1, we defined entrepreneurial opportunites as Ideas that have the potential to create value through new, repackaged, of repositioned products, mar kets, processes, or services. A wellesigned entrepreneurial venture begins with a iden that survives an analysis of is feasibility and results in a busines modeY/ plan. Figure 2. depicts a graphical representation of moving from the idea or entrepreneurial opportunity tage through the feasblity analysis stage and into the business planning stage. Many introdoctory entrepreneurship textbooks spend con siderable time on identifying ideas, conducting feasibility analyses, and preparing salar repacomert ht rw a ‘ners income leveiscomparatio wht could ave ‘Sra wenger ‘much germs ‘Seteltbtyas able ining pai or dng wat they ket do“a Chapter 2 Down tte Busine Ie ee Mess, Feasibility Saal sor One ‘eve Oe ey Pret Sven paces levee ‘bosinese plans Rather than repesting that material here, our objective isto provide Insights imo the proces while maining an entrepreneurial finance perspective. ‘Once conceptualized, new kdea should be examined for its business feast, ‘The second element in Figure 21 i an inal feasibility review. This review focuses ‘on whether is possible to conver the ides ito proctor sevice mectng 2 hers tive unflled need och insight can he gained fom this inal feasibly “ts tes Entrepreneurs pursing 2 slary-replacemeat or lifestyle business requiring lie cut side financing may move rapidly from such a basic qualitative screen preparing & Dusiness plan. However, or oneprencural vaturs requling external Haancing, 2 ‘more sgorous feasibility analysis with qualiatve and quuastative components oes Iixportant addtional insights. “atria this chapter, we will cturn wa simple inal approach and more detaled in-depth approaches to feasibility analysis Hit, however we want to discus the ‘sie ingredients ofa sound business model. Koowing the best practices of succesful Startup businesses can help an entrepreneur make beter jdgments and distinctions ‘when conducting a feasbity analysis or writing 2 business pan, Pee eee a pgm TO BE SUCCESSFUL, YOU MUST HAVE A SOUND BUSINESS MODEL ‘A good ide is not enough. If an enuepeencut hopes to tuts an idea into a business ‘ued binese adel, opportunity,» vsble business model should be im place. A sound business model ‘framener or proves 4 famework forthe venture 0 erring mus - reciente cash RE pris, ioe produce tree cash flows.