9.1 Capitalization and Cash Flow
9.2 Identify What It Is You Have To Sell
9.3 Identify Your Likely Market
9.4 Your Logistical Needs
9.5 Legal Restrictions
The vehicle referred to here is the infrastructure you create to carry you in pursuit of your vision. It is the nuts and bolts of running an efficient business. Successful businesses are carefully planned and steered toward predetermined goals and objectives.
A common mistake made by start-up technology companies is to believe that their technology is so great that customers will beat a path to their door regardless of effort. Unfortunately, technology is rarely that business friendly. Technically trained founders of such start-up companies sometimes lack business training or experience and do not recognize pitfalls in operating a start-up business. Everyone has certain talents and those talents may be crucial for the success of the business. Not everyone, however, has management or administrative skills or business savvy. The smart start-up company recognizes its deficiencies and seeks assistance from those who can help.
9.1 CAPITALIZATION AND CASH FLOW^
The fuel upon which your vehicle runs is its capitalization and cash flow. Understanding where your income is to come from and how and when it will flow into the company is a skill that someone in the com-pany must exhibit. If a company does not have that skill, investment capitalization will be difficult to generate and the company may soon run out of fuel. The capitalization required for each business differs and depends on the amount of cash flow the company can generate. Failed businesses frequently were under-capitalized or were cash flow starved. We do not know what capitalization or cash flow you will require or can generate, but if you plan to live within your means and stick to that plan, your likelihood of success beyond start-up will greatly increase.
9.2 IDENTIFY WHAT IT IS YOU HAVE TO SELL^
Whether you sell services, manufacture a product, or sell a product manufactured by someone else, a full understanding of what you sell is important. The identification of what it is that you have to sell fre-quently is more involved than identifying the obvious. For example, a cellular phone company that believes that it sells phones and telephone services has a limited market, while a cellular phone company that believes that it sells "time" and "freedom" and "flexibility" has a market as big as its imagination will allow.
Whatever you have to sell, it must be something that the marketplace wants or needs either now or in the near future. Be realistic in your assessment of those wants and needs.
What makes your product or service unique? Why would someone buy it instead of the product or service of another? The better you under-stand your product or service, the better you will be able to understand why it sells or why it does not sell.
9.3 IDENTIFY YOUR LIKELY MARKET^
In identifying your likely market, you should come to understand the profile of your customers. Who will be your customers? What are the likely demographics for your customers? Are they male or female, large or small businesses, or are they in a particular age group, or do they reside in a particular part of the country or world? Are your likely customers presently buying the same or a similar product or service? If so, why should they buy your product or service?
Are there competitors? If so, are they direct competitors or indirect competitors? Why are they in the market? How well are they doing? What are they doing well or not so well? How are you going to provide a better product or service?
Small businesses often make the mistake of identifying a huge market and assuming that there will be no competition in serving this huge market. This analysis is unrealistic for a number of reasons. For example, a small start-up company is likely incapable of serving a worldwide, or even a national, market from the beginning. Market development takes time. If the market is actually huge, expect compe-tition. Therefore, be realistic and assume that others in your business will at least consider competing with you for the target market.
These inquiries and considerations are not intended to outline a com-prehensive analysis of the market, but they do raise some fundamental issues that should be addressed. If you understand how and why the marketplace reacts to your product or service, you will be better able to be proactive in the marketplace.
9.4 YOUR LOGISTICAL NEEDS^
In evaluating your capitalization and cash flow needs, you must consider your equipment and other logistical needs. These shall be real needs, not just wants. Ask yourself: Do you really need that extra personal computer or that posh downtown location? Where can you get computers, network equipment, desks, tables, chairs, a phone system, a fax machine, etc.? What overhead is associated with maintaining a facility, acquiring needed equipment and supplies? Is it better to lease or to buy your equipment and satisfy your facility needs? How will you track your income and expenditures? What type of billing system will maximize timely payment? How many employees are needed, and what functions will they perform? What means of distribution will be most effective? These types of questions, and many more, are fundamental to a well-considered business plan. Unless you fully consider all facets of your start-up business, your vision will never be more than an unrealized dream.
Do not be afraid to seek assistance from those who have experience and expertise. Carefully select from whom you seek advice and how much you can afford to spend for that advice. When evaluating liability or tax concerns, seek competent legal counsel specializing in those fields. When selecting the type of business entity that best suits your needs, whether it be a corporation, partnership, proprietorship, or some other type of entity, seek an expert who is experienced in recognizing and explaining the advantages and disadvantages of each. When addressing ownership concerns, particularly the ownership of the intellectual property developed, get the ownership issues reduced to writing with the assistance of competent counsel.
9.5 LEGAL RESTRICTIONS^
In analyzing your vehicle, take a close look at any legal restrictions on your right to enter the market. Initially, you should audit your staff to make certain that none of them are under non-competition covenants with former employers. If they are, now is the time to deal with the situation. Review the contract that imposes the covenant not to compete to determine its scope. Seek the opinion of legal counsel so that you do not find that your company is liable to a former employer of one of your employees or, worse yet, find that the former employer has an ownership interest in your company’s technology.
In this regard, remember that several states strictly enforce non- competition agreements. As a result, you cannot rely on the belief that covenants not to compete are unenforceable.
Carefully review regulatory restrictions on your right to do business. Start-up businesses often find that they are unexpectedly required to deal with FDA or EPA regulations. Failure to determine if a regulatory scheme applies or to plan for regulatory compliance can be disastrous for the start-up business.
It is also important to evaluate how you plan to place your product or service into the marketplace. The means for distribution, whether you hire a sales force, use independent representatives, create a retail outlet, use a wholesale outlet, franchise, or sell through mail order, deserves
careful consideration. Who are your likely customers and what are their buying habits? How do you let them know that you exist? How do you maximize sales with a minimum of expense?
The business you build can only go as far as your vehicle will take it. Spend time and effort in formulating a solid vehicle.