1. Editor's Message: On this Issue 6
2. Zero to One Million Update
3. Evaluating Entrepreneurial Opportunities
4. Why So Many Businesses Fail

Dear [fname];

Welcome to Issue Six of the Entrepreneurs' Chronicle. I hope you like our new look. This is the first issue since August. I have spent the mean time finishing my book, Zero to One Million. I am excited to announce that the book has been finished and will be available beginning November 18. Additional information will be provided on the book in the next session. With the book finished, this newsletter will resume its normal publication schedule of once per month.

In this issue, we will feature two excerpts from the book. The first covers the MAR opportunity evaluation model. This article presents a screen through which one can pass your business ideas and see if they truly are opportunities with a demonstrated need, ready market, and ability to provide a solid return on investment. The second article, 'Why So Many Businesses Fail,' presents the common reasons for business bankruptcy and tips for avoiding such a fate.

If you have any comments, suggestions, or would like to contribute content to be published in the newsletter or online, I encourage you to contact me at ryan@zeromillion.com. Please do feel free to forward this newsletter on to your colleagues and associates. On behalf of the Zeromillion.com team I thank you for being a subscriber.

Yours entrepreneurially,

Ryan P. M. Allis, founder
http://www.zeromillion.com
Business & Entrepreneurship Resource

In analyzing your ideas to decide on the one which you will select for your business plan, you must be able to pass these ideas through a test to determine if they truly are valid opportunities. I have created the Market, Advantages, Return (MAR) Model to provide a screen through which you can pass your business ideas and see if they truly are opportunities with a demonstrated need, ready market, and ability to provide a solid return on investment.

Is the idea feasible in the marketplace? Is there demand? Can it be done? Are you able to pull together the persons and resources to pull it off before the window of opportunity closes? All of these questions must be considered and answered. Let’s do this in a methodical process.

To determine whether your idea has a good chance of being validated in the market place, we must analyze it based on a number of different criteria. We must look at the need, market structure, pricing, market size, timing, cost structure, barrier to entry, intellectual property, the team, distribution channel, profitability, time to breakeven, needed investment, exit strategies, and return on investment.
Let’s take these complex sounding terms and turn them into an easy model that you can use to evaluate your business ideas you’ve come up with or your current business venture.

The Market – M

• The Need. This is one of the most important questions to ask. Is there a big need for this product or service? Try to avoid ideas that sound cool but there is no real need for. Make sure your product or service fills a need or solves a problem. Also make sure there is demand for the product or service in the location(s) where you will be selling or providing it.
• Market Structure. Is the market a highly competitive market or more like an oligopolistic or monopolistic market. Determining the number and quality of competitors and type of market is important when developing your strategy to enter that market and determining the needed investment.
• Pricing. What will you charge? Will there be a high enough markup? Is there enough demand in the marketplace to justify that price? What are your competitors charging? Settling on a price that is not too low to be unprofitable but not too high to drive away the majority of your buyers is a hard task for the business person.
• Market Size. Is the market big enough to warrant entry? Is it growing or shrinking? Look for a growing market that will become of significant size.
• Timing. Is the market ready for your product? You may have a great idea for flying cars, but if consumers are not ready for your product or the prerequisite infrastructure is not in place you may not be able to turn your idea into a successful business.

The Advantages – A

• Cost structure. Who will your suppliers be? What will each element of your product(s) cost to source or manufacturer? If you can find a way to have lower costs than your competitors you’ll improve your profit margins and have a big advantage.
• Barriers to entry. Are there large competitors in the market niche? Are there regulations, patents, or large capital requirements that will get in your way? If there are many barriers to entry, it will be difficult to enter a market. The higher the barriers to entry, the more disadvantaged you will be.
• Intellectual Property. Do you have a proprietary advantage such as a patents or exclusive licenses on what you will be selling? If so, you’ll have an easier time raising funding, and if your technology is good, the chance to build a very successful company.
• The Team. Who can and will you bring on to help you build your company? Will they be offered equity? How many persons will you need to get the company off the ground and what will be their roles? If you can convince an industry veteran to join your board or an experienced Vice President, COO, CTO, of CFO to join your team, you’ll have a big advantage. Remember, if the management team does not have the ability to execute the idea, it is not a true opportunity.
• Distribution Channels. How will you be selling your product? Will you sell it direct to the consumer via the Internet, sell it to wholesalers, sell it to businesses, or sell it to retail stores. If you can develop a unique and efficient distribution channel this can surely be an advantage.

The Return - R

• Profitability. Will your company make a positive net income? Will your revenues be higher than your expenses? If not, either take a second look at your projections, or try another idea.
• Time to Breakeven. Based on your projections, how long will it be before the company is cash flow positive? How long until the company begins to have an aggregate net income (reaches cumulative break even)? These are important statistics to know and two very important graphs to have in your business plan.
• Investment Needed. How much money will it take to start-up this venture. Will it be $20,000, $200,000, or $2,000,000? How much money you need will give you an idea of where you’ll need to go to raise funding. For under $50,000, friends and family and the bank are your best options. For $50,000 to $500,000, accredited private investors, partner companies, and angel investors are likely your best bet. Above $500,000 you’ll have to look to venture capital firms or other companies that are willing to provide start-up capital for you.
• Exit Strategy. Do you plan to sell the company or go public down the line. How will your investors get their money back? If you do not plan to ever sell your company or go public, you will not be able to raise equity capital.
• Return on Investment. What is the projected return on investment for your investors based on your current projections? If it is not high enough, you won’t be able to raise certain types of capital. Venture capitalists look for at least a 10x return over 5 years or less. This is not to say you should make your projections higher. Rather, you may wish to explore alternative ideas or look at alternative financing such as angel investors and debt capital if you’ll need $10 million to develop your product and launch your company but only will sell the company for $50 million in five years.

Let’s sum this model up with the following chart.

Once entrepreneurs have gone through this opportunity evaluation model, they are able to proceed with the venture, with the opportunity, in an educated manner, feeling confident that their idea will have validation in the market place.

So how does your idea stack up? Based on the above screens, do you consider it to be a true opportunity? Is there a demonstrated need, a ready market, and the ability to provide a solid return on investment? If you believe so, you deserve congratulations. If not, I encourage you to follow the tips earlier for generating and finding additional ideas and opportunities. Then use the model above—both whenever you are evaluating your own business ideas or evaluating potential investment opportunities.

According to a longitudinal study conducted by the United States Small Business Administration, approximately 60% of small businesses shut down within the first six years. Small businesses fail for numerous reasons. The most common reasons are because they:

1. Grow too fast;
2. Have a poor concept.
3. Are not good at marketing or sales;
4. Fail to plan;
5. Start the company without enough money to get to breakeven;
6. Have an inability to differentiate;
7. Lack control of their finances and books; or
8. Don’t build systems and processes.

Many entrepreneurs who end up unsuccessful do not build processes and systems and lack the ability or desire to sell. They do not carefully plan their business and often fail to raise the needed capital to sustain it until it is profitable. They do not focus on efficiency of operations or automation. They never make the investment in additional capital or employees needed to expand the company to the point where it can make a profit. As an entrepreneur, even if you have a great idea, you will have to plan well, build a good team, make sure you have adequate capitalization, build the proper systems, and execute your plan.

According to entrepreneur and adjunct business professor at UNC’s Kenan-Flagler Business School Colin Wahl, there are certain critical success factors in building a successful small business. These include:

• Vision of the management;
• Passion;
• A good idea;
• Clean, focused business objectives;
• A well thought through business plan;
• Good organizational design;
• Persistence;
• Determination;
• Strong work ethic;
• Enthusiasm in the owners;
• A good team;
• Motivated employees;
• Good cash flow management;
• Adequate financial resources;
• A clear understanding of market need; and
• Execution of the management.

As you can see in the list of business ideas a few pages back, ideas are a dime a dozen. Unless you have a Ph.D and are doing cutting edge research at a top university, in most cases if you have thought of a business idea, someone else has thought of it too. The key to the success, then, is rarely the idea and nearly always good execution. To illustrate this principle, let’s take an example.

In 1967, an angel investor, Fred Adler, received over 50 business plans from entrepreneurs who proposed to start microcomputer firms. Only one of the teams presenting this idea ever made it. Its name was Data General. But why did so many entrepreneurs pitching a plan to sell microcomputers either never receive funding or if they were funded, never succeed?

They didn’t make it not because the idea was per se bad or didn’t have the potential to be a good opportunity. It was a great idea and enormous opportunity. Rather, it was because the other entrepreneurial teams were unable to execute.

Think of the dotcom era of four years ago. Many had good ideas, but lacked in execution. I have heard many a venture capitalist say that he or she would rather have an A management team and a B business concept that an A business concept and a B management team. It is not the idea, it is the people, and their ability to execute, that matters. It is not the idea. It is the people, and their ability to execute, that matters. While a business that ends up being successful could be started with a so-so idea, a successful business will never be built without a good team.

By ensuring you pass your ideas through the MAR Model I have created, you’ll be able to get a good idea of whether they are true opportunities. But as we can see, execution is just as important, if not more important than the idea. Let’s now learn how to both plan for your business, and then execute based on that plan.

This concludes issue six of The Entrepreneurs’ Chronicle. We'll see you December 1. If you are not subscribed and would like to subscribe, please visit http://www.zeromillion.com. If you would like to contribute content, become involved with the zeromillion.com team, make suggestions, or provide feedback please feel free to contact us at info@zeromillion.com.

This newsletter is published by www.zeromillion.com with support from the Entrepreneurs’ Coalition and the Center for Entrepreneurship at the University of North Carolina at Chapel Hill. The newsletter is sent using the IntelliContact Pro web based email marketing and list management software.

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“The only place where success comes before work is in the dictionary”
– Vidal Sassoon, entrepreneur