Ignacio de la Vega. Professor. IE Business School
5 January 2007
Every year, many start-up companies fail. Here are some important ideas to keep in mind when launching a new company.
The following article describes the necessary steps an entrepreneur should follow in order to guarantee the success of a start-up company. It is targeted not only at novices, but also at experienced executives who are responsible for family companies or social projects. My hope as a writer is that the following text is of interest to entrepreneurs in both categories.
Creating an company is a process. Are you familiar with all the steps involved?
·Enterprise is the work of entrepreneurs or teams that identify business ideas. They later turn these ideas into opportunities by using sound business model analyses in order to obtain the necessary funds for not only starting up the company, but also for managing it throughout the process of its development.
·Appraise your profile as an entrepreneur. You need to know if you are ready and whether you have sufficient training to be competitive in your chosen sector. Do you know the sector well enough? Are you able to identify the keys to success within your market? The Instituto de Empresa’s GEM report (Global Entrepreneurship Monitor) provides an extraordinarily diversified profile of the Spanish entrepreneur; you´re bound to find your place in this profile!!
·Strengthen your contact network. Do you have the necessary network of contacts? Does the complexity of your project require a qualified development team? Are you capable of creating a development team and persuading its members to work with potential investors?
·Have you identified a business idea with potential? The source of your business idea is not important; success lies in your ability to turn it into a valid opportunity. Ask yourself: What market am I focussing on? Are there many potential clients out there? Will I be able to compete with the established industry? Does the current business context favour my project and future market growth? Is there any identifiable segment that I should target? Do the reference market and segment have growth potential?
·Can you turn your idea into a real opportunity? Analysis of the industry and market potential is not enough, even with high potential markets and industries. You must ask yourself whether you have the capacities and resources for competing in both.
·Analyse the project´s overall viability. Draft a complete business plan that develops your idea. Draw up a broader business model that enables you to become completely knowledgeable of the market and provides you with winning strategies. Finally, analyse the project´s overall profitability.
·Can you turn the conclusions you have drawn from your viability study into a compelling presentation? Do not underestimate the importance of the "commercial" role of your business plan in order to obtain human, technological and financial resources, etc. Can you convince yourself and those around you of your company´s potential?
·Have you clearly identified the resources your project needs? Do not be overly conservative. A good number of new companies die before start-up due to poor planning of the resources required for achieving a positive cash flow. Be rigorous and conservative in your forecasts, but at the same time be aggressive about generating a certain financial cushion if your initial forecasts do not ring true.
·Do you know the most appropriate means of finance for your project? Debt or capital, or perhaps a combination of both means of finance, is usually the best formula. Are you able to put up the initial investment? If not, it won’t be easy to convince other investors to join your initiative. The GEM report estimates that the initial amount for the launch of new businesses averaged €54,000 in 2005.
·Are you prepared to manage the project? The best possible market scenario includes having a winning business model and attracting sufficient resources. Although these factors are an intrinsic part of business success, they cannot guarantee it. You must be aware that your business model will have to adapt, and even radically change, throughout its lifetime. Keep tabs on the evolution of the market, your business resource capacities and your ambitions, while surrounding yourself with the best team possible. Only then will you prevent your project from joining the long list of defunct businesses. Lastly, work hard to ensure that luck is on your side!!