Are You Ready?
Are you ready to start a company?
Starting a company can be a very daunting task, especially if this is your first time.
You should give careful consideration to the order in which you take key steps along the commercialization path…
Often inventors “leapfrog” toward the selection of co-founders, and the legal formation and capital structuring (dividing equity) of the company before adequate time is invested in business model consideration.
In the next section of this module you will review guidance on the operational tasks required when creating a company to commercialize your product or service, but before focusing on the legal, financial and management-oriented issues, a quick review of the product and market-related “basics” might be in order.
Have you spent enough time outside the lab talking with potential customers?
Within the “cornerstone” of your new company’s foundation lies the critical assumption that you have accurately defined a need that exists for a product or service, and that you have developed a solution that addresses the need in a manner that both suits the work environment of the prospective user and meets the business model requirements of the target market. For review of the most basic of these building blocks, visit Customer Needs Assessment.
Your Market Research may suggest you have the right “bells and whistles” incorporated in your product prototype, but you really can’t know how close you may be to a successful product configuration for a given target market until a prospective customer has evaluated it. Pursue customer input as early as is practical, and incorporate their feedback into your ongoing product development.
Are you adequately familiar with your best competition?
It’s easy to believe that your product will be the best in its class, and maybe it will be, but...
You should be very certain that you have conducted adequate research regarding the competition that exists, as well as that which is making its way to market ─ before you commit to starting your company.
Assuming you have conducted the analysis, you should have a “visual” for potential investors to review that reflects the competitive landscape for your product and technology. A “Competitive Matrix” is utilized to compare your prospective product’s most important features with those of your closest competition. For guidance on how to structure such a table, visit Competition Analysis.
Is the technology robust and practical to commercialize?
Getting to the “proof-of-concept” stage can be very rewarding. It works! Presumably, you have reached this stage, but if potential professional investors have not yet witnessed the performance or reviewed the data confirming the feasibility of your product concept, you might consider reviewing the following sections within this website that provide suggestions regarding expert input on product design and feasibility demonstration planning.
Are you confident in the business model you will pursue?
Professional investors will want to be convinced that you and your team have performed adequate analysis toward the selection of a sustainable business model, one that can extract the value you believe exists in your proposed product.
The Business Model Canvas was initially proposed by Alexander Osterwalder as a strategic management template to assist in the evaluation and development of new business models. He described a visual chart with elements describing a firm’s value proposition, infrastructure, customers, and finances.
A great video explanation of the planning tool is found at this Strategyzer site.
Can this business be profitable?
In order to estimate whether a business can truly be profitable, a full pro forma financial analysis must eventually be performed. For now, your investors may be satisfied with reasonable estimates of selling price, manufacturing costs, gross profit, and market penetration rates as reviewed in Market Segmentation, Pricing & Profitability and Market & Sales Projections. If your product or service involves medical technology, you will also need to convince prospective investors that there is a reasonable probability that Medicare and/or private insurance Medical Product Reimbursement will be attainable.
Do you have a “fundable” management team and a long-term vision for the company?
Professional investors will invariably recite their mantra regarding the priority they place on management talent and experience in considering a startup company investment:
Of course, “horse” refers to the technology, and this statement is usually in reference to the CEO – but the expectation is that the CEO will surround him/herself with similarly talented and experienced senior management. For guidance on this very important aspect, visit Management Team.
It’s easy to focus on the current product and assume it will be successful. But a product has a life cycle, and with few exceptions needs to evolve as market demands change. So it’s advisable to have a vision of how your product and company will evolve, whether by adding additional product features, improving performance, or by introducing a similar product in a new market niche. Build a product roadmap that puts these envisioned products on a timeline. This gives you a compass that will provide product direction. It doesn’t have to be perfect, and much of it will change, but at least you won’t be perceived as (what investors like to call) a “one-trick pony.”
Can you raise the money you will need?
Assuming you have demonstrated the feasibility and potential value of your product to your customer base, and that you have assembled a quality management team, you certainly have the potential to attract investments in your startup. How much money you should and can raise, and the “pre-money” valuation (the value of the company before investment) that will be acceptable to investors, will depend on a number of considerations, including the status of prototype development.
Money raised at lower valuations is “expensive” because you are selling a proportionately larger part of the company for each dollar raised, but development delays also occur…
You will want to raise enough money to allow the company time to achieve a significant step-up in valuation before the next round of funds is needed.
And, you’ll need at least six months of cash in the bank when you initiate your next financing round − you don’t want your investors to take advantage of an urgent need for cash. Regardless of the circumstances, you will need to “sell the deal”! For more information visit Raising Capital.