Article of the Day

The 10 Rules For Successful Entrepreneurs – Forbes

Economics aside, this is what underpins entrepreneurship for me: freedom, independence and the ability to choose.

~ Luke Johnson at the UK launch of Global Entrepreneurship Week, 2013

Entrepreneurship. So What?

Does entrepreneurship matter?  I ask this question of students the first day of class each semester.

The first answers to this questions are usually about the big picture.

Entrepreneurship matters because it creates jobs.  Quite true.  Kauffman Foundation research shows that if startups were removed from the U.S. since the 1970s, there would have been non net job growth since then, even as the workforce has grown substantially.  Small businesses employ 80 percent of workers in the U.S., so take them out of the equation and there are serious problems.  Large businesses are important and garner the bulk of publicity, but the real horsepower and dynamic for change in the economy comes from entrepreneurs and small businesses.

Startups-Kauffman-Foundation

Entrepreneurship matters because it drives innovation. The innovations that define the modern world came from entrepreneurs and entrepreneurial organizations.  I type this post on a Macbook Air (Apple founded by Steve Jobs, Steve Wozniak, and Ronald Wayne, 1976), using a WordPress application (WordPress founded by Matt Mullenweg and Mike Little, 2004), seated at HON desk and chair (HON founded by C. Maxwell Stanley in 1944), in my home that is heated and cooled by Lennox equipment (Lennox founded by David Lennox, 1895).

Entrepreneurship matters because it creates wealth. Entrepreneurs create the machines, methods, and systems that make us more productive, thus more wealthy.  New businesses exhibit a ‘churn’ dynamic where  innovative and successful firms grow rapidly and become a wellspring of jobs and economic growth, or quickly fail and exit the market, allowing capital to be put to more productive uses.  Those with a mis-informed view of failure view the churn of startup firms as negative, but in fact this is the dynamic that represents progress in wealth creations.

Leaving the big picture behind, I ask students if entrepreneurship is important to them.  Why might a university student care?

Typical answers from students include the attractiveness of being their own boss, the ability to earn more money if successful, the ability to design a lifestyle of their choosing, and the freedom to make an impact in markets they care about.

These answers are all good, but it draws them toward the idea that entrepreneurship may matter to them as young professionals because they should strive to live a professional life of impact and meaning.

Depending upon the source, more than one-half of Americans respond to surveys that they are not satisfied with their job.  How bad is it that more than one-half of people report that they are unsatisfied with something that occupies the majority of their waking hours?  At some point a person needs to take command of their professional life and make a change that positively impacts their satisfaction.  Anything else is just excuse making.

Being an entrepreneur, starting a business, is indeed a powerful professional choice.  Deciding to be entrepreneurial, however, is even a bigger one.  It implies dedicating yourself to making an impact whether at your own business, someone else’s business, or even in a non-business setting.

Being entrepreneurial implies development of life skills.

  • Critical thinking – The ability to ask the right questions.  Knowledge and experience is valuable, but even more important is the ability to ask the right questions at the right time.
  • Creative problem solving – A natural instinct is to avoid problems.  An entrepreneurial instinct is to seek deeper understanding of problems and then search for solutions.
  • Communication – The ability to persuade is the ability to lead.  The two most powerful words in English: “Follow me.”
  • Teamwork and networking – A fundamental part of the entrepreneurship process is organization building.  If a business is to achieve any scale and long-lasting sustainability, it needs to build a winning culture, team, and network of supporters, customers, and stakeholders.
  • Persistance – The value of an enterprise is related to its knowledge, and that knowledge builds through overcoming mistakes, learning from them, and doing things better as time goes on.  It’s a process that never stops, so persistence through the inevitable ups and downs involved in anything of consequence is key.

Why does entrepreneurship matter to you?  What is your vision for building your skills to be entrepreneurial?

Article of the Day

In Defense of the Deck – Bill Gurley, Above the Crowd

Video of the Day

The Benefits of Mapping Plan A – Randy Komisar, Kleiner Perkins

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Investors are not solely evaluating your company’s story. They are also evaluating your ability to convey that story.
~ Bill Gurley, Benchmark Capital

Designing a Killer Business Plan Presentation

Elevator pitch competitions are a great means for an entrepreneur to polish their skills in communicating a business idea as well as their ability to persuade.  There is a distinct difference between an elevator pitch and a business plan presentation, however, and I fear that many entrepreneurs fail to recognize it.  Instead they turn an ninety second pitch into twenty minute pitch and fail to connect with prospective investors, partners, and supporters.

A killer business plan presentation is not just a pitch.  It’s not just a slide deck.  It’s not just a recitation of projected financials.  Rather, it’s an experience that will energize an audience about a business and the team that’s a part of it.

A killer business plan presentation is designed, not prepared.  It’s a dialogue where a problem is resolved using a creative solution and the improved future result is described in glorious detail.

Here are some tips for designing that killer business plan presentation.

Tell your audience stories – People learn and remember in story form.  You want the audience to be curious to turn the page.  They wan to know what comes next.  To Bill Gurley’s point above, you also need to sell yourself as part of the stories, but the form is the narrative around the problem your business solves, how it solves it, and how your business will carve out a place in a market are key.  In one of our early, early presentations on E-Markets, I recall a listener remarking that we had our ‘story down.’  I didn’t really get what he meant a the time, but he was a more experienced entrepreneur and he appreciated the narrative we’d created on why the business was needed.

Create a dialogue with your audience – Your aim with a business plan presentation to engage the audience by creating a real back-and-forth dialogue.  As you structure your presentation, deliberately leave out important bits of information that will elicit questions from your audience.  Ask your audience questions and ask for feedback.  In our investor presentations at E-Markets, myself and the two members of the team that were always with me had a certainly rhythm for the presentations.  I was the front guy.  We knew (after many presentations) the questions that would come up and at what point they would come up.  My teammates would take turns answering those questions.  In effect what we were able to do was to create a dynamic conversation on the business and demonstrate that each of the three of us on the management team brought strengths to the business.

Understand the financials and the economics of the business – A discussion of the financial performance and projections of the business is certainly expected in a business plan presentation.  A common mistake is that the entrepreneurs fail to understand the financial economics of the business.  I was at a business plan presentation where an entrepreneur pitched their business and had a fairly good grasp of the financials on top of a really well prepared financial plan.  A question from a potential investor that completely tripped up the entrepreneur, however, was about the unit economics of the business.  “What are the projected costs per pound?”  The investor later told me that he wouldn’t invest in any business where the entrepreneur didn’t have a firm grasp of his or her unit economics.

Tie the audience into the plan – If there isn’t some way for you to tie your audience into your plan, then perhaps you shouldn’t be presenting to them.  Can you energize them to be an investor or customer of the business?  Is there a means of making their personal involvement seem like an exciting and interesting prospect?   You will know you’ve done well in this respect after the presentation is done if a member of the audience approaches you for a more private conversation.

What are the stories about your business that will engage audiences?  How do you create not just a presentation, but a dialogue with audiences?

 

Article of the Day

How to Avoid the 6 Biggest Financial Mistakes Young Entrepreneurs Make – Inc.

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Money is like gasoline during a road trip. You don’t want to run out of gas on your trip, but you’re not doing a tour of gas stations.
~ Tim O’Reilly, founder and CEO O’Reilly Media

The Financial Role of the Entrepreneur

What is the core role of the entrepreneur?  To invent?  To innovate?  To take risks?  To change markets, industries, the world?

The role of the entrepreneur can be explained in part by any of these descriptions, but it still misses the core.  Why?  Because there is a financial role and responsibility of the entrepreneur that wraps around the products, services, and innovations they bring to the world.

The first financial role of the entrepreneur is to define and forge a pathway to cash flow positive for a new business.  If an organization can’t find its way to positive cash flow then it’s not sustainable and not a business.  Every year there are thousands of good ideas and inventions that never find their way to market because they aren’t part of a business that finds its way to a sustainable financial model.

Startup Financial Pathway

Startup Financial Pathway

Most, if not all, startups will have a period where expenses outweigh revenues.  It may be part of product development, product launch, market penetration, organization building, capital expenditure, or be a combination of each.  The burden of the entrepreneur is to find a means of getting through that startup phase to where the business is cash flow neutral.  The means could be bootstrapping, debt capital,  or equity capital or a combination of the three.

The second financial, and core, role of the entrepreneur is to build enterprise value.  The entrepreneur needs to focus on how to make the business worth more at the end of the year than it was at the beginning.

And from where does enterprise value arise? In the startup phase of a business, enterprise value (a financial measure) can come from non-financial sources.  For example:

  • A strong team devoted to starting the business
  • A successful prototype
  • A key partnership
  • Progress in research and development
  • Success in product trials
  • Execution of project
  • Overcoming regulatory hurdles

Long-term, enterprise value arises from the business’ ability to produce cash above and beyond operating expenses.  In agriculture we often think of the value of a business in terms of its asset value.  The value of a farm business is often thought of as the sum of its equipment and land.

Not all assets are created equal, however.  Those assets that have the ability or promise to produce more cash income per dollar of asset are the most valuable.

Why do financial analysts value businesses based on free cash flow?  Why do business valuation discussion drop acronyms such as EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)?  Because a business’ capacity to produce cash excesses represents its enterprise value over the long term.

A simple case in enterprise value is to compare two auto companies, GM and Tesla.

.                                             General Motors           Tesla Motors
Revenue                               $152.4 billion               $4.1 billion
EBITDA                                 $13.7 billion              -$294 million
Market Cap                            $48.1 billion               $33.6 billion

GM has almost 40 times more revenue than Tesla and makes billions in profits, yet the market values it only 40 percent higher than Tesla, a business yet to make a profit.  Why?  Because the market/investors think that Tesla’s long term ability to produce cash above expenses is very good.  The company only makes a fraction of the cars that GM does, but investors’ money is bet on a much bigger, financially successful future.  In a nutshell, investors have a strong faith in CEO Elon Musk‘s ability to continue to build enterprise value.

How do you describe the pathway of your business to cash flow positive?  How do you build enterprise value in your business over the long-term?

Article of the Day

Questions to help entrepreneurs analyze a potential market opportunity – Duke Entrepreneurship Manual

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The last 10% it takes to launch something takes as much energy as the first 90%.

~ Rob Kalin, Etsy founder

Secret Sauce of Effective Marketing at Startups

At most startup businesses the budget for marketing in the early stages of the business is a very round number, zero.  Especially for those entrepreneurs whose professional experiences may include working at large companies with large market budgets, this can be a significant struggle.  How do I launch a product or service with no financial capacity for marketing?

The core of effective startup marketing is gathering credibility and exposing it to the right audience at the right time.  Garnering credibility in the early life of a business evolves and changes quickly, but can be accomplished without a marketing budget.

The first thing to understand about marketing for an early stage business is what needs to be accomplished.  It’s not about reaching a wide audience, because the early business wouldn’t be able to meet the needs of a big audience in its early stages anyway.  Rather, early stage business marketing is about overcoming the lack of a proven track record.  No one knows who you are.  You are still honing in on understanding customer needs.  You are still working on the solution.  You still don’t know what you don’t know.

What does marketing look like for a startup?  What are some practical means of gathering credibility for startups? Consider these six recommendations.

  1. Know your market – Do your market research.  If you can’t offer up numbers on market size and potential off the top of your head, you haven’t done enough market research.
  2. Create partnerships – The term ‘partnership’ in the startup world does not frequently involve formal agreements.  For startups, partners are usually businesses and individuals who are collaborators on a relatively short-term objective.  When I started Decision Commodities in 2002, The Iowa Farm Bureau was not only an investor, but also a stamp of credibility in offering a new type of grain marketing service to their farmer members.
  3. Third party analysis – Find ways to enter third party expert analysis projects or papers.  Colin Hurd paid researchers at Iowa State University a relatively small amount in 2013 to conduct field trials on Track Till.  That research is still a valuable marketing tool.  The University of Illinois highlighted Decision Commodities contracts alongside those of Cargill and Consolidated Grain and Barge in a 2003 study.  I remember at the time getting a kick out of my little business being highlighted alongside such large, established agribusinesses.
  4. Projects – When Dave Krog and I were starting E-Markets in 1996, we conducted a phone survey of dozens of professionals in the grain industry.  We worked with Context Network, an established agribusiness consulting business, to write up the results in a report we entitled Grain Industry 2000.   We put out a press release announcing its publication and sold it as a multi-client study.  It accomplished several things for us.  First, we made some money.  Second, it was the first public exposure of E-Markets.  Third, it defined us in looking forward with insight to issues facing the markets we were most interested in.  Fourth, we learned a lot and made new, valuable contacts.
  5. Social media – Social media is the marketing lifeline of many startup and small businesses.  Tres Mentes has done a masterful job building a food brand using social media. So has Simple Life Farms.  I heard a podcast some months ago where the guest argued that any business can be viable if it can gain 1,000 fans.  Certainly social media is one way of building your fan base.
  6. Earned media – Do you have expertise that may be valuable to a journalist?  If you do, spend time getting to know journalists and writers in your market space.  Comments from you in trade or high profile publications, even if not related to your startup business, can bring tremendous credibility to you as you work to establish your business.  The most valuable contact for a journalist working on a deadline is often one that will answer phone calls or emails in a timely manner.

What are some ways your startup can gain credibility in its earliest times?  What are specific zero-budget initiatives/projects that can get your business knows to the right audience at the right time?

Article of the Day

Coffee with Startups – Steve Blank

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In an existing market directly compare your product against the incumbent and specifically describe the problems you solve and why Company x’s products do not.

~ Steve Blank

Tips for Customer Discovery

Getting customers involved in product development and innovation is at the core of customer discovery for startups.  We found the power in this model more through accident than insight at my first startup, E-Markets, back in the 1990s.  We had concepts for Internet-based electronic applications, even prototypes, but the actual products we launched were developed in concert with prospective customers.

The customer discovery process is simple, but hard work.

  • Form assertions or hypotheses around the problem that your product solves, the product, and various components of your anticipated business model
  • Test these assertions or hypotheses with prospective customers
  • Verify where you’re right, learn where you’re wrong, and adjust your assertions and hypotheses

The customer discovery process may or may not involve a prototype or minimum viable product, but the overall idea is to work to increase the richness of conversations and dialogue with prospective customers as you proceed.  If all goes well you not only refine your ideas about your startup business, you even build your early customer base.

Some tips for the customer discovery process include the following.

Don’t provide leading information – You are trying to learn from prospective customers in these early conversations, not necessarily sell them something (yet).  Therefore, you don’t need to start out pitching them as if they are investors or as if you have your product or service completed and ready for sale.  Reveal your story and that of your startup business in small bits and let the prospective customer lead the conversation in directions you may not have anticipated.

Start with the problem, not the solution – If you are at the stage of having developed a startup business concept, you no doubt have identified a solution to a problem.  You are also probably excited and energized with your solution.  Resist leading conversations with prospective customers about the solution, however, and work to lead conversations with the problem.  Your task is to understand the problem at a depth and detail beyond what anyone else does.  This understanding will help shape a successful solution more effectively than any technical expert.

Don’t stop with verifying what you know – You not only need to learn where  your wrong about some part of your idea, you also need to learn what you don’t know – you don’t know what you don’t know.  So use open-ended questions.  If answers to many of your questions are simply ‘yes’ or ‘no,’ you’re not asking questions the right way. You’re looking for information, feedback, and ideas that may surprise you in some way, the gold nuggets of insight that will help your form up a more solid startup business.

Ask for references – Don’t end any conversations with a new contact without asking for references.  Even if an interview of a potential customer doesn’t yield new insights, it can at least yield new contacts and an expansion of your network.  How do you make contact with 25 prospective customers and/or industry experts?  Start with four people you know.  If each of them gives you four additional contacts you’re up to twenty four after you contact them.  Only one more to go!

Customer discovery will be different for each business. The process of testing assertions and hypotheses and modifying detailed ideas about the business is a continuous process that takes a lot of hands-on/in-front-of-people work.  For many startup businesses it is the most critical step in discovering a sustainable business model.

What types of contacts will help you with your startup business?  How do you find them?  What are the most important issues for you to explore?  Do you have contacts that could help someone else?

Article of the Day

Prototyping for Success, Power, and Unlimited Riches – Think With Google

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Twitter was a mere prototype in 2006; now, many of us have become adept at saying all we have to say in 140 characters.
~ David Horsey

Lean Startups and Agriculture

Lean startup is a term coined after being proposed in 2008 by Eric Ries in  his book, The Lean Startup.  Ries based his ideas on his experiences working in startups, asserting that startups can shorten their product development cycles by adopting a combination of experimentation, iterative product releases, and what he calls validated learning. Ries’ overall claim is that if startups invest their time into iteratively building products or services to meet the needs of early customers, they can reduce the market risks and sidestep the need for large amounts of initial project funding and expensive product launches and failures.

Important lean startup principles include the following.

  • Eliminate uncertainty
  • Work smarter, not harder
  • Validate learning
  • Develop a minimum viable product

Does this methodology play a role in agricultural startups?  While software can be an important part of ag startups, often we are dealing with equipment, living organisms, mother nature, and other complexities not faced by a pure infotech startup.  In my view, the principles become even more important because of these complexities.

My adaptation of minimum viable product is what I term dirty prototypes.  What is the most crude prototype you can develop that will enable you test your assertions of value, customer interest, and technical plausibility?

Development of prototypes is a powerful means for an entrepreneur to try to avoid pitfalls typical in development of a startup business.  However, development of a prototype in isolation from prospective customers can also be an empty exercise.  Entrepreneurs need to develop prototypes, but also need to test and evolve them while working with prospective customers.

I experienced this, more by accident than design, at my first startup, E-Markets, in 1997.  I had developed a very crude prototype for a browser-based application.  Ultimately, our first customer pointed at the prototype on projector screen and said they wanted to buy it.  But they really didn’t want to buy the prototype.  Rather they wanted to buy a much more developed version of the prototype that was highly customized to their needs.  During about a 4 month process, we worked daily with the customer and their network of business partners to develop a solution.  In the end we had simultaneously developed a much better application, but had also achieved the buy-in of employees of the customer organization and a network of others involved in their business.

Prototype development, in the ideal, isn’t a linear process.  Instead it’s an iterative process of evolving the prototype or prototype idea based on rich interactions with prospective customers.  This interaction leads not just to a better prototype, but to the winning business model that contains the new product and/or service.

Developing a prototype while engaging potential customers helps discover and validate the important details of their problems and needs.  Most importantly, the engagement process converts those potential customers into real, paying customers.  As you develop those paying customers you’ve developed and built a company and business.

It’s an example from history, but David McCullough’s book, The Wright Brothers tells a powerful story of using prototypes to move to success.  The Wright Brothers gained very little through existing theories or basic research.  Rather, they developed the first powered airplane through years of trial and error.  Their pathway was through flying kites, carefully watching different kinds of birds in flight, building models, building a wind tunnel, and finally traveling for three straight years from their home in Dayton, Ohio to Kitty Hawk, North Carolina to try their planes.  Theirs is another example of theories following invention, not the other way around.  The Wright Brothers used some of the mathematical aerodynamic theories that had been developed with their second prototype, but they were wrong and a tremendous frustration to their efforts.  Articulate theories on why an airplane works the way it does emerged after the invention.

Wright Brothers First Flight, December 17, 1903. Orville piloting. Wilbur at the wing.
    Wright Brothers First Flight, December 17, 1903. Orville piloting. Wilbur at the wing.

Skipping forward from the Wright Brothers’ first flight in 1903 to 1997, my prototype work was with an Internet-based electronic commerce application.  It melded business processes in the agribusiness space with software that enabled new types of more efficient and effective behaviors.  Much to my pleasure, I have had Iowa State University students apply similar methods to their products.

Colin Hurd at Agriculture Concepts developed the roughest of prototypes while a junior at ISU for what became his Track Till product in 2012.  In 2013, prototype number 2 was a much more sophisticated product that has much resemblance to today’s commercial version and got Colin his first sale.  In 2014, he sold a more refined product, not anymore a prototype.  In 2015, he licensed Track Till to Yetter Manufacturing.

Ryan Augustine was senior at ISU in 2012 when he developed the business concept for AccuGrain.  The business anticipated using an ISU-patented technology for using X-Rays to measure grain flow.  By 2013/14, Ryan had secured the funds and expertise to develop prototype number 1 for AccuGrain. In 2015 he developed prototype number 2, tested it, and now is making his first sales.

Clayton Mooney, Elise Kendall, Ella Gehrke, and Mikayla Sullivan developed the concept of a mobile food dehydration unit and formed KinoSol in 2014.  They competed in the Thought for Food Challenge, making the finals in 2014, and continued to evolve their product through testing and prototyping.  After seven prototypes, KinoSol is today at commercial launch.

Prototyping while developing customers is one way that entrepreneurs fail successfully.  The only thing you know when developing new product and service concepts, is that they will be wrong.  The technology won’t work as envisioned, it won’t have a clear value, it won’t meet the needs of a type of customer, etc.  Product successes arise from the learning that happens while interacting with prospective customers who are experiencing use of the new product.  Sales is an essential function of the prototyping process, whether in agriculture or any other industry.

How may prototyping apply to your business?  How can you use a dirty prototype to develop a customer relationship?

 

Article of the Day

AgTech Investing Report – 2015 – AgFunder

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Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by dogma – which is living with the results of other people’s thinking. Don’t let the noise of other’s opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.
~ Steve Jobs, Co-founder, CEO, Chairman Apple Inc.

What Are Young Agricultural Entrepreneurs Working On?

I ask many friends to serve as panelists and speakers for the entrepreneurship course I teach at Iowa State University, Entrepreneurship in Agriculture.  These folks, and others, ask what students in the course are interested in and working on.  I suppose the curiosity arises from looking to young aspiring entrepreneurs for creative thinking on new opportunities.

This week students in the course will pitch their favorite of the 2 or 3 new business ideas they’ve developed in the course.  I went through the list of business concepts to be pitched and categorized them by subject.  Most are agricultural businesses, 83%, with non-agriculture businesses in the ‘Consumer Products & Services’ and ‘Social Impact categories the remaining 17%.

Student Business Proposals By Category
Entrepreneurship in Agriculture Course
Spring 2016 Semester, 92 Students

Category                                                                        Percentage
Consumer Products & Services                                      14%
Artisan/Speciality Food & Beverage                             12%
Farm Services                                                                    12%
Recreation/Hunting/Outdoors                                      12%
Plant & Animal Health/Genetics                                   12%
Agri-Tourism                                                                       8%
Precision Agriculture                                                         7%
Logistics, Risk Management, Marketing                       5%
Decision Support Technology                                          5%
Robotics/Farm & Livestock Equipment                        5%
Agricultural Processing                                                     4%
Social Impact                                                                       3%

I work the students through various exercises to see if we can identify new business ideas that come from something unique to their experiences or observations.  In particular, many of their ideas come from:

  1. A problem they’ve noticed or experienced that others haven’t noticed.
  2. An experiment, accident of circumstance, or heritage activity from their past.
  3. A personal passion and interest.

The top category in the AgFunder report linked to above for 2015 investments was Food Commerce, a category ignored by students.  Curious, but local grocery HyVee has started online ordering and delivery, so maybe this isn’t such an interesting spot for entrepreneurs living in Ames.

Other top categories of 2015 investment from the AgFunder report line up better with student interest; drones & robotics, decision support technology, and soil & crop technology for example.  The students’ interest in animal health and technology relative to 2015 funding certainly reflects Iowa agriculture relative to other areas, heavily concentrated in the animal protein supply chain.

What categories of student business plan or investment will be the most attractive when we look back ten or twenty years from now?  I suspect certain themes will run through winning businesses.  To suggest a several:

  • Time/labor saving technology – It’s an old story in agriculture, but technologies that save labor win in the long-run.  Robotics offers a myriad of potential applications to take labor out of various processes in agriculture.
  • Unique food ingredients and products – Consumer interest in food products with a story will continue to grow. Where was it grown?  How was it grown?  What makes it different?  What experiences are coupled with the food?
  • Data at the right time and place – We have a lot of data in agriculture today.  The question is what to do with it. Technologies, services, models, and algorithms that enable decision making at points in time where those decisions make a difference in outcomes will win.
  • Disruptive economic models – New technologies and accompanying business model innovations enable challenges to existing supply chains and logistics models.  Some may create significant changes in unit economics for production of certain agricultural products /commodities which will drive changes in place of production and logistics of product movement.

What are the most interesting categories of future business opportunities for you?  Why?

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