Wednesday, December 15, 2010

Should you take your business to a start-up incubator?

With a number of start-up incubators now existing in South Africa to both help with business plan development, business finance and other start-up support services many entrepreneurs are asking whether going the Incubator route is the right solution of their business.

I thought it may be useful to share this very interesting case of a entrepreneurial team going through the same decision process of whether to take on the help of an incubator.

Three years ago, I brainstormed an idea with a couple of friends for Foodzie, an online marketplace for artisan foods that would let home chefs and small food producers market directly to consumers. We knew we were onto something, but we were recent college grads in Greensboro, N.C., and didn’t have the funding or connections to launch the business.

So we decided to apply for TechStars, a start up incubator that provides mentorship and seed funding to innovative early-stage tech companies. We were accepted, but the program required us to uproot our lives, re-think our idea, and give up a stake in our company. Despite these sacrifices, I’d do it all again in a heartbeat.

Getting picked

When we came up with the idea for Foodzie in the spring of 2007, we knew we needed help getting it off the ground. My partners — my fiancé Rob and close friend Nik — and I had the technical skills to build the site, but we didn’t have enough money to devote our full-time efforts to the company. Moreover, there was no real tech community in Greensboro to help us secure funding.

We found out about TechStars through one of their mentors, Ben Casnocha, who gave a presentation on entrepreneurship at UNC Chapel Hill. We were excited that they offered young entrepreneurs like us a combination of mentorship and connections to venture capitalists. But the program was also highly competitive: They accepted only 10 start ups out of hundreds of applicants.

So we submitted an application and then, to better our chances, we flew out to their headquarters in Boulder, Colo., to meet the directors at their “TechStars for a Day” conference. The face time, plus weeks of following up to show that we could execute our ideas, impressed them. They selected us as finalists, we survived several rounds of interviews and then made the cut.

Going all in

We knew that Foodzie’s future wasn’t in North Carolina, so when we moved out to Boulder for the two-month program in the summer of 2008, we decided to move for good. It was a hectic time — everything seemed uncertain. But we were confident that TechStars would help us work out a plan.

However, once we arrived in Boulder, the intensity of the program immediately overwhelmed us. The residency progresses in three phases — development, execution and pitching — each of which is as disorienting as it is helpful.

In the first phase, all 10 participants must sharpen their ideas. Mentors and other founders repeatedly questioned our ideas and challenged our basic assumptions.  One of the founders, David Cohen, even joked that some of us were there in spite of our ideas.

Their goal was to force us to refine our business idea or come up with another one, which forced some companies to trash the first idea altogether. We all suffered what is known within the program as “investor whiplash.” But the approach worked. Our core concept stayed the same, but we developed a more comprehensive plan, with more ideas for generating revenue.

In the second phase, we devoted our time exclusively to executing our newly polished idea. We spent 16-hour days building the site and gathering feedback from our mentors and the other program participants. Finally, the third phase was about perfecting our pitch to funders. I hated public speaking. But we rehearsed our presentation about 100 times, so I had no problem on Investor Day, when 400 venture capitalists arrived to listen to our pitches.

Getting funded

At the start of the program, TechStars gave us a small amount of seed funding — $6,000 per founder, so $18,000 total in our case. It wasn’t much, but it was enough to allow us to focus on Foodzie full-time for several months. In exchange, TechStars took six percent of our equity. It may seem like a large stake for the size of the investment, but was worth every dollar.

The instruction we received from our mentors and peers paid off almost immediately. That October — during the height of the recession — we leveraged the connections we had made to raise $1 million in venture funding. We put that money to work to complete our marketplace, hire staff, contract with more than 500 food vendors and garner hundreds of press and blog write-ups.

I’m certain that we would have found a way to launch Foodzie without TechStars. But I bet we’d still be in North Carolina struggling to get it off the ground if we hadn’t gotten the support of such a collaborative, mentor-focused startup community.

While working at a specialty food shop, Emily Olson was inspired to found Foodzie by seeing the quality and quantity of products that never made it on the shelves.

As told by  Milly Olson, Co-Founder,

So from an entrepreneurs perspective there are a number o issues to consider. Contact us for information on the various incubator services available in SA and if you have any reservations about taking the next steps.

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Monday, December 13, 2010

Business Succession Planning for Entrepreneurs

A succession plan is an integral part of your overall business plan document. It will clearly map out what must happen for you to exit the business—how and when you choose.

Putting a formal succession plan in place will help you:
Survive changes in ownership and continue as a successful entity
Identify and address family issues before they become  disagreements
Minimise tax liabilities and maximise return
Ensure an orderly transfer of control and competencies
Prepare the business and future leadership for transition

Development of the next generation of leader is a paramount task. "It is instructive here to recall that Noah started building the ark before it began to rain." Prior planning prevents poor performance. Without the proper methodology being utilized to prepare for personnel turn-over or unavailability, the corporation can be sent into panic hiring, can fail to continue to implement strategic plans because of the loss of a key individual, and multiple other pitfalls because they were not ready.
Short Term Needs

Planning must account for short time frame notification items. What does the company do when two executive VPs are killed in a plane crash? Who has been groomed and is ready to be "acting" in their place until they can be either ramped up to the permanent replacement or until an executive search reveals the best candidate? When a top executive resigns and moves to a competitor, has the company already instituted a program to ensure that individuals know that strategic plans, customer accounts, and other vital critical business information is in fact the exclusive property of the company and had these key individuals sign off on non-disclosure agreements? If they had not done this prior to hiring the defecting manager, are they prepared to ensure that incoming key personnel are required to affirm their loyalty in exchange for the position?

Mid-Range Needs
Personnel will retire. The text gives the example of GM and their planning process. Any company that is not preparing a like plan for grooming and testing the capabilities of personnel who may be tapped to be the top executive must seriously consider how prepared they really are to do business. Failing to plan is, in effect, planning to fail.
Retirements with long lead windows give companies ample time to try people in the proposed position, to be more closely mentored, or to be given charge of substantially more responsibility to see how they are able to handle the situations that they will be confronted with when they are given the nod.

"Organizations that understand the immediacy of the baby boom exit and thoughtfully prepare for it will be in the best position to achieve unmatched success." The questions businesses should be asking themselves to prepare for the coming demographic change. Some of them are:

  • What are your company's demographics (age, gender, position, years in position and anniversary date)?
  • What are your company's retirement policies? Is early retirement encouraged or discouraged?
  • What mechanisms and programs must be put in place now to capture key competencies and critical work knowledge of employees who will be retiring?
  • Will your organization need to increase its reliance on new immigrants?
  • If your organization is offshoring, what is the age breakdown of your overseas partners?
  • Will your offshoring partners face a labor shortage that may impact their ability to provide services?

Others also point out that businesses need to position themselves to deal with the needs of an aging population. There may be a need for unique skill sets and competencies, as well as a need for new or modified product designs to be marketed to the aging population. These issues tie back into business continuity planning. To continue to be competitive in the future,
businesses have to prepare for the shifting change in the average age.

The Process
The process of succession planning entails assessing what positions are critical to have a succession contingency plan. The positions are assessed, and then the skill sets of the candidates that could fill these positions are assessed, factoring in the time frame that would be required to get them up to speed for the position. A training program must then be implemented to ensure that there is progress in bringing these individuals closer to a more immediate insertion rate in case a planned position turns over. This will ensure a more seamless transfer for the person in waiting and provide a measure of corporate stability in a challenging time.

Our Four Phase approach to succession:

Phase One:
Determine the exit timing and requirements of key stakeholders
includes Succession Needs Analysis
Interviews with key managers and family members

Phase Two:
Prepare the business for a smooth succession
Includes detailed analysis of current state  of  business      
Action plans for preparing the business for succession

Phase Three:
Research and consider all viable succession options
Covers all viable options: legal, funding &

Phase Four:
Select the preferred options and develop an implementation plan
Provides a formal written succession plan

What ever the level of your business plan, using the latest in business plan software will ensure that you get the succession planning element of it right. With business finance increasingly hard to come by and competition being increasingly fierce, getting every element of your business ready for what the future may hold is now more important than ever.

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Monday, December 06, 2010

Small businesses need to diversify

With the number of small businesses still far exceeding those who become successful, entrepreneurs are continuously looking for strategies to make businesses more profitable. From personal experience I know this can be very challenging especially in the early days and when starting a business and especially when struggling we often will take all the help we can get.

A recent study suggested that small businesses need to broaden the outlook and sell a more diversified range to a wider set of clients.
In an interesting bit of rsearch Loni Prinsloo from talks about the findings that points the way towards a more sucesfulbusiness:

SME Survey 2010’ principal researcher Arthur Goldstuck said on Monday that the first recession to hit South Africa in 17 years was instructive and showed that those companies which did not have all their “eggs in one basket” were the ones which weathered the storm more effectively.

“It goes to the reliability of the income stream and the health of the target market,” said Goldstuck.
“When one sector comes under pressure, it helps to have others to carry the business through tough times. Typically, however, if you serve corporations, you are likely to be more resilient and more profitable,” he added.

The survey, sponsored by the National Youth Development Agency (NYDA), showed that 39% of SMEs in established markets had typically done business with corporate customers, but only 31% of businesses in emerging markets had done business with corporate customers.
“There is a strong difference in diversity between established and emerging SMEs, especially in terms of corporate procurement.

“This presents an issue, since black empowerment legislation encourages sourcing from small business and in particular, from emerging small business. That could make a case for more intervention from government in terms of enforcing procurement policy,” said Goldstuck.

“We would like to see continued and accelerated participation from big business in supporting and developing emerging talent to achieve the capacity which is required by the procurement arms,” stated NYDA chairperson Andile Lungisa.

Resources permitting this may be a good idea but it will take time and effort to develop the wider product range and target the wider clients groups. As a lone entrepreneur especially it may be fairly challenging to get to this point but will be very useful as a future goal to work towards.

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