Hakan Ener

When you hear the phrase “Plan B” for entrepreneurs, it typically refers to the idea that founders have to make a radical change in the original business plan and business model before achieving success. However, the time and place to make such a change is not when you are presenting your venture.

What I mean by preparing for a Plan B in your presentation is best explained with a recent real-life example I encountered: in a crowded room with more than sixty potential investors, a successful serial entrepreneur was presenting a venture that he co-founded, and just as he was about to get into the technical details of the company’s innovative service, his voice started to fade. It was hard to tell what was happening as the entrepreneur began to show signs of dizziness and lost track of the ideas he was conveying to the audience. As several people from the audience got up to help him, it became apparent that it would be difficult for the entrepreneur to continue speaking.

As it turned out, none of the other co-founders came forward to pick up the presentation where he left off – they were busy at the office rather than accompanying their colleague on this very important day when investment decisions were made.

The practical tip I’m offering is that whenever your venture has more than one founder, one of them should be a “back up” in case something goes wrong at the last minute: whether it’s getting stuck in traffic on the way to the venue, or a health problem that arises during the presentation, all of the hard work that goes into preparing your presentation may be in vain if you have not prepared a Plan B.

By the way, in the real-life example I summarized above, the entrepreneur was fortunate to regain composure after a couple of minutes and continued brilliantly.

Who stands up in front of the audience to present your venture may be just as important as what you present. After all, the contents of a presentation are pretty standard:

1)      What is your product / service?

2)      Is there a market for it?

3)      Why should you enter the market now?

4)      What resources do you need in order to make it happen?

What is less straight-forward is to decide who should present the venture. If you’re a solo entrepreneur (one founder), this may seem easy: the entrepreneur makes the presentation. But is one person enough to make your venture a success? If you answered “Yes” you may have a problem: perhaps no one wanted to work with you, or you don’t realize what’s involved in building a successful company. In both cases, you should not be presenting your venture now – wait until after someone is excited enough about the opportunity to join you.

If you’re launching a company with a team of co-founders, the presentation setup will be tricky. If you go with the “safe choice” and have the lead entrepreneur (the majority shareholder, or the idea originator) present the venture, you should at least make sure to acknowledge and introduce who the other co-founders are. Even better would be to have at least one other co-founder join the lead entrepreneur in order to deliver part of the presentation. This would serve two purposes: provide the lead entrepreneur a space to breath, and show that the co-founders have a good rapport and collaboration. In that case, rehearsing the presentation becomes even more important, and for the co-founders to know who will handle what type of question from the audience. This is key for avoiding the awkward silence that often follows tough questions, and to establish confidence among the investors who are looking for signs about how the team will get along when the going gets tough.

What I don’t recommend doing is to get the whole team of co-founders (when you have three or more) in front of the audience, only to have one person present the venture. The silent team members would distract attention; moreover this may give the impression that the lead entrepreneur did not want to allow anyone else to speak up, which may be a red flag when investors evaluate how the team would get along in the future.

When you’re presenting your venture to investors, there’s nothing that captures the attention of the audience more than the use of social influence. This is when you refer to a recent meeting held with other investors, or with strategic business partners, and convey to the audience that people are interested in doing business with you.

Sounds simple enough, but most entrepreneurs don’t realize that this is the single most important factor in making investors reach for the chequebook. Typically, an entrepreneur fills the presentation with technical details of a product and its market analysis, giving little thought to the possibility that the investors may be more interested in evaluating the how “fundable” the entrepreneur is, rather than focusing on the product itself. Sure, the investors would receive a copy of the entrepreneur’s biography, but not even an impressive resumé will convince them to write a cheque if no one else has been willing to financially support the entrepreneur.

Does that sound like a catch-22 whereby you need investors’ support before investors will support you? Not necessarily. The key is to get business partners (key suppliers or customers) to show interest in working with you before you speak with investors. This is what makes the customer development process so crucial in the lean start-up methodology I mentioned earlier. Investors, who may not necessarily know your product market very well, will look for signs that suppliers are willing to offer you favorable payment conditions, or that customers would pay you before the supplier expects to be paid (in effect, reducing your working capital requirements to a minimum). After all, social influence is not simply “dropping names” of people you have talked to about your venture – it is about leveraging the support you have obtained from one person or company in your conversations with others.

What was the first comment that a professional investor made after listening to several new ventures present their business at a recent investment forum? “I don’t want to hear about market research reports or surveys – I want to hear about what happened when you tried to make a sale!”  This view reflects a major trend that entrepreneurs should know about: investors’ interest in “lean start-ups.”

The lean start-up methodology is a hot topic. In a nutshell, this new approach to building a new venture requires the entrepreneur to rapidly modify the start-up’s business model several times before settling on the one with the greatest potential. Ideally, each iteration should take place after testing assumptions about product specifications and pricing, based on credible feedback from potential customers. Nowadays when early-stage entrepreneurs go in front of investors and present some generic information from a market research report in an effort to justify their strategy and business model, the audience is not likely to be convinced, because old-fashioned market research involves no insights about whether customers will want to pay for the specific product / service offered by the venture. Even in cases where entrepreneurs do their own market research and ask directly about what customers would be willing to pay, it may not be convincing if the investors believe the business model needs further changes in order to maximize its market potential.

Instead of relying on market research, entrepreneurs should present insights from recent sales calls / visits they have made to potential customers, and convey to the audience whether they have gotten any closer to getting a “Letter of Intent,” which is credible evidence of the customer’s interest in making a purchase. Especially in today’s environment where investors think not twice but three times before making risky investments, this can make or break a venture presentation.

Being an entrepreneur involves presenting your venture in front of customers, investors, suppliers and most importantly, your family members, all of whose support is crucial as you put in long hours trying to get a new company off the ground. But entrepreneurs are often not ready to do a good presentation, so here are some of my top tips – over several posts to come – based on experiences with start-up and corporate entrepreneurs at IESE Business School.

My first tip has to do with attitude: a frequent mistake I see is entrepreneurs who present a venture, outline their financial needs, and conclude the presentation rather abruptly by thanking the audience for their time, but using a tone of voice that implicitly tells the audience “take it or leave it” – in order words, “you either invest in my venture or you can’t help me at all.” This type of behavior is especially prevalent in events such as investment forums where many entrepreneurs line up to present in front of a large number of investors (unfortunately, television shows featuring this format, such as Dragon’s Den and Shark Tank, have reinforced this behavior).

Entrepreneurs should know that money is not necessarily the most important resource they will need when building a new business: honest feedback about the business idea from smart and experienced people among the audience, or personal references for recruiting co-founders who can help with technological or legal issues may be just as valuable at an early stage. So, my tip is to close your presentation by asking the audience about what it will take for them to support your venture (which is a way to get input on the specific areas where you need help) rather than simply presenting your business in order to offer them a financial transaction, such as selling shares in the venture. I believe that this tip is useful for all presentation formats, from a short elevator pitch in a cocktail room to a full presentation in the offices of a venture capital firm. Remember: if you appear to be just selling your venture idea, you will only hear a yes or a no (most often, a no), but if your attitude is open to feedback, and you use a tone of voice and body language that shows it (see here), you will probably get much more.

As any entrepreneurship professor can tell you, public interest in starting new ventures keeps growing. Every year we help hundreds of people to turn their venture ideas into a credible business plan and a real company that creates jobs. But we also see people making many mistakes along the way – mistakes that other people can learn from. Here are the top three that I caution people about:

1) Not doing a comprehensive search about who else is doing the same thing. A typical example would be the new wave of potential entrepreneurs who want to build a mobile application to provide a new service to users. Given how crowded the app markets on iPhone and Android have become recently, I can’t really blame people for not being aware that someone else has already started offering a very similar application. If you’re launching such a business and someone points out that there is already a similar app out there, your reaction should not be “Well, our app will have a better user interface” – it should be to study every detail of the software, learning from user reviews, and figuring out how to address an even more profitable market with it.

2) Not fully using the free resources at your disposal. Free resources come in two broad categories: physical vs. intangible. Cash is part of the former category, and you would be surprised to see the number of subsidized small business loans, free office space and business plan competition prizes available out there right now. Among the intangibles, the most important in my view would be websites that can give useful insights about your business idea, such as the Google Adwords keyword explorer which can help you to figure out how many people are searching for the product or service you intend to offer in a given country or city. The Adwords tool is crucial because it also allows you to estimate the cost of advertising your business, and will give you an estimate regarding the marketing budget you will need to acquire a critical mass of customers in order to break even. As anyone will tell you, the marketing budget is probably the most error-prone part of any business plan, because the expected vs. real customer conversion rate may make or break a business.

3) Not asking people whether they would pay for your product / service. When it’s so easy to carry out market research and ask people their honest opinion about whether they would pay a certain amount, it is an obvious mistake to “make up” some number and carry out financial calculations based on that assumption. Make sure to keep in mind two points to do an effective market research. First, do not only ask friends and family about their opinions – they will be too nice and tell you they would pay gladly for your product and service, whereas you want some people to tell you they would not pay anything so that you ask them “Why?” and address the potential problem. Second, you need to invest some effort in order to give people a visual impression of what the product or service will look like. Without such visual aid, people find it difficult to imagine making a real purchasing decision – especially important if your venture will sell big-ticket items such as eco-design homes or high-tech products.

By remembering to go through the three points above, you can really boost your chances of launching a sustainable business. Now, back to work on your business plan.

Which of these countries do you think it is easier to do business in: The Netherlands or Malaysia? How about Germany vs. Thailand? It may be surprising, but the World Bank’s annual Doing Business report says that the two Southeast Asian nations outperform both Germany and Netherlands in “ease of doing business.”

The World Bank’s annual ranking is a valuable resource that more companies and individual entrepreneurs should use when making business decisions. It is not so much about looking at which countries come out at the top of the ranking and then deciding whether to launch a business there, since those countries (Singapore, New Zealand, United States, Denmark) also have extremely competitive domestic markets. To me, the most important part of the World Bank ranking is the section where the previous year’s “reform champions” are announced. These are countries that have made the most number of high-impact regulatory reforms, such as making it quicker and cheaper to launch a business, easier to employ people, registering property, enforcing contracts, getting bank credit, construction permits, reducing the hassle of paying taxes, and so on. The countries that come out on top in that section of the report tend to offer largely untapped markets combined with expectations of high economic growth (recently, Azerbaijan, Albania and the Kyrgyz Republic held the top spots, and Azerbaijan’s GDP grew by 20% around the time of these reforms). For the adventurous entrepreneur or investor, the “Top 10 Reformers” list in the World Bank Doing Business report is a great place to identify up-and-coming markets.

The Doing Business report can also shape the policy dialogue between business owners and governments. Since the report is largely based on objective measurements related to specific business procedures (such as the number of days it takes to set up a company, or the number of permits needed for a new building), business associations can monitor the report to make sure their governments do not backtrack in these areas. Examples of worsening conditions include Switzerland, which has recently made it more difficult to start a new business, as well as the United Kingdom and Sweden, which have raised some barriers against hiring new employees. Since the Report reveals that very few countries elsewhere have made such changes, politicians in these three European countries will find it much harder to justify these moves, and probably face pressure to revert to business-friendly practices.

In short, the World Bank’s Doing Business report is a treasure-trove of insights if you know how to use it. Here is the link to the latest version, and below is the map of the world showing the ranking results (green indicates a high ranking).

Entrepreneurial ideas come in many forms: a business opportunity that no one has yet pursued would be considered “new to the world” while simply importing a business concept from another country or region is often considered “imitation.” However, judging by the number of searches made on Google on keywords related to entrepreneurship, an interesting third alternative is to become a franchisee – using the brand name and the business model of an existing corporation to serve customers in a new geographic market. But is franchising really entrepreneurship?

The simple answer is: Yes. Place yourself in the shoes of a new franchisee: would you accept to make a significant upfront payment, invest all your energy into learning about how to make the business a success in your local market, then pay an annual share of the new company’s income (to the franchisor) for years to come if you did not intend to grow the business? Probably not. When an entrepreneur becomes a local franchisee of a strong brand such as McDonalds or Starbucks, the lessons they learn when launching the first store can be applied in many nearby locations, so it is best to approach this with a long-term perspective when thinking about franchising opportunities.

So, how does an entrepreneur know what makes a good franchising opportunity? The most important factor is to find a reasonable franchisor who possesses some important business insights and / or brand awareness that you don’t. A reasonable franchisor is one who understands how “sellable” the brand name would be in your specific market context and would price the franchise contract accordingly. If lots of marketing expenditure would be needed to create brand awareness, the upfront fees should be very low. In this context, a smart franchisee entrepreneur may also negotiate a co-investment clause into the agreement that would have the franchisee and franchisor share the initial marketing costs until brand awareness reaches a pre-specified target (this is important in order to avoid a scenario whereby the franchisor decides to go it alone in the near future).

On the other hand, the franchise may actually be worth very little if the business model is simple enough that the entrepreneur can figure it out on his/her own, or if the brand name is going to be difficult to establish in the local market (e.g. due to some linguistic barriers between the source and host countries).

Before you start searching for franchising opportunities (as was done 5 million times this year on Google), beware: franchisor companies are quite cautious about “giving away” any of their trade secrets in the early phases of a negotiation due to their bad experiences with local rivals posing as potential franchisees. Negotiations often lack very specific information until the late stages.

Can you name a few successful corporate entrepreneurs who started a new business unit inside an established corporation? If I didn’t do research and teach classes on this subject, I wonder if I could have named any at all. Why is it that corporate entrepreneurs don’t receive nearly as much attention or recognition as start-up entrepreneurs?

Maybe it is because many managers who have created a new business unit actually don’t think of themselves as corporate entrepreneurs. No manager carries around a business card that says “Corporate Entrepreneur.” Instead the card may read “Vice President, Europe and Middle East” or “Managing Director, Industrial Products” and you would not know whether the company has entered the Europe and Middle East region for the first time, or has only recently started selling industrial products. In these cases, the manager who takes part in establishing a new business unit is certainly a corporate entrepreneur, and my experience is that about half of the managers who fit this description do not think of themselves as one when asked during the first day of an executive education program (although this can change quickly in the course of a few days).

Another reason may be that people “give more credit” to start-up entrepreneurs who manage to create profitable ventures. This is because some old myths about entrepreneurship – such as “80% of new businesses go bankrupt within three years” – make start-up entrepreneurship seem much more difficult than it really is (the true figure is that between 50 and 75 percent of businesses survive their first three years, depending on the industry). Still, there is some truth to the idea that survival is more difficult in the start-up world than in corporate ventures: since corporations have vast resources to fund new business units, the selection criteria are less stringent when corporations evaluate the potential financial returns associated with a new business unit. While a corporation may happily fund a new business unit that promises to return just above its corporate cost of capital (say, 15% per year in today’s terms), start-up founders have to deal with expectations of more than 30% annual returns when they negotiate with business angels and venture capitalists.

Whether due to corporate entrepreneurs’ own reluctance to identify themselves in these terms, or because of the perceived triumph of getting a new start-up venture off the ground, the public’s view of entrepreneurship largely overlooks what goes on inside established corporations.  At business schools, we are working to improve things in this field because good corporate entrepreneurs are exactly what large businesses need the most right now.

Two issues have struck me as interesting following Steve Jobs’ announcement that he is stepping down from the CEO job at Apple Inc. this week. First was that Jobs’ resignation came soon after Apple briefly became the world’s most valuable company. Second was how quickly the sudden loss in Apple’s market value was reversed such that the stock price returned to its pre-announcement levels – as if Jobs’ departure will have no impact on the future of Apple. These make me wonder just how important a founder is after a business becomes successful.

Of course, Steve Jobs did not always work at Apple, despite being a co-founder of the company. A difficult working relationship with a former Apple CEO resulted in Jobs’ departure and an eleven year absence from the company. Upon returning to the firm in 1998 his visionary leadership became Apple’s key asset, culminating in the iPod, iPhone and iPad bestseller trio. In the process, Jobs was selected the best performing CEO in the world and oversaw a 150 billion dollar increase in the firm’s market value.

With so much influence in the company, can Steve Jobs really leave Apple behind now? Hardly. This is why he remained the chairman of the board and an employee of Apple. Technically, that makes him an Executive Chairman, as the influential technology observer Bob Cringely notes. I see this as the main reason why Apple’s market value hardly changed in the past week. The real test of his value as Apple’s visionary leader will come when he no longer works for the company or serves in the board of directors to keep an eye on day-to-day executive decisions. Still, if other major technology firms’ stories offer any insights (think of Bill Gates giving up executive roles at Microsoft, Gordon Moore leaving Intel, or David Packard leaving HP), the strength of technology and product platforms can guarantee an additional decade of industry leadership before a firm stalls following its founder’s departure.

All of this goes to say that it would be a mistake to look at Apple’s unchanged stock price this week and conclude that Steve Jobs’ departure will not matter for the company’s success. Technology companies are especially vulnerable when they lose strategic vision, and Steve Jobs has an irreplaceable vision for Apple and the technology industry.