Entrepreneur’s Diary #121 – Cooking Recipe for Entrepreneurial Founders

AGILE and yet LEAN on the MS EUROPA – a while back.

It is not quite so easy, because there are no patent recipes for founding a company. But there are criteria that can provide orientation. Let me write a few of my ideas, especially on business plans as they are expected by banks and investors, as well as by the competition. Here is what you should keep in mind when writing one.

The text is based on my own experiences, but also on what I learned as a juror at business plan competitions and from the more or less intense dialogue with all kinds of start-ups.

I recommend you proceed in three steps. Many founders use the wrong sequence by, for instance, first wondering what the best legal status of an enterprise might be. However, this will initially play only a minor role. It is more important to get all the necessary invoices written in time.


Necessary requirements for establishing a company are:

  • The team – 
I believe you should be at least two persons and three is probably the best number.
  • The idea – 
well, if you do not have an idea (or even better: several ideas), you can forget about it 
and
  • A great story – 
that supports the entire concept and is allowed to live.
    Part of the story is a (working) title and an (initial) logo of the enterprise that is to be established or the project you want to start. The team and the idea are also parts of the story.

The description of your special expertise and the competence of the partners is also part of the story. The founders need to relate where they are really unbeatable and whom they know around their field of expertise. You definitely should be able to name a few good friends (or acquaintances) that you can name as customers, partners or supporters of some sort or other. If the founders already have a small network that helps them towards reaching their goals, then that is even better.

Thus, the story should shed light on the “yesterday, today, tomorrow” and on the “what, how, why, to what end” in a narrative form.

Basically, you have to use the story to make clear why the entire affair is going to be a success. Only after you can present a nice story does it make sense to start writing the Business Plan. In fact, the business plan will draw from the story. There is no other way to do it successfully.

Here is a list of the usual criteria for a good business plan., along with advice on when which steps should be taken. And why the sequence actually matters.

According to what I recommend, a business plan should be developed in (three) steps. The following points can help founders to better structure their activities. They also help the juror and/or the investor when it comes to understanding the content of the plan and its quality. Which means to better judge the chances of success.

However, these criteria will also help the founder to examine his idea and his plan, looking for weak points quasi as a “self-control mechanism”. It also helps him to realize what special strength his idea or his plan has. More often than not, the founder will only intuitively be aware of them. However, he will have to be able to formulate them!

The procedure I describe is rather advanced and will help you to gain clarity about the business model you describe – and thus to increase the probability that your project will be a success.

However, this does not give a founder free reign such that he can ignore the implementation of his business model in a very “agile”, “slim” and “pragmatic” way and to seek rapid success.

In other words:

Regardless of very intense thinking, the process must be lean for every founding project and trying things out must have a high priority.
So here comes the “business plan” with its three stages:

In its first step, the business plan should contain:

A precise conclusion that clearly states why the business idea is attractive and that outlines its relevant aspects.

A comprehensible description of the expected gain for the customer and how the product/service differs from what the competition offers.

The evaluation of the market and of the competition has to be absolutely consistent in the business plan.

The measures absolutely necessary for successful marketing and sales have to be described in detail. Principles such as

aida = attention, interest, desire, action (marketing) 
or
4 ps = product, price, place, promotion (product offer/service offer)
are helpful.

The expected business structure and the future organisation (structure and processes) must be described in fair detail and must be realistic.
There will always be chances and risks. There must be a thorough judgement and evaluation of both.

Even the first step of such a business plan should look presentable – but it should also transport the competence and enthusiasm of the founders. This document must not be a theoretical work – it should not talk about certainties and not use too many numbers. It should also create room for testing ideas.

If all this has been done successfully, a lot has been achieved.

No earlier than in the second step, you will need the following:

The economical planning and the description of the “operative agenda”. Both will not make sense before the first step has been successfully managed. The same is true for the actual organization, e.g. the structure of the planned enterprise and your idea about how processes in the enterprise should run.

No earlier than in the third step, the following things will be relevant:

After the results of stages one and two are clear, the founders should start thinking about the legal status and the statutes of the enterprise to be founded. Mostly, this is quite trivial and not really all that important from the perspective of a true entrepreneur. However, what becomes rather important now are the actual financial plans, both with respect the question of initial capital and for the actual financing. Basically, they are more like a simulation that answers the question under what conditions/assumptions a successful start will be possible, rather than a “business plan paper”.

Incidentally, the famous “pitch“ will then be nothing other than an extract of “story” and “business plan”. And it should be as short as possible.


I would advise all the founders who already wrote a business plan to look and see if it meets all the above criteria. As I see it, there are many cases where there is huge potential for improvement. And I would recommend that would-be founders either do without a business plan or else use their “common sense”. Or else, if circumstances make it necessary, they might wish to stick to my steps and criteria when writing their document.

RMD
(Translated by EG)

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