Dr Jeff Cornwall

The New School Year Begins

I still look forward to the beginning of classes each fall.  I am excited to see the new groups of faces in each of my classes.  I am excited to try out the new materials and new pedagogical approaches I worked on over the summer.  I still get a few butterflies in my stomach when I first step in the classroom the first day of classes.

This fall I am teaching two undergraduate classes here at Belmont.

Venture Planning is a class that I teach at least one section every semester.  It is the final course that our entrepreneurship majors, minors, and social entrepreneurship majors all have to take before they graduate.

A couple of years ago I made a fundamental shift to make this more of a business modeling class than a traditional business plan class.  Although I continue to refine and tweak the new approach, the results of the change to business modeling have been remarkable.  The final reports in the class are much stronger and we have more students feeling ready to move ahead with their businesses when they graduate.

Even in the face of what seems to most of them as a permanent recession — it has been the economic reality since this group first entered college in 2008 — this group is excited about the future.

My other class this year is somewhat of a new class for me.  I have taught International Entrepreneurship to students studying abroad, but I never have taught it in a classroom on campus before.

We are not just looking at the nuts and bolts of internationalizing an entrepreneurial venture, although that is where we will end up at the end of the term.  Instead, we are beginning looking at some big questions and issues.

Our first topic is quite fundamental, yet profoundly important in today’s world.  Is market capitalism moral?  Does engaging in capitalism corrupt one’s character?

We will then focus on what drives entrepreneurial activity — or in many cases what inhibits it — around the globe.  We will explore the role of culture and public policy issues such as taxation, regulation and property rights.  We will also look at the role of entrepreneurs in shaping culture through how they conduct themselves in their work.

These are incredibly timely issues given the debate not only here in the U.S., but around the globe.

We will be exploring these issues not from a political viewpoint, but at a policy and cultural level examining what empirical research tells us about each of these issues.

I am so glad to be back in the classroom again this fall.  I guess someday this may no longer be the case — I may no longer feel the magic of that first day of classes each year.  I have seen this day come for many a colleague over the years.

And when that day comes I know it will be time to walk away from the whiteboard and hang up the shingle for my bait shop!

Forecasting Revenues Key to Successful Launch

The late, legendary Silicon Valley attorney Craig Johnson used to say, “The leading cause of failure of start-ups is death, and death happens when you run out of money.”

And the leading cause of running out of money in a start-up is poor financial forecasting.

At the core of unrealistic forecasts is the undying optimism of most entrepreneurs.  Their “what could possibly go wrong?” attitude leads to many forecasting disasters.  My father used to say that when he looked at investing in an entrepreneurial venture he would always double the start-up costs and triple the time it takes to get to breakeven.

My rule of thumb is a bit different.  I believe that being overly optimistic leads to entrepreneurs making fatal mistakes in estimating revenues, which is at the heart of most forecasting errors.  So, my approach when reviewing a business is plan is to cut revenue forecasts in half.

Here are the four most common revenue foresting mistakes I see:

  • Assuming an “instant on” button for a new business.  Most business plans I read show significant revenues from the beginning of the business, sometimes even for the very first month that they open their doors.  The reality is that it takes time to build a customer base for any business.  That is why an entrepreneur should have at least six months personal living expenses available to make it through the startup in addition to the money the new business needs.
  • The magic of the hockey stick.  A common pattern in business plans is to show a relatively slow initial start to revenues, and then assume some that unexplained breakthrough will occur that leads to a sudden and dramatic increase in sales.  When you graph this type of revenue forecast it looks just like a hockey stick.  The reality is that such sudden growth is just not that common and usually results from specific actions.
  • Assuming enough sales to make the business model look successful.  In this mistake entrepreneurs forecast their expenses and then they plug in enough revenues to make the business become profitable.  When I press these entrepreneurs, their explanation of revenues is “well, these are the revenues I need to make the business work.”  The truth is that the market will not give you the sales you need, it will only give you the sales you earn through a well-executed business model.
  • The marketing plan tells a different story than revenue forecasts.  The marketing plan should specifically explain what you are going to do to achieve the revenues you forecast.  Why will customers want what you are selling?  Who are these customers?  How are you going to communicate to them about your business?  The marketing plan should explain in words the numbers shown in the revenue forecast.  Most plans just do not make this connection.

To avoid running out of cash before your business model has time to work requires an accurate assessment of how much money you will really need to get the business off the ground. While knowing your costs is important, accurately forecasting your revenues is critical.

It is so sad to see a business model that has real potential fail simply because the entrepreneur was unrealistic about how much money it would take to get to the point of success.

Key Partners Support Success

Entrepreneurs cannot achieve success alone.

They need the help and support of a whole host of people who are directly involved in the business, including employees, partners, family members and investors.

Entrepreneurs also need to develop key “partnerships” with people and organizations that are not a direct part of the daily operation.  These partners work closely with an entrepreneur in some way that is important or possibly even critical for the operation of the business.  Even though they are not as directly involved day-to-day as employees and customers, the support of these key partners can be at least as important for a business’s success.

Let’s look at an example of key partnerships for a simple business model.  My students all know that I have one more business start-up in me.  I plan to open a bait shop when I retire from teaching.  Why a bait shop?  My first significant small business experience was running the bait shop for the marina that our family owned in Wisconsin when I was fifteen years old.  So it seems appropriate to me that my last business venture should also be a bait shop!

An entrepreneur can use key partners to help reduce risk by sharing that risk with partners.  In Dr. C’s Bait Shop, I will seek out suppliers who will help reduce the risk associated with my inventory.  Minnows and worms are perishable, so I will work with suppliers that are willing to deliver inventory often and only deliver it when I need it.  That reduces the risk that my inventory will go bad if I have a stormy week that would lead to a significant drop in sales.

Dr. C’s Bait Shop will need a space to operate in a good location.  I will try to find a landlord who will rent me the right building and offer good service at a fair price even though my business is new.  I may even be able to get the landlord to pay to fix up the space I need and add that cost into my rent.  So, key partners can help entrepreneurs secure needed resources without actually spending their precious start-up cash to acquire them.

I will seek out counsel from people with more experience in the industry to help serve as advisors.  I will talk with bait shop owners in other markets and connect with old timers in the Tennessee fishing community.

Finally, I will build legitimacy for my bait shop among angling enthusiasts by volunteering in local hunting and fishing organizations.

Good networking with key partners is much more than just introducing myself and giving them a business card.  I need to earn their support by making the relationships between us mutually beneficial.

So as simple as my bait shop business is to operate, its success depends on building a network of key partnerships.  While being an entrepreneur means you do not work for anyone, it does not mean you don’t work with anyone.

 

The Right Value Proposition is Heart of Entrepreneurial Success

The value proposition — the collection of things a business offers to the target market to solve a problem or satisfy a specific need — is how an entrepreneur attracts customers away from the other choices they have among all of their competitors.

Most value propositions for new businesses come from some fundamental trend in the economy, in demographics, in technology or in society and culture.  These trends lead to changes within industries.

For example, the widespread use of the Internet forever changed industries such as music and newspapers.  Inflation in the economy both led to soaring healthcare costs and more recently begun to affect the food industry.  Inflation has clearly shaken up both of these industries

A fundamental role of being an entrepreneur is to find solutions for the problems and needs customers have that result from the change that follows disruptive trends like these.

Once the entrepreneur identifies the new business opportunity, the next step is to identify the specific offerings that provide enough value to customers to get their attention and motivate them to purchase from the new business.

It could be something about the product itself, such as its price and value, features, performance, durability or design.  It could also be something about how the product or service is delivered to the customer, such as its method of delivery (in their homes, on-line, in an exciting new retail location, etc.) or the specific services offered to go along with the product.  Or, it might be something about the personnel of the company, including their expertise, responsiveness, or reliability.

It is almost always best to identify and focus on one or two things that will make your business stand out to customers.  Focus on the most important need or problem the customers are facing.  Offer that feature to the customers with excellence in mind, making sure all employees understand its importance.  And make that key feature the heart of all of your promotion and other communication with the customer.

The best way to develop the key features that are at the heart of your value proposition is to listen to your customers, as while you may think you know what the customer wants, most of the time you will not have it quite right.  You will probably have to adjust your product or service to fit with what the customer actually wants or needs.

You may have started with something that is too complex and confusing to the customer.  What you thought would be one of many features of your product may need to become the only thing you focus on.

Sometimes the entrepreneur starts too narrow, and what was thought of as the product or service is only one of its key features – you may need to broaden what it is you offer.

Or you may discover that what you offer is a great value, but you have not been selling it to the right target market.

Once your customers affirm that you are offering the right value proposition, it needs to become the focus of everything you and your employees do every day.

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Simple Business Models Often the Best

Sometimes the simplest business models make the best opportunities.

We recently held our competition for the Baker Donelson Outstanding Student Entrepreneur of the Year award here at Belmont University.  The winner not only has bragging rights, but also receives a significant cash award to help with the growth of their business.

This year’s competition was particularly strong.  But in the end, the winning business was not a new app for your smartphone, a new web platform, or a breakthrough technology to change the music industry.  The student entrepreneur who was named the Outstanding Student Entrepreneur of the Year collects medical waste from doctors’ offices and funeral homes.

It took Jerell Harris, founder and at this time sole employee of QuickMed, a long time to get to the point of starting his medical waste management business.

Harris is not my typical student who comes to college fresh out of high school.  By the time he enrolled he had worked for several years, was married, and had a family of four children.

“I operated a small business for more than seven years,” said Harris, “but failed to take the company to the next level of growth. It was very frustrating.”

Eventually he decided to take significant step of entering college to pursue a major in entrepreneurship.

As he began to learn about entrepreneurship, Harris explored several business models.

The most recent one was a biometric attendance-monitoring concept aimed at reducing fraud within the state supported childcare industry.

The further he explored this idea, the more he realized that the technological complexity of the systems to operate the business, the cost of getting it started, and the general political climate it operated within made it too risky to launch.

After abandoning that idea, he decided to try and find a simpler business model to pursue.

Based on conversations with a friend, he recognized an opportunity in a well-established industry — medical waste management.  As he developed the business model for this idea, he discovered that it was relatively inexpensive and easy to launch.

But even a simple business model requires proper and careful execution.

“My entrepreneurship education has helped me tremendously,” said Harris. “I now understand how to make necessary pivotal steps that will help me reach my growth targets.  Above all, I have learned how to manage my company as it goes through various life cycles.”

Even though this medical waste management is a well-established market, Harris was able to find a value proposition that has helped him steadily gain market share.

“I have listened to the complaints in the market and developed QuickMed’s services based on those criticisms,” explains Harris.

Harris has ambitious goals for his new venture.  He intends to extend QuickMed’s waste collection services across the state of Tennessee by 2014.

When searching for a new business idea, avoid the common temptation to try and find a complex, trendy, or glamorous product.  Some of the best opportunities come from the most simple, everyday needs in the marketplace.