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Without these elements—a full understanding of a problem, new connections, and a vision or direction for a solution—there is no entrepreneurial venture. Whether the problem you’ve identified is global or local, broad or niche, your ability to spot it and conceive new solutions is a core element of entrepreneurship. And passion about the problem you are solving might not be as important as you think.
To launch a successful venture, you must also make other people see the merits of your idea and invest in it—whether they are employees, customers, or funders.
A business opportunity is primarily a product or service that creates significant value for customers and offers significant profit potential to the entrepreneur.
A business opportunity:
Evaluate promising opportunities by considering the market, the current and anticipated level of competition, the underlying economics, and the resources you’ll need to be successful
A business model describes how an enterprise proposes to make money.
A well-conceived and promising business model is only half the equation for success because it doesn’t take into account the market competition.
Dealing with competition is the job of strategy. Strategy is a plan to differentiate the enterprise and give it a competitive advantage. A successful business has both a solid business model and a good strategy.
The 5 steps of strategy formulation are:
At the onset of your new venture, you will need to address the legal form your enterprise will adopt. Should it be a sole proprietorship, a partnership, a corporation, or a limited liability company? This decision is driven mainly by your objectives and those of your investors.
Taxation and legal liabilities also play a part. The trade-offs built into the law can make the choice difficult; to get the most favorable tax treatment, a business must often give up some protection from liability, some flexibility, or both.
A business plan is a document that explains a business opportunity, identifies the market to be served, and provides details about how the entrepreneurial organization plans to pursue it. To be effective, a good plan also describes the unique qualifications that you and your management team bring to the effort. It explains the resources you’ll need and forecasts financial results over a reasonable time horizon.
Any business that seeks outside funding from banks, angel investors, venture capitalists, must have a solid business plan. Without it, creditors and investors won’t take you seriously.
During the growth stage, your business expands its sales and develops a growing base of customers. As a result, you’ll need more capital—for expanding your operation, hiring and training new employees, etc.
Your company may already be generating some positive cash flows that can help finance these initiatives, but you’ll probably need more cash if your growth is strong. Having now proven your business’s credibility, though, you can generally tap external capital more easily than you could in the startup phase. For slow- to moderate-growth firms, much of that capital comes from bank debt.
Growing firms with exceptional revenue potential have another option to achieve a significant cash infusion: they can seek financing through an IPO. This process presents ownership shares to the world of individual investors and institutional investors such as pension funds and mutual funds and results in a significant exchange of paper ownership shares for the hard cash the company needs for stability and expansion.
An IPO marks a major milestone in the life of a company. It signals that your enterprise has earned the confidence of people outside its inner circle of participants.
Possible approaches to leading a startup faced with rapid growth:
Entrepreneurial leaders can keep the spirit alive if they:
There are probably as many reasons for harvesting an investment as there are entrepreneurs. Retirement is one reason. An offer “too good to refuse” is yet another.
Surveyor for building control
View all The Harvard Business Review Entrepreneur's Handbook Book Summaries
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