“What an entrepreneur needs to be successful is not luck but great technology and good networks. When pitching to venture capitalists it is important that you have a highly detailed business plan. The more detail about the product or service and how it has features that are more sophisticated than those currently in the market the better. Being charming is also essential.”
The function and purpose of a business plan have changed over time. In the 1990s, a business plan was only crucial in helping to emerge as well as established entrepreneurs, avoid major business failures. However, in the modern business environment, the success of a business is not guaranteed by luck, but by the use of appropriate technologies as well as the ability to create networks. While technologies are vital in realizing business success, the value of networks cannot be underrated either. One of the most efficient ways to create networks is through creating a business plan. This is especially true with regards to pitching for venture capital. A business plan does not automatically guarantee an entrepreneur the attention of a venture capitalist. The need for a well structured and uniquely crafted business plan has been necessitated by the increasing demand for venture capital. As such, venture capitalists try to avoid entrepreneurs with mediocre business plans. Andrew Maxwell, a venture capitalist with ES Group Venture asserts, venture capitalists are looking for a sophisticated business plan detailing the uniqueness of entrepreneurship. Such a business plan cannot only attract massive investments from venture capitalists but also portray the real value of that business (Walters 2006).
Walters (2006) proves that the more detailed the plan is, the more funds it attracts from venture capitalists and business angels. As Walters (2006) confirms a five-page business plan only managed to generate $ 300,000 for a web developer in comparison with $ 15,000,000 from a 15-page business plan for an online content company. This alone does not mean that venture capitalists lookout for any details. Greg Loudoun, the Managing Director of an Australian Business Management company cautions amateur entrepreneurs from making meaningless details as part of their business plans. Loudoun advises entrepreneurs wishing to attract maximum venture capital to have as many details as possible, this explains the risks and the returns that the investor will accrue from such an investment. This is what attracts venture capitalists. Since the investor reads the executive summary first, an entrepreneur must use the executive summary to tease the investor into reading the rest of the business plan. Within the executive summary, the entrepreneur is well advised to concisely explain the benefits the investor will accrue from such an investment (PWC 2001).
The assertion that a successful business plan needs to be well detailed and charming is consistent to a large extent with how the group approached its business planning process. In developing the group’s business plan, several vital steps seemed relevant. To begin with, the group had to identify the appropriate venture capital firm. This necessitated the group to seek to gain an understanding of what type of an investor our target investor was. With such knowledge in mind, developing the business plan followed. In writing the business plan, the group had two primary objectives: to attract the attention of the venture capitalist immediately and to attain maximum funding. In this regard, the group developed a well-structured plan. The highlight of the business plan was the benefit of the investor. Capturing the attention of the investor means that such benefits had to be concisely highlighted in the executive summary. Furthermore, the group’s business plan focused on furnishing the investor with sufficient details on market analysis, products and services, financial analysis, key business risks, risk management techniques, and how sales targets will be attained.
“Barriers to imitation are never needed if you are a good entrepreneur have the ability to appropriate value from an innovation.”
The most valuable gain that entrepreneurs can attract from innovations is value. In this regard, the need for barriers to limit imitation is significantly eliminated. This assertion is true to the extent that innovations are only useful if innovators make real-life and practical use for them. However, there are instances when barriers that will limit or curb imitation of innovations are necessary. To begin with, it is vital to understand the scope of the term innovation. Innovation can be defined as the activities and ideas through which a company achieves novelty. In this regard, innovations take three basic forms. As explained by DeSinone (1995), innovation is seen in terms of unique products. As such, a company has to invest heavily in research and development.
This enables a company to come up with new products that help the company override competition. This definition can be seen through the Competitive-Positioning model (Moore 1999). Furthermore, innovation can be taken as a new service that adds value to people’s lives. In this regard, companies such as AOL and E*Trade have thrived since they innovate novel concepts on service delivery. Thirdly, innovation can be seen as a process of discovering a new way to do something. Many companies have developed innovative processes such as customer service, production, distribution, among others, which makes the business run efficiently and reduce the cost of doing business. It is imperative to state that innovation is different from invention to the extent that while innovation is coming up with something new, innovation is utilizing new opportunities to come up with novel ideas that can be put into practical use (Morris and Kuratko 2002).
There are several barriers through which a company creates a blue ocean. Natural Monopolization of the market by a single player is usually the most effective barrier to imitation. Natural monopolization is a market that is too constricted to accommodate more than one player. This implies that the natural business environment limits entry by the new player. As such, imitation is limited by default. Patenting is another vital barrier to imitation. A patent is a legally imposed limitation, under which other entrepreneurs are restricted from imitating an innovation.
Moreover, the company’s ability to network and attack many customers create a limit to imitation, since it becomes cumbersome for consumers to move to a competing imitator. There are also cultural and political barriers, which impose a limitation on imitations. In this scenario, a company innovates in response to the prevailing political and cultural ideals, therefore becoming popular to local consumers. Branding is also another limitation to imitation. A well-developed brand creates a buzz. As a result, the brand becomes a lifestyle, and thus difficult to imitate. Lastly, a company can limit imitations by attaining cost advantages. In this regard, the company can provide new commercial products cost-effectively. This limits imitation since imitators may not be able to achieve the same cost-effectiveness (Cadot and Lippman1995).
However, the market created by these barriers evolves and disappear with time. This is because blue oceans disappear and usher in competition-based red oceans. In other words, innovations are not permanent. With time there will be new competitors seeking to gain access into a market that was previously monopolized. If companies want to survive in the long run, they must find new barriers to their innovation. Given this, companies have to adopt value innovations. Value innovations are not competition based but based on a new concept that entrepreneurs can limit imitation of their innovation through avoiding competition. This is attained through reinventing innovations, not to serve competition but to help innovators exit current markets into new uncharted ones. This creates a blue ocean. It is imperative to note that reinventing innovations has to be done continuously since blue oceans will eventually turn red.
This is a barrier that seemed to be applied by 3M Company, which derives its market leadership roles not due to the innovation, but by how it recreates innovations to address unmet consumer needs. The company researches the market trend as well as unmet consumer needs. It then evaluates the current innovations and their weakness in addressing consumer needs (Kim and Mauborgne 2005). This leads the company to develop innovations that address customers’ needs. By so doing, the company continuously creates a Blue Ocean. Such innovations include the bright light low power laptop screens, which the company developed after discovering that laptop users were complaining of low battery power with their laptops. 3M discovered that the real challenge facing laptop users was not low battery power, but power consumption through screen light. By continuously seeking Blue Ocean, 3M seeks not only new barriers to imitations of its products but also help its products break way from the traditional product life cycle (Moon 2005).
The impact and effect of the “innovation issue” on the innovation process
The famous American inventor Thomas Edison is known for his presumably groundbreaking innovations. For the five years between 1876 and 1881, Edison churned out one invention after another. His famous innovations include the bulb and the telegraph, among other famous technologies. Furthermore, Edison is also known for many other innovations that were practically useless, which could not be commercialized (Hargadon 2003). Not many innovators existed in the 19th century. Wijgh (n.d.) notes that the number of innovators has increased tremendously to an extent that many of the modern entrepreneurship find themselves employing people with great innovative skills. As a result, it has become increasingly cumbersome to manage businesses today since modern employees want to be given the space to innovate and do things their way.
Innovation is seen as the key to a successful business. But the emergence of multiple innovators brings to the fore one of the many issues concerning innovations: management of innovation. According to Tidd, Bessant, and Pavitt (2005), innovation management is a process that takes specific sequential steps. Innovation is not an impromptu but a deliberately directed activity. As such, the management of innovations affects the innovation process since deliberate steps have to be followed.
The innovation process starts with scouring the environment to identify whether there any clues that change is needed. This means that despite there being numerous innovators within entrepreneurship, their innovativeness has to be managed to an extent that it addresses the existing need to change. Such innovations have to be paralleled to the company’s prevailing business strategy. This implies that innovators should not be allowed to innovate because it is fashionable but such innovations should only be allowed if they do not conflict with the company’s business strategies. This also implies that innovation managers have to evaluate limitations to innovations as well as the available resources, both internal and external, in terms of technologies, knowledge, expertise, and facilities. This also implies that the company’s abilities in research and development are evaluated.
The purpose of evaluating this is to identify whether the company is in a position to create its technology, without external support. At this stage, innovation managers have to choose which of the technologies are in line with the company’s business strategies for growth. Such innovations have to be executed through strict monitoring and control mechanisms.
Change is gradually introduced which facilitates the development of new and innovative products. At this stage, innovation managers have to ensure that the change that is brought by the innovation is acceptable and that people can use innovations effectively. This implies that innovations have to be developed to address existing human needs, and should therefore not catch people by surprise. Innovation management is a continuous process. As such, innovation managers have to ensure that there is continuous learning on the effectiveness, noting whether there are any improvements needed.
In executing the innovation management process, some strategies seem relevant. Tidd et al. (2005) stipulate that strategic decision-making is vital towards the successful management of innovation. In innovation management, strategic decision making is concerned with the creative allocation of resources in line with the business strategies as well as the management of the risk associated with the innovations. Furthermore, operating in routines is another of the strategies through which a successful innovation management process is achieved. This implies that the process has to follow rules and procedures set without deviation. Such rules and monitoring procedure allows for constant evaluation of the innovation process.
Cadot, O., & Lippman, S., 1995. Barriers to imitation and the incentive to innovate. Web.
Moore, G., 1999. Crossing the chasm: marketing and selling high-tech products to mainstream customers. New York: Harper Business.
Walters, K., (2000). Get planning. New York: Mc-Grow Hill.
Hargadon, A., 2003. How breakthroughs happen: the surprising truth about how companies innovate. Boston, Mass.: Harvard Business School Press.
Moon, Y. 2005. Breaking free from the product life cycle. Boston, Mass.: Harvard Business Review.
Kim, W. and Mauborgne, R. 2005. Value innovation: a leap into the blue ocean Journal of Business Strategy. 26(4).
Morris, M. and Kuratko, D., (2002). Corporate entrepreneurship: entrepreneurial development within organizations. Fort Worth: Harcourt College Publishers.
PWC. 2001. Three key to obtaining venture capital. New York: Price water house cooper LLP.
Tidd, J., Bessant, J., and Pavitt, K., 2005. Managing innovation: integrating technological, market and organizational change. Hoboken: Wiley.
Wijgh, H., n.d. “Do we really want entrepreneurs?” Fast thinking. Web.