Let’s Do Launch

In the business world, inspiration is best described as a catalyst.

May 1, 2007  

by Ernest Granson

It’s an inspirational scene. A couple of friends are sitting around a kitchen table, sleeves rolled up, slurping coffee and furiously scribbling million-dollar ideas onto a napkin. This, at least in Hollywood, is how business plans are born. Chances are, however, that most schemes conceived at midnight eureka sessions no longer exist. Some impulsive entrepreneurial ideas lead short lives. Others evolve into reconstructed business models – possibly successful, possibly not.

Inspiritation is just one of the elements behind a viable concept. Moreover, it’s the process that follows the spark – that long, often painstaking act of creating a commercial entity from scratch – which is truly critical. In other words, it’s not what you do that will determine your success; it’s how you do it. And besides, sometimes the end result (that is, your profitable business) doesn’t even resemble the original scheme.

All right. You and your midnight-at-the-kitchen-table partner have drafted the skeleton of a business plan on the unused napkins that came with the pizza. You’re both serious about developing a new line of software and you’re certain it’ll be a hit with a range of industries. Where do you go from here?

Alberta Venture has enlisted the guidance of several experts, business professionals who not only advise and instruct but also share knowledge gained through first-hand experience. With their help, we’ll take you on a chronological journey through the various stages of a startup. It’s important to remember, says Ian Gunn, partner, private company services with PriceWaterhouseCoopers LLP, that the chronology is fluid. Some businesses nurture an idea over a period of years; others are like jets taking off from aircraft carriers – they’ve got potentially hot products and need to get to market quickly. Considering the range of business categories which exist, this package is best viewed as a general guide. After reading it, you’ll know what to do with those napkins.

One to Two Years Before Launch At this embryonic stage, the plan is still very rough. You have to figure out if your idea is even feasible, says Leo Donlevy, area chair and senior entrepreneurship instructor at the University of Calgary’s Haskayne School of Business. “You have to ask questions such as, ‘Is there a market for this? Can I actually make money at this? Can I get money to start it up? Do I have the operational expertise to be successful? If not, can I obtain those skills?’”

Terry Booth, executive director, growth markets at Ernst & Young LLP in Calgary, advises his clients to focus on several specific points during this first phase. You must clearly define what the product or service is, nail down what or where the market is, and map out how you’ll get your goods to that market. You also need to decide exactly who will be involved in the business and establish the method of financing.

“If you look at the evolution of a company, those points come in at important periods along the way, but they’re different for every company,” says Booth. “For instance, I am working with a startup company that is doing a beta version of their product which requires about $8 million in financing. So they have to start with the financing to build the beta version. Then they have to raise a bunch more money to take it to market. At what point these pieces come in is different in every business case.”

1 Market Research
Despite the fact that different types of businesses require distinct approaches, confirming that there’s a demand for your product or service is mandatory during the initial phase of development. Yet many neglect this crucial step. “As Canadians, and in Alberta in particular, there is this belief that if you build a better mousetrap, people will rush to it and everything will fall into place,” says Booth. “People fail to think through all the steps, especially the step in which you ask yourself, ‘Is there a market for this alpha product? What will people pay me for this mousetrap?’”

Donlevy has also seen this mistake often. Would-be businesspeople don’t do their primary research. “They have to communicate with potential customers as far as buying behaviour,” he says. “How do you do that? Well, you can do surveys, exit interviews or ‘intercept’ interviews at the shopping mall. Even better, do a focus group with, say, 10 people who fit your customer profile. It doesn’t have to be expensive. You probably know some people who could be potential customers. Get some munchies and some beer, call them up and talk to them.”

The story of Calgary-based IT SportsNet serves as a good primer on miscalculating demand. The company develops sports administration software today, but president and founder David Cooper’s original plan was to develop a community web portal. “We felt there was a lot of opportunity to attract community sports organizations and make money by selling advertising,” he says. “Then, during an MBA marketing course at the University of Calgary, I did focus groups with sports participants. They really only wanted to know about schedules and standings. The lesson it taught me was to float the ideas first and see what the market wants.” IT SportsNet changed course, generating revenue directly from sports organizations. Despite considerable competition, it now has more than a million online users through 2,300 clients. Oh, and $50 million in annual sales.

Determining where your product or service falls within the marketplace is closely related to customer research. It’s imperative, says Gunn, to conduct market analysis to learn how large your market could be, and what slice of it you can expect to land. First you must define your market. Is it local, provincial, national or global? Once you know the answer, understand your market. Find out about the competition you’ll face, whether somebody is already out there with a similar pitch.

This is huge, Gunn stresses (and yes, you’ll need to do more than Google the term “market”). Conducting in-depth market analysis can be a challenge because hiring professional firms isn’t cheap, but there are other options. RBC Royal Bank’s booklet “Starting a Business,” for example, provides thorough information and suggests inexpensive ways to explore the market. It does cite the Internet as a helpful free source, along with Statistics Canada; trade associations; local chambers of commerce; trade magazines; newspaper archives and other publications at the library; consultants; business owners in non-competing but similar markets; products, stores, websites and other available information about direct competitors.

In his experience working with start-ups, Booth has seen many entrepreneurs not only fail to understand their market, but also their own competitive advantage. They’re not clear why their product or service will appeal to a consumer over a competitor’s. If you can’t see your edge, how will a shopper?

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