GROWING A BUSINESS IN
NEW JERSEY
PRESENTED AT THE VENTURE ASSOCIATION OF
NJ’s ENTREPRENEUR EXPO AND ELEVATOR
PITCH OLYMPICS 5/16/2005
-Randy Harmon, Co-founderFoundations Business Development Group, LLC,
Consultant-NJ Small Business Development
Centers of Rutgers Business School
GROWING A BUSINESS IN
NEW JERSEY
-Are you an entrepreneur?
-Research and Planning
-Financing
-Strategic Alliances
-Business plans
-Business development resources
“BUSINESSES DON’T FAIL,
PEOPLE DO.”
-Businesses fail because entrepreneurs and their
personal characteristics, skills and experience, as
well as their allocated resources fail to satisfy the
requirements for a successful business.
-Step 1 is to look at yourself and your experience to
identify likes and dislikes, as well as your
strengths and weaknesses and see how you
match up with the requirements for a successful
business.
-Compensate for deficiencies.
“BUSINESSES DON’T FAIL,
PEOPLE DO.”
-Honestly evaluate your motivation and suitability for
launching your own business, especially when:
-You were recently laid off or early retired
-You fear being laid off
-You have been unemployed for a period of time
-Entrepreneurship generally cannot be your
salvation, it has to come out of who you are and
how you are made up and motivated.
INVENTORS
-Include scientists, engineers, technologists,
mechanics and “tinkerers”
-Creative, idea people
-Love to explore and implement ideas
-Tend to view every aspect of life as a problem to be
solved or a product to be improved
-Typically have multiple ideas for inventions
-Often don’t have a clue regarding how to bring them
to market
ENTREPRENEURSHIP
THE ACT OF CREATING A BUSINESS
-MANAGING THE DEVELOPMENT OF AN IDEA
INTO A VENTURE
-Perception of a market opportunity
-Ability to identify markets and niches
-Assessment of potential and risk
-Procurement and allocation of resources
-Creating value
INVENTORS/TECHNOLOGISTS
BEWARE
-An inventor is not necessarily an entrepreneur
-A successful entrepreneur does not have to be an
inventor
-An inventor may not be able to become a successful
entrepreneur
-GOOD TECHNOLOGIES CAN FAIL TO BECOME
GOOD BUSINESSES BECAUSE THE FOUNDER
WAS AN INVENTOR AND NOT AN
ENTREPRENEUR AND WAS UNABLE TO
COMPENSATE BY BUILDING A TEAM
CHARACTERISTICS OF THE
AVERAGE ENTREPRENEUR
-Innovative
-Married
-Need for achievement “the burning gut”
-Comfortable with risk
-Calculated risk takers
-Don’t need or like structure and definition
-Comfortable with ambiguity and uncertainty
-Value independence
-Don’t easily fit traditional company mold
-Sense of control over environment and destiny
-Most start several ventures before age 20
-Often the first child of a parent who was an entrepreneur
ASSESS YOURSELF AGAINST REQUISITE
BUSINESS ROLES AND TASKS
-Sales
-Marketing
-Strategic planning
-Financial planning
-Accounting
-Advertising
-Administration
-Personnel management
-Research & Development
-Manufacturing
SOONER OR LATER, MOST ENTREPRENEURS
WILL HAVE TO BUILD A MANAGEMENT TEAM
-Few people have or can develop all the skills required for a
successful technology-based business
-There is not going to be enough of you to go around
-Management, Management, Management
-Equity investors invest in people, particularly teams of people,
at least as much as they do the business concept
-All venture capital backed businesses will have to build a
management team
-Typical technology-based business is launched by
technologists, with little business experience
-Entrepreneur’s dilemma
-Business advisory boards
-Creative teambuilding
I DID IT! I’VE GOT IT!
MAYBE I SHOULD GO INTO BUSINESS
-Technology Entrepreneurs and particularly inventors who
think they are entrepreneurs are vulnerable to
overemphasizing the technology
-First step in considering a new venture is to ask yourself:
Who is going to care about this and why?
-What CUSTOMER problem am I going to solve, what
unmet need am I going to fill?
-Whose pain am I going to ease?
-Will they care enough to pay for my solution/product at a
price at which I can afford to make it available?
-Get a marketing/sales advisor ASAP
RESEARCH, RESEARCH, AND
MORE RESEARCH
-Preliminary market research including the industry you are in and
the industries you are targeting, customers, and competitors
-Determine approximately how much money you are going to
need to launch the business and carry it to the break-even
point
 Begin thinking about where this money is going to come
from and the requirements for accessing this money
-Conduct a preliminary patent search to make sure that you are
not about to set out to reinvent someone else’s wheel
-Consider the legal aspects and implications of setting up a
business
-YOUR OBJECTIVE IS TO CONDUCT SUFFICIENTLY
DETAILED AND COMPREHENSIVE RESEARCH TO ENABLE
YOU TO COMPLETE A WRITTEN BUSINESS PLAN
MISSION STATEMENT
-What the company does, what business you
are in
-What industry you are in
-Customers and markets
-What the company aspires to become
-Maximum of 2-4 sentences
VALUE PROPOSITION:
WHERE’S THE BEEF?
WHAT’S COMPELLING?
-What unmet need does this fill?
-Why is this important?
-Why will customers care?
-Why should investors care?
-Sustainable competitive advantage?
-Spouse test
ELEVATOR PITCH
-Generally a 45-60 second description of the
BUSINESS OPPORTUNITY in LAYMAN’S
terms
-No more than 15 seconds on the technology and
product
-Entrepreneurs should also have a 10-15 second
networking pitch, which can be elaborated on if
the listener is interested
ELEVATOR PITCH
ADDRESS EACH POINT BELOW WITH 1 OR 2 SENTENCES AND
THEN COMBINE AND SELECT YOUR BEST 10-14:
-What the company does/what business you are in
-Who you do it to- customers and markets
-What the company aspires to become
-What unmet need/customer problem do you solve?
-Brief product/service description, 2 sentences max, non-technical
terms
-Why this is important/why customers will care/customer benefits
-Why should investors care/what is compelling?
-One or two exceptional milestones that demonstrate momentum is
building.
-What you are presently looking for (i.e. financing, guidance, team
members)
SET UP A BOOKKEEPING SYSTEM
-Record expenses
-Keep receipts
-Set up a business checking account
-Get an accountant
MARKET RESEARCH
-Total demand and sales potential within targeted market
-Competing products and what customers think about them
-Perceptions of prospective customers regarding how your
product compares with the competition
-Unique value proposition
-Sustainable competitive advantage
-Identify market segments and niches where you can compete
most effectively
-Barriers to entry
-Profiles of targeted customers
-Distribution channels
-Pricing structure
NETWORKING &
INFORMATION NETWORKS
-Networking is one of an entrepreneur’s most important
activities
Helps get the word out about your business
Enables you to learn information and meet people
who can be helpful to you in building your business
Meet prospective investors
-Information networks enable you to monitor industry and
market developments, as well as the competitive
landscape, in search of threats and opportunities
-Prospective investors are going to expect you to know,
understand, and be able to discuss your targeted
markets, prospective customers, and competitors at
least as well as anyone
INFORMATION NETWORKS
PUBLISHED SOURCES
-Newspapers
-Business periodicals
-Trade press
-Professional journals
-Speeches and
announcements
-Annual reports
-Testimony, lawsuits,
antitrust information
FIELD/HUMAN SOURCES
-Customers
-Suppliers
-Trade associations
-Entrepreneur organizations
-Chambers of commerce
-Journalists
-Former employees
VENTURE CAPITAL
-Typically invest $1,000,000 or more
-Fund 1% or less of the deals they see
-Generally dislike early stage deals and pre-sales
businesses, because of their level of risk and lack of
market validation
-Some firms specialize in seed and early stage
investments
-Seed stage and early stage funds invest smaller
amounts earlier
-MAKE SURE YOU ARE READY
-GET REFERRED
-Pratt’s Guide to Venture Capital
ANGEL INVESTORS
-High net worth individuals:
-Typically invest smaller sums earlier and have a
higher tolerance of risk
-Tend to invest $300,000 or less and like to be
actively involved
-Invest in industries they are familiar with
-Collectively do more deals and invest more
-Tend to invest within a couple of hours drive
-Can be difficult to find
-Often Invest as a group
HUNTING DOWN ANGELS
-Attorneys and accountants
-Entrepreneur/Investor networking organizations
 NJ Entrepreneurial Network-www.njen.com
 NJ Entrepreneurs Forum-www.njef.org
 NJ Technology Council-www.njtc.org
 Venture Association of NJ-www.vanj.com
-Venture fairs, forums, and expos
-Flying and yacht clubs
-Angel Investor Networks
REGIONAL ANGEL GROUPS
NJTC JUMPSTART NJ ANGEL NETWORK
WWW.NJTC.ORG
JERSEY ANGEL NETWORK
WWW.JERSEYANGELNETWORK.COM
TRI-STATE PRIVATE INVESTORS NETWORK
WWW.ANGELINVESTORFUNDING.COM
DON’T COUNT ON OUTSIDE FINANCING
COMING OUT OF THE GATE
-Raising debt and equity financing is all about perceptions
of risk and opportunity
-Early stage and pre-sales companies are generally
perceived as too risky
-The further along you can develop the venture before
formal financing, the better your chances and the better
the terms
-Plan for the process of raising financing to take 36+months, if you are very fortunate
-BOOTSTRAPPING- Everything else that an
entrepreneur does to both raise and minimize the
resources needed to launch their business and carry it
through its early stages
BOOTSTRAPPING
-Cleaning out your personal savings or retirement accounts
-Home equity loans and second mortgages
-Credit cards
-Friends & family plan/4 Fs
-Research and development grants
-Strategic alliances
-Outsourcing activities requiring large up-front investments
-Purchasing used equipment
-Bartering your product/service for someone else’s
-Advances from professional service providers
-Suppliers
-Advance payments from customers
DOWNSIDE- There is often a trade-off between time and money and the
delay can sometimes be detrimental or fatal
STRATEGIC ALLIANCES
BUSINESS PARTNERSHIPS
-You partner with another company to gain access to
resources that you need but don’t have
-For most young businesses this typically means partnering
with a larger, more established business
-More important than ever given current risk adverse venture
capital environment
-SPEED ENTRY TO MARKETPLACE AND REDUCE
REQUIRED FINANCING
-Loss of control
-Several Types
 Financing
 Marketing and sales
 Manufacturing
 Licensing
FINANCING
-Large companies may invest in smaller entrepreneurial
ventures to supplement or substitute for their own R&D
-Less risky and more cost effective means of accessing
cutting edge technology
-Strategic partners most likely to understand and
appreciate value
-Potentially more favorable terms of investment
MARKETING AND SALES
-Partner with a company selling similar but noncompeting products to your prospective customers
-No marketing/sales employees to recruit, hire and train;
no payroll
-Access to partner’s network of customer contacts
-The value to the larger company is that your product may
fill a gap in or extend their product line.
Downside: Less control, lower priority
MANUFACTURING
-Identify regional manufacturer
-Eliminates or defers costly equipment purchases
-No manufacturing employees to recruit, hire and train; no
payroll
Downside: Less control
LICENSING
-Transfer of rights to commercialize a technology, or an
application of a technology to another company in return
for financial consideration
-Typically some combination of up front cash, consulting
contract and longer term royalty payments
-There is typically a tradeoff
-Particularly useful for first application of a platform
technology or the first technology of a company with
multiple technologies
-Use cash and validation generated from the license to
commercialize other applications and build a company
Downside: Lower rate of return, loss of control, time lag
before royalty payments flow
-Build in performance milestones
MUST BE PREPARED
-Entrepreneurs often approach prospective partners too
early
-A good idea won’t be enough, strategic partners will
want to see many of the same milestone
achievements that equity investors look for
-Typically will want to see at least a prototype and often
some testing and market validation
SMALL BUSINESS INNOVATION
RESEARCH PROGRAM (SBIR)
-Largest Federal R&D
grants program targeted
to small business-more
than $2 billion annually
-Best source of risk capital
-Pathway to equity
-All Federal agencies with
large external R&D
budgets participate
-Authorized through 08
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Dept. of Agriculture
Dept. of Commerce
Dept. of Defense
Dept. of Education
Dept. of Energy
Dept. of Health and Human
Services (NIH)
Dept. of Homeland Security
Dept. of Transportation
Environmental Protection
Agency
NASA
Nat. Science Foundation
THREE PHASE PROGRAM
-Typically annual solicitations in which agencies
define areas in which they are interested in
sponsoring research
-Phase I- up to $100,000, runs 6 months
-Demonstrate technical/scientific merit and
feasibility
Phase II- up to $750,000, runs 2 years
-Continue research or R&D efforts
-Development of a prototype
Phase III- no new funding
-Commercialization of the technology
ELIGIBILITY FOR SBIR
PARTICIPATION
-Must be for profit business operating primarily in U.S.
-Can be proprietorship, partnership, LLC, corporation,
joint venture, association, trust or cooperative
-51% owned and controlled by individuals who are U.S.
citizens or permanent resident aliens
-Not more than 500 employees, including affiliates
-All Phase I and Phase II work must be performed in
U.S.
-Don’t have to have company in place to submit
successful proposal
PRINCIPAL INVESTIGATOR
INVOLVEMENT
-As the SMALL BUSINESS Innovation Research
Program, SBIR is faculty unfriendly
-Must be primarily employed by the company
(>50% of time during the contract, but not
necessarily all on this project)
-Cannot work full time for another organization
-Co-PI’s not allowed
-Other agency-specific requirements
SMALL BUSINESS TECHNOLOGY
TRANSFER PROGRAM (STTR)
-Younger, poorer sister of SBIR program
-5 largest Federal Agencies participate
 Department of Defense
 NASA
 Department of Energy
 National Science Foundation
 Department of Health & Human Services
-.03% set aside
-3 Phase program similar to SBIR
-More faculty friendly-requires 30-60% of contract to go to a
collaboration with a nonprofit research organization
-NIH and NASA remove restriction on Principal Investigator
CLOSEST THING TO
“HOLY GRAIL” OF FREE MONEY
-No loans, no equity
-Entrepreneur maintains ownership of the technology
-Good odds
 1 in 8 Phase I proposals are funded
 2 in 5 Phase II proposals are funded
 Odds currently better under STTR
PATH TO EQUITY FINANCING
-SBIR/STTR provide up to $850,000 in
financing over approximately 3 years to
develop a technology reduce its technical
risk.
-If the company simultaneously works to reduce
market and business risk it can become a
prospect for equity financing.
BUSINESS PLAN
-The -FINAL EXAM test of the adequacy of your research
-One of the most important steps in preparing to launch a
new business
-Describes what a business does, where it is going, how
it is going to get there, and the resources it is going to
require
-It will only be as good as the depth and the quality of
your research
-Generally a prerequisite for formal debt and equity
investors
3 PURPOSES
-Extraction: Extracts, translates and expands upon an
idea for a company from the entrepreneur’s head
turning it into a written outline and roadmap for how
to run a business
-Most effective exercise you will go through
-Communication: Communicates business to
prospective advisors, management team members,
investors, strategic partners and employees
-Sales document
-Management: Effective management tool
-Serves as a benchmark
-Dynamic, living document
BUSINESS PLAN OUTLINE
-Executive Summary
-Company Description
-Market Analysis
-Product/Technology/ Service
-Competitive Analysis
-Marketing and Sales Plan
-Management and Operations
-Long Term Development and Risk Analysis
-Financial Plan
-Avoid computer based outlines-makes plan difficult to read
-Business Plan Article-www.njbiz.com/guide
EXECUTIVE SUMMARY
-Most important component of plan, provides snapshot overview
-Should convey the essence of your business IN LAYMAN’S
LANGUAGE and summarize the most important information
contained in each section of the plan
-Starts with the mission statement
-Value Proposition- What’s compelling?
-Identifies how much money you are looking to raise, your
planned use of the funds, earnings projections and an exit
strategy
-Typically read first by investors and bankers
-Screening tool
-Must arouse curiosity and be compelling
-Should be completed last and run no more than 2 to 3 pages in
length
COMPETITIVE ANALYSIS
CREDIBILITY BUILDER OR KILLER
-Identify and discuss your competitors
-EVERY PRODUCT HAS COMPETITION
-At a minimum, your competition is NO SOLUTION
-What is the basis for competition? (technology, price, features,
quality, service, advertising)
-Competitors strengths and weaknesses
-What are your strengths and weaknesses compared to your
competitors?
-What is your competitive advantage and how sustainable is it?
-How may your competitors respond to your entry to the
market?
-Are there any developing technologies which could disrupt the
competitive field?
COMPETITIVE MATRIX
-Matrixes allow the presentation of lots
of information in a useable format
-X Axis-Critical evaluation criteria
-Y Axis-Key competitors or groups
COMPETITIVE MATRIX
Criteria 1
Price
Criteria 2
Speed
Criteria 3
Useful life
Competitor 1
$ 28,000
8 units/hr
7 years
Competitor 2
$ 37,000
10 units/hr
10 years
Competitor 3
$ 31,000
10 units/hr
8 years
You Inc.
$ 33,000
12 units/hr
10 years
MARKET VALIDATION
-Sales
-Beta testing
-Business Partnerships
-Testimonies from prospective
customers and industry leaders
MILESTONES
-Significant achievements to date
-You want to be able to demonstrate
that a momentum is building
-The number and significance of them
determines their placement in the plan
MARKETING AND SALES PLAN
HOW YOU WILL SPREAD THE WORD ABOUT YOUR
PRODUCT, GET IT INTO THE HANDS OF YOUR
CUSTOMERS AND CLOSE THE SALE
-How you will penetrate the market
-Marketing communications strategy
-Pricing strategy
-How you will distribute your product
-Will you have your own sales force?
-How you will maintain and increase market share
FINANCIAL ANALYSIS
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What is the company’s current financial status?
Capital requirements- both short and long term
Use of funds
Sources of funding (R&D grants, bank loans, equity,
other)
Projected net income and cash flow for the first 3 years
Explanation of assumptions underlying projections
Break-even point
Discuss financial ratios- are they in line with industry
standards?
FINANCIAL ANALYSIS
-Introduce and discuss company’s revenue model including all
revenue streams included in the financial projections and
their scheduled start
-Discuss company’s current financial status?
-Capital requirements- both short and long term
-Use of funds
-Sources of funding (R&D grants, bank loans, equity, other)
-Source of repayment
-Projected net income and cash flow for the first 3 years
-Not worth the paper they’re written on
-Explanation of assumptions underlying projections
-Bottom up versus top down financial projections
-Break-even point
-Discuss financial ratios- are they in line with industry norms?
FINANCIAL ANALYSIS
-Introduce and discuss company’s revenue model including all
revenue streams included in the financial projections and
their scheduled start
-Discuss company’s current financial status?
-Capital requirements- both short and long term
-Use of funds
-Sources of funding (R&D grants, bank loans, equity, other)
-Source of repayment
-Projected net income and cash flow for the first 3 years
-Not worth the paper they’re written on
-Explanation of assumptions underlying projections
-Bottom up versus top down financial projections
-Break-even point
-Discuss financial ratios- are they in line with industry norms?
READY, SET,… STOP!
-Avoid approaching investors directly, get referred
-Avoid approaching investors too early
-Milestones
-Market validation
-Okay to approach early if you are reasonably certain
about your path to and timeline for market entry
NJ SMALL BUSINESS DEVELOPMENT CENTERS
(NJSBDC)
OF RUTGERS BUSINESS SCHOOL
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Part of a national public, private and academic partnership
Free business counseling, consulting, and affordable business
training
Funded in part by the U.S. Small Business Administration and
the NJ Commerce and Economic Growth Commission
11 regional centers and 26 satellite offices across NJ
More than 200,000 small business owners, prospective
entrepreneurs and business professionals served since 1979
Serve businesses from pre-startup stage to those with 500
employees
Specialty programs in international trade, government
procurement, manufacturing, E-business, & technology
commercialization
NJ SMALL BUSINESS DEVELOPMENT
CENTERS (NJSBDC)
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Services include help with:
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Business plans
Marketing plans
Financial statements
Loan packages
Record keeping
Taxes
E-commerce
NJSBDC Web Site: www.NJSBDC.com
SBA Web site: www.sba.gov
RUTGERS RESOURCES
-NJSBDC DIRECTOR OF E-BUSINESS
Reviews and evaluations of small
business web sites
Nat Bender 973-353-1924
NEW JERSEY INCUBATORS
-10 public incubators, www.state.nj.us/scitech
-Lease office and light manufacturing space, sometimes wet labs
-Targeted to start-ups and graduates of an entrepreneur’s home
-Rents typically at or slightly below commercial rates
-Shared administrative support services
-Free on site management assistance services
-Access to a network of volunteer business professionals
-Referrals to business resources and education and networking
events
-Supportive environment
-Visibility and credibility
-Objective is to build the business to the point where it is increasing
sales, generating new jobs, and ready to graduate to larger
commercial space within three years
LESSONS LEARNED
-Market entry takes more time and costs more than planned
-The better and more comprehensive your planning, the
better your chances for success, minimize your surprises
-Reader should know after the first sentence what the
company does.
-A great technology may not be good enough, Thou shalt
know thy markets and customers and their needs
-Readability/ Layman’s terms, Don’t make reader work hard
to understand the technology and the business opportunity
-Differentiate yourself from your competitors in a way that
provides the perception of value to your prospective
customers, and that you can sustain over time
LESSONS LEARNED
-First business hire or advisor should usually be a marketing
and sales professional who knows your markets
-Validate market demand and be able to demonstrate
momentum before approaching venture capitalists
-Venture capitalists will expect you to understand your
markets and customers at least as well as anyone
-Management, management, management
-Develop a bootstrapping strategy which you can fall back on
-Develop your venture as far as you can before quitting day
job
-Network
-If the reader is not EXCITED by the end of the executive
summary, you have lost them