How to pack start up into a business from scratch? This question is asked by aspiring entrepreneurs who have innovative ideas. In short:
- You need to find your business idea.
- Prepare brief materials (description of the market, basic technology, financial model, strategy).
- Create a legal entity, register all the developments for it, prepare detailed presentation materials.
- Start operating, get financing, scale the project.
There is such a statement that:
“Whatever you can provide, you can get”
And they also say it the other way around, and this even clarifies the meaning:
“You can’t imagine what you can’t get.”
How are things on the Startup market in Russia?
The market for the purchase and development of start-ups in the world and in Russia, of course, exists and is developing quite dynamically.
Large companies invest in the development of new projects, and give budding entrepreneurs to develop their business ideas and earn good money on this.
Now there are a lot of materials on the topic of self-development and promotion, a huge number of psychologists, coaches, motivators who tell you how to pump yourself, set goals, find energy and motivation in yourself.
In general, this is a good phenomenon that gives people additional self-confidence, develops their horizons, people become more open, and begin to reach for new knowledge, goals, and so on.
Successful people are very serious about the issues of self-development, energy, philosophy of their activities, they are passionate about it much more than it may seem at first glance.
Many successful businessmen are creative personalities with all the consequences that follows.
In our practice, one well-known oligarch had a personal astrologer who prepared an astrological forecast for each week and sent it to all his top management, and this forecast had to be taken into account when planning things.
Another successful businessman fired people if he considered them unlucky, since luck is an important factor, and bad luck can be contagious.
There are people (a very large number) who make important deals on the new moon or on the growing moon.
If you look at all this from a business point of view, then the development of coaching has a downside to the coin.
First, there are business coaches (and there are quite a lot of them) who do not really understand business themselves, do not earn a lot of money, have not built a single successful project. They have only theory in this matter.
They did not feel how the business is built in reality, and therefore their ideas are a little naive. Such coaches themselves are very limited in business matters.
It’s like talking about serious relationships or family life in teen magazines if you’ve never been in them. In practice, everything happens differently than in theory.
Second, ideas about a successful life often fall on unprepared ground, on people who have no education, practice, and they misinterpret the information received. They stop wanting to “work for their uncle”, and begin to “know their worth”.
The phrase of Mikhail Zhvanetsky is very suitable here:
“It’s not enough to know your own price, you still need to be in demand.”
At the moment when people dream of some kind of business or project, of course, you do not need to limit yourself to some kind of framework, even if the idea that has come is even crazy or incredible, but it should appear, come to a person’s mind and illuminate his consciousness.
As practice shows, even the most incredible idea can be combed and turned into a successful project.
Nonetheless, when working on the implementation of an idea, you need to understand the basics of building a business.
Usually inexperienced coaches continue to give advice:
- “work hard”;
- “move towards the goal, no matter what”;
- “it doesn’t matter how many times you fell, it matters how many times you got up,” etc.
Here the question appears: how is it? Then what to do?
If you attract money for your business project, then it will not do with phrases like everything will be cool.
You need to start “packaging” your business idea into a real project. Imagine, as if out of thin air, you begin to assemble your idea piece by piece into a real project.
Make a brief description of the project, goal and financial model (2-3 months)
As soon as you come up with a business idea, you don’t need to run anywhere right away, spend time on this item.
Do the description of the project in as much detail and in writing as possible, there are a lot of materials on the Internet now and you can collect very detailed information on almost any issue.
The set of information that is needed to understand the business is about the same everywhere: for yourself, for partners, for banks, start developing materials.
It helps if you start preparing your project for some official procedure: obtaining a grant, reviewing an application in a bank, etc.
You will then begin to have generated materials, and you will receive official feedback on them (criticism, advice), which you can use in your work and will refine the materials.
For example, you can view the package of documents required to obtain the status of a project to create and ensure the functioning of the Skolkovo Innovation Center, and try filling out all sections of the application.
You do not need to contact consultants to prepare a package of materials, simply register on the Skolkovo website and see what you need to submit an application in your personal account.
- General information (5 proposals, a brief summary, available developments, goals).
- Describe the problem that the project is aimed at solving (links to materials confirming the relevance of the problem, what is the innovativeness of the project in solving the problem).
- Describe the main technological and market trends in the industry in question (links to materials, similar patents, etc.).
The first three points are a small marketing research, with which any business planning should begin.
Even for an application to Skolkovo, you need to provide links on the Internet, so the Internet will help you, nothing is impossible.
- Description of the basic technology (patent applications, protocols, computer programs, etc.).
- Commercialization scheme.
- Competing solutions.
- Market parameters (specify the markets for which this project should be implemented).
These three points describe the financial part and will help to create a financial model, which is a mandatory part of the business plan.
In this paragraph, make a financial model. Even primitive.
You can roughly count from the reverse. For example, I want to sell a business in 5 years for 10 million US dollars.
Rough business valuation formula: EBITDA x 5 = $10 million. USA
EBITDA — Earnings Before Interest, Taxes, Depreciation and Amortization — is the company’s profit before interest on loans, income tax and depreciation on fixed intangible assets. EBITDA shows the real profit of the company without adjustments for factors that do not relate to operating activities.
EBITDA = USD 2 million (average EBITDA of a normal business is 30% of revenue)
Therefore, the revenue in 5 years you should have 6.7 million US dollars (502 million rubles).
Now:
- take the annual revenue (502 million rubles) and divide by the average receipt of your product.
- you understand how many products (services) you have to produce per year.
- build a model of the previous 4 years, which describes in large strokes your approach to this revenue.
If you understand something about your business (and most likely it is, otherwise you would not have come up with a business idea and would not have filled in the previous blocks), you will definitely be able to build a financial model in Excel yourself, even if you have never done it in your life.
- Resources (dynamics, whether financing has already been attracted, etc.).
- Goals (current status and where you want to go).
- Project implementation plan (roadmap).
These three points relate to the Strategy.
At the first stage of drawing up an application in Skolkovo, there is not even a need to submit data about a legal entity, you may not have one.
In each section there are additional questions that will help form a description of each part of your project.
You can do this as a test, if you are able to fill out an application yourself and you have enough materials, then your business idea can continue to be implemented.
At this stage, you will create a “skeleton” of your future project (company), which will then “overgrow with meat”. It turns out that at the initial stages you need:
- marketing research;
- description of the basic technology:
- financial model;
- strategy;
- legal registration (it will be added in the next stages).
Moreover, you can pump your existing business in this way, so that in the process of routine activities you do not lose the goal where you are moving.
To do an exercise: I want my company to be worth 10 million US dollars, or 1 billion. the US dollar, no matter how much, and count it in the opposite way and see how you can come to this.
You will definitely be able to collect the materials yourself and for free. If you can not pass this stage, then it is just natural selection after all.
How to start creating a startup? (1 year)
To what stage you can independently implement the idea will depend on how much money you have to promote it.
You can start attracting third-party money at the initial stages, you can move forward on your own.
It is important to try to implement each point, as a rule, everything seems much more complicated in theory than in practice.
To say that “I can not” is possible only if you tried and really failed. You cannot refuse without trying.
These rules also apply to large businesses, where people with their own internal limitations also work.
When implementing projects, a lot is in progress, even the same administrative resource, without which it is allegedly impossible to achieve anything.
An administrative resource is very important, if you work actively, it will most likely find you by itself, as you will become an energetic and potentially successful project.
Large companies and successful businessmen in the team need active and passionate people, whom they will be happy to attract to work.
What is the Startup packaging algorithm
1. You need to create a legal entity, you do not need to work for an individual entrepreneur
We have already written in other articles that we consider it wrong to start working for a business that will need scaling in the future.
Yes, it is easier to transfer money from an individual entrepreneur to a personal card, if you take money from a legal entity, then additional taxes arise.
But in the end, IE is a dead-end branch of development, thereby you are limiting yourself.
A miracle can happen to any business, and anyone can see the light and want a major global development, but with an individual entrepreneur, a miracle will be much harder.
All your developments will be blocked on individual entrepreneurs who cannot be sold or attract an investor there. Register a simple Limited Liability Company.
2. To register all your work for a legal entity and to register the developments for it
The fact that you work and create some materials already forms the assets of your company, which you will then sell or develop.
At this stage, a lot of businesses are limping, even very large ones. You need to start doing everything right from the very beginning, and be very pedantic in your work.
If you have an IT project, then contracts for the development of websites, programs, applications should be issued to a legal entity, the contract should provide for the transfer of intellectual property from developers to a legal entity.
All accounts created on marketplaces, social networks, crypto wallets and any other accounts – everything must be registered to a legal entity.
If you order research, production of demo versions, prototypes, technical documentation, project documentation, everything must also be issued to a legal entity.
There must be a contract for everything that you create and keep the payment confirmation, sign the acts of work performed.
If you sell something, provide services, then the revenue should be carried out through a legal entity, since the turnover of the company itself is also an asset.
Yes, clean business is more expensive. There are additional costs and you need to pay a large amount of taxes. But if you want to really develop, you need to work this way from the very beginning.
Take a qualified accountant who will pester you and demand that he be provided with documents, an accountant must be meticulous, accounting must be correct.
The company’s balance sheet shows the status and condition of the business.
It is important to keep accounting records correctly so that it shows the company in the best light: correctly reflect the availability of assets and profitability from activities.
If you move away from the ideas a little further and go into a real business, then at some point you will notice that after the presentations, first of all they start asking you for accounting statements.
They often tell you how to impress contractors, how to be self-confident, how to look and talk. This may be important, but only for the very beginning. Without well-developed materials, no one will get anywhere further.
In order to attract financing (bank or attract an investor) for a project, even if it is very small, it is necessary to undergo due diligence, where they will double-check the availability of all assets and their legal registration.
How to pass due diligence, what it is needed for and what materials are requested during its conduct can be found in the article: “Conducting due diligence”.
It happens that when doing business, they neglect the proper formal registration of cases, because they do not plan to attract bank financing or think that they do not plan to sell the business, attract investors.
Yet even in such cases, incorrect business management closes the way for further development.
In any field, you can grow and receive large orders (construction, any consulting, IT development, sales, marketing, advertising) and large orders imply the passage of tenders.
The package of documents for a tender application is sometimes similar to preparing for a tough credit committee in a bank, and there you need to prepare a very large amount of data.
All the company’s activities should be automated as much as possible, this helps not to be distracted by the correct conduct of activities.
This is generally the first thing you need to start creating a company in our time, with the automation of all processes, without automation in general, no process in principle needs to be started.
If you do something manually, it will later interfere with business development.
So, what should be:
- a legal entity (with a legal address, bank account, accounting records, etc.);
- assets are reflected (a patent, a prototype has been developed, accounts in marketplaces have been opened, a website, an application, a program, technical documentation, a land plot, fixed assets, a contract with a buyer, trade turnover, customer base), something on how is your business built;
- good presentation materials describing the further strategy (the same as in the first paragraph, but more elaborated). Marketing research, a detailed financial model, commercial proposals for the purchase of necessary materials, agreements of intent or just letters from buyers.
The costs for this stage depend on what your business is doing and how much money is needed to create the first asset base.
There are businesses that can be brought to this stage without large investments: trade, creative, IT projects (if the initiators themselves are developers). It takes an average of 1 year to complete this item. If there is an opportunity, then the business needs to be launched so that it begins to “run in”.
With such materials, it will be more or less realistic to go to investors or receive the status of a project to create and ensure the functioning of the Skolkovo Innovation Center or receive a grant.
Further development (scaling) of the business (2-3 years)
If you were able to pass the first stages and you managed to attract money, or maybe you yourself started earning enough to develop your project, then you will begin to scale your business to reach the planned performance mark (in our example, it was necessary to increase capitalization to $ 10 million. USA).
How to increase capitalization we will write in the following articles.
Conducting M&A
When a company reaches a certain point of development, it requires some kind of abrupt growth or drastic change.
Owners often get tired of constant development after 5 years and want to fix profits, go to the cache.
At this stage, M&A transactions are taking place. That is, a big company buys your startup.
Разрабатываем Стратегии для собственников бизнеса в целях оптимизации группы компаний, решения нестандартных задач и продажи активов. Оказываем услуги по сопровождению сделок M&A, управлению непрофильными активами и проектами в целом.
