The Role of Business Plans in VC Decisions

According to a study by the University of Maryland’s Robert H. Smith School of Business, a business plan has no value as a fundraising tool. Researchers suggest that would-be moguls spend time perfecting their business rather than its representation on paper.

“Spending time and energy tweaking your business plan is a waste of resources,” said researcher David Kirsch, associate professor of management and entrepreneurship. “It’s a limited-use document that will in no way substitute for the hard work of actually building a business. You’re better off investing in your idea, your social network, finding potential investors, potential customers — the intangibles around your business that are going to make it more likely you succeed. Invest your time in any other business-building activity but working on your business plan.”

Kirsch and others pored over the business plans of more than 700 dot-com companies from the late-1990s to early-2000s boom era. They compared objective characteristics of each business plan such as its contents, team make-up and business model, and whether or not the plan ultimately received venture capital funding. This research, “Form or Substance? The Role of Business Plans in Venture Capital Decision Making,” appears in the May 2009 issue of Strategic Management Journal.

What Kirsch and his colleagues founds was that the content of the business plans didn’t predict which businesses got funded. They don’t actually recommend scrapping the business plan completely because it has value as and organizing tool. But they warn that there is no evidence that either the content or presentation of the plan influences venture capital funding decisions.

The Business Plan: Not Quite Useless

Just because the business plan won’t determine your business’ success or failure at raising start-up funds, you still have to have something to show the venture capitalists. Why?

“I think VCs like the plans because they skim them to see what people are doing — to get a sense of what entrepreneurial activity is happening,” Goldfarb said. “But an interested VC will learn the details of a business whether it is in the plan or not.”

This is bad news for all the perfectionists out there who just know if it looks pretty, it must be good. But it’s great news for the real entrepreneurs, the men and women who just want to get out there and dive into their passion. This research confirms that hard work, intuition, and a good dose of luck beats out perfect-on-paper any day.

Knock Out Your Business Plan in a Weekend

Want to get your whole business plan down on paper in a single weekend? You can do that and more at a Startup Weekendevent. This unique business environment is ‘no talk, all action’. Startup Weekend recruits a highly motivated group of developers, business managers, startup enthusiasts, marketing gurus, graphic artists and more to a 54-hour event that builds communities, companies and projects.

Founded in 2007 by Andrew Hyde, the weekend is a concept of a conference focusing on learning by creating. It is known for its quick decisions, unique facilitation technique, and letting business founders show off their talents. There have been events in Boulder, Toronto, New York, Hamburg, Houston, West Lafayette, Boston, DC and on June 5-7 they’re coming to a city near you. If your town isn’t on the list, you can start your own.

When you attend a Startup Weekend you decide what you want to work on over the weekend and come out at the end with several developed companies or projects. Can you start? It’s worth a weekend to find out!

Startup Weekend World #2 Challenge from Andrew on Vimeo.

If you’re looking toward a career analyzing what makes Wall Street tick, you might want to look at a growing trend that links big annual TV events to making money on the Big Board. It’s a strange phenomenon, but researchers at the University of Wisconsin-Eau Claire have found that there’s big money to be made by investing in the stocks of companies that advertise during the Super Bowl. The same trend seems to be taking hold for advertisers on other annual major TV events like the Academy Awards.

The large corporations spending megabucks during these big events have been grabbing investor interest, and there’s plenty of money to be made on the Street as a result. Researchers found that over the past 12 years, investors who bought stock in publicly traded companies that were planning to advertise on the Super Bowl made billions. Investors are reporting that they are seeing this same trend with other annual star-studded events where big corporations realize they can reach a tremendous audience.

Because these commercials aren’t cheap, investors recognize that the companies buying them must be in good financial shape. Ads during the Super Bowl in 2008 cost a sweet $2.7 mill for a 30-second spot, and 30-second spots on the Oscars came in at a cool $1.6 million.

While the two events generally attracted different advertisers, the results were the same–a spike in consumer spending on the products being advertised. Not surprisingly, Budweiser opted for the Super Bowl, JC Penney for the Oscars. Coca-Cola bought airtime on both events. And sometimes a company throws a curveball, just to see if you’re paying attention: This year, for instance, the lingerie company Victoria’s Secret ran a highly successful commercial during the Super Bowl.

Buy Low, Sell High

Researchers at the University of Wisconsin-Eau Claire found that investors were buying up stock in companies slated to advertise on the Super Bowl about a week before the game. The investors then sold the stock several days after the game, just as the buzz about the ads was going hot and heavy.

The stock of the companies advertising on the Super Bowl beat the Standard & Poor’s 500 by an average of 1.3 percent. That translates into billions of dollars in profits. Bottom line: It’s wise to invest in companies that advertise on the Super Bowl and other nationally televised annual events.

Usually, it’s fairly common knowledge which companies are going to advertise on these events. In the corporate world, it’s quite a coup to buy time on the Super Bowl or the Oscars. So companies aren’t shy about letting the world know about it. That gives investors plenty of time to scoop up stock ahead of the broadcast.

Some Super Hype

There’s also plenty of hype surrounding the ads for these major events. Entertainment shows cover the production of these commercials. Business pages feature stories about the placement of these ads. People respond to the hype and watch for the ads; they want to be part of the morning-after water-cooler discussions about the event itself and which ads were real standouts.

So as Madison Avenue looks for ways to develop these memorable commercials, Wall Street has found a way to invest in them and create a new road to riches.

Some people are natural entrepreneurs, even students. Numerous successful business powerhouses – such as Dell Computers, Microsoft, FedEx and Apple – got started in college. You don’t have to be a geek, but you do need some basic accounting, advertising, market research and business skills, and a specific salable skill (how you’ll earn your income). College is actually an ideal place to start a business because students tend to be bright-eyed, passionate and unjaded. As well, classmates tend not to mind other classmates promoting their business.

Here are a few businesses you can start in college for relatively low capital, then build on them as income comes in. Because you’re in charge, you can take as much or as little work as fits your study schedule.

Offline Businesses

Do you enjoy physical work? Here are a few choices for mostly low-capital “offline” businesses. At the very least, your “toolkit” should consist of business cards and some form of communication – telephone or cell phone.

1. Tutoring.
   There’s always one student that seems to be ahead academically than everyone else in the class. If you’re that person, tutoring is a great, no-capital way to solidify your knowledge, earn money, and help your classmates. (This could also turn into an online business.) The revenue earned from this effort can become the capital for starting another business

   Method of promotion: Word of mouth, the college newspaper, posting on your professor’s door, listing on official course website.

2. Personal coaching.
   Sometimes students need more than course-specific help; they need help developing a good study plan, setting goals, etc. Or you can take the physical angle for personal coaching and help classmates develop a workout program to get/stay fit.

   Method of promotion: Word of mouth is often the best way to promote a personal coaching business. Give out personalized business cards and ask for referrals.

3. Computer help.
   Computers and laptops are a basic tool for pretty much any student. So there are potentially thousands of clients on campus. If you have the skills to set up software, do computer maintenance, or answer software usage questions, this can be a lucrative endeavor.

   Method of promotion: Word of mouth, ads in college or local newspaper, business cards, flyers, student parties.

4. Painting.
   Painting is amongst the easiest of college businesses to start. The equipment is minimal and relatively inexpensive: paint, paint thinner, brushes, ladders, overalls and steel-toe boots. It’s also fairly easy work that can progress into other well-paying home/ office/ college/ warehouse projects such as drywalling. Keep in mind that unlike most of the businesses listed here, none of your clients are going to be students (unless they are student renovators or real estate flippers).

   Method of promotion: Ads in local newspaper, business cards, flyers, word of mouth.

5. Drywalling.
   Drywalling does take more effort, special equipment (nail gun), and in some states might require certain training or even licensing. But if you understand the basics and can do the necessary measurements, calculations and drywall nailing, you’ve got yourself a business. Okay, you also need a van or flatbed for porting drywall sheets around. So maybe you want to start with something slightly easier. Such as landscaping.

   Method of promotion: Ads in local newspaper, networking with subcontractors, renovators and real estate agents, business cards.

6. Landscaping.
   If you like working outside, landscaping is the way to go. Start with small tools and move up to larger equipment and trailers as you can afford them. This of course leads to the larger projects. While most colleges likely have full-time landscapers, there may be a need for occasional contractors.

   Method of promotion: Ads in local newspapers, flyers in local real estate inserts, word of mouth, networking, business cards.

7. Snow removal.
   Many small landscaping firms do snow removal in the winter. You don’t need a truck and plow; you can start by offering local seniors a cut rate on their sidewalk/ driveway. A great way to make a bit of money (usually $20-50 per driveway/ sidewalk) and stay fit.

   Method of promotion: Ads in local newspapers, word of mouth, business cards.

8. Renovations/ subcontracting.
   If you have a mind for planning and project management, a head for staying within budget and on time, a vehicle and the skill of motivating other people and assuaging angry clients, subcontracting renovation work is a logical and lucrative step forward from painting and drywalling.

   Method of promotion: Ads in local newspapers, flyers in local real estate inserts, word of mouth, networking, business cards.

9. Real estate.
   This is one of the riskier options. The conditions have to be just right, but students over the years have leveraged student grants, loans, and/or awards into a down payment for a house, fixed it up while living there rent-free (thanks to the rents of three or four classmates paying the mortgage), then flipped the property upon graduation. If you want to ease into this, sign a lease for a 4-5 bedroom house near the campus and rent out to other students. Consider staying in one of the rooms, to make it easier to collect rents, and to deter damaging-causing behavior.

   Method of promotion: Ads in college and local paper, word of mouth, real estate website/ blog, Craigslist, etc.

10. Personal chef.
    Bryan Zupon, a senior student at Duke University, started a small restaurant (NY Times; requires free subscription) of sorts in his dorm room. And he filled his place regularly, with seating for a handful, starting by just cooking for a few college friends and expanding from there. Alternately, you could run an actual personal chef service where you make and deliver meals. Any of these options – provided you follow health code – could lead to a successful catering business.

    Method of promotion: Word of mouth, college paper, a food blog.

11. Cleaning and laundry service. Let’s face it, some people just don’t like doing laundry or cleaning their dorm rooms/ apartments. If you don’t mind, you could earn a bit of extra money offering cleaning and laundry services for classmates. The earnings could go towards starting another business later. (The Ballinger brothers, who own Webster Hall in NYC, got their start with a family coin laundry in a small Canadian town, parlayed the earnings and subsequent sale into a huge nightclub in their hometown, sold the club and started as many as five nightclubs in Toronto, Canada, then sold those for big money and moved to New York state and built nightclubs there.)

    Method of promotion: word of mouth, ad in college paper.

12. Fashion design.
    Once there was a skinny doofus in college that started designing clothes. Suddenly, female students that formerly ignored him couldn’t get enough of his custom fashions. When he graduated, he had a small clientele list. If you have the creative flair and enjoy fashion, this could become a high-earnings career. Here’s a secret: you don’t even have to know how to sew. If you can translate your design sketches into patterns, you can often hire people with industrial sewing experience who will complete the work for fair wages, on weekends and evenings. (Advertise in the local paper.)

    Method of promotion: On your back. Wear your clothes, with a custom stitched insignia. Bug your classmates. And start a fashion blog, as well as an online shop for your designs.

13. Ride service. If you have a vehicle and leave town regularly, you can probably find other students or recent graduates that need a ride and will pay. If there’s an airport near your destination, a slight detour can earn you significantly more – enough to cover the expense of gas.

    Method of promotion: Word of mouth, ad in college or local paper, ride exchange website.

14. Music instruction. If you are musically-inclined and can play an instrument, you might earn a bit extra by teaching how to play that instrument. Consider offering a lower fee for teaching two or three people simultaneously.

    Method of promotion: Word of mouth, ad in college and local paper, flyer in music stores.

15. Income tax/ accounting. Students do have to file taxes, and you might find several someones willing to pay for some help. Especially look towards other student entrepreneurs confused by the complication of running a business. Just make sure that you really know what you’re doing.

    Method of promotion: Word of mouth, ad in college or local paper, business cards.

16. Portrait and wedding photography/ videography. This business does require suitable camera and studio gear, but wedding photography and videography can be extremely lucrative. That’s provided you can deal with wedding couples that may be under a lot of stress, have a vehicle to get around, have the necessary skills, and have the equipment for processing/ editing images and video.

    Method of promotion: Start by taking portraits of classmates and ask for referrals. Take out ads in the college and local paper, pass out business cards, and talk to engaged couples at student parties.

17. Band bookings/ nightclub or event promotions.
    This is for someone with a lot of stamina, a fair bit of backup and advertising funds, and the ability to build local buzz. One drawback is that if events require you to stick around (say, to collect fees) until late at night, you could find yourself getting exhausted soon after such a business. As well, booking agents of established bands often expect 50% of the band’s appearance fee upfront, before the event. If an event does poorly, you will still be out of pocket for the full fee, as well as advertising and any items requested on the band’s rider portion of the contract.

    Method of promotion: Ads in the college and local paper, word of mouth, flyers, posters, event listings websites, music blogs and forums.

Online Businesses

Do prefer cerebral and online work over physical? For online businesses, most options require pretty much the same “tools”. Here are some necessities and some nice-to-haves.

• Desk and chair.
• Computer, possibly a laptop with a Wi-Fi card (or a “wi-fi to go” modem).
• Internet access of some sort. You might be able to use campus Wi-Fi, but some schools frown on students using such access for business. (Which doesn’t mean you can’t get away with it.
• Telephone, cell phone (preferably one with Internet access) or VoIP access.
• Email address.
• Media player, such as an iPod, simply for relaxation or even for downloading podcasts to listen to.

You can startup most of the following online businesses with little or no startup capital. Additional required/ suggested tools, equipment, gear, etc., are listed in each item.

18. Design.
    If you design skills and access to Photoshop, Fireworks, Coreldraw or even the free Inkscape, ask around for design work at student parties, from student entrepreneurs, or even suitable university departments. This effort could turn into a  design consultancy. Just make sure you maintain an online portfolio as well as a hardcopy portfolio.

    Tools, gear, etc.: Raster and vector software, printer, ink cartridges, paper or glossy paper.

    Method of promotion: Start by designing your own business logo, a variety of business cards, and your own website. Run ads in the college and local paper, pass out business cards, bug your classmates for referrals.

19. Resume writing.
    Do you know a few students who look for work between semesters, during the summer or after graduation? If you have skills in writing resumes, offer them a special rate in return for a referral. Dedicated resume writers can pull in a healthy side income – in tandem with other writing services, possibly online. So getting a headstart while in college is a good idea.

    Tools, gear, etc.: printer, ink, paper, envelopes, paper clips.

    Method of promotion: Ad in college paper, word of mouth, business website, business cards.

20. Copyediting.
    Every business school student you meet will have at least one term paper to write each semester. And  suprisingly enough, many of them seem unable to use a spelling or grammar checker. If you have the mindset for copyediting the writing of others, there are students that need your services.

    Tools, gear, etc.: printer, ink, paper, envelopes, paper clips.

    Method of promotion: Ad in college paper, word of mouth, business website, business cards.

21. Researching or facts checking.
    This sort of goes hand in hand with copyediting of term papers, but you could do it separately. You can also approach college departments and professors for work.

    Tools, gear, etc.: Possibly a printer, ink, paper, envelopes, unless you’re working exclusively online.

    Method of promotion: Ad in college paper, word of mouth, business website, business cards.

22. Writing services.
    Writing services can be offered to professors or fellow classmates, or online to various clients. (Do be careful about writing term papers for other students, as some colleges may look down on this.) This business goes hand in hand with resarching/ facts checking, copyediting, and possibly copywriting. There’s also a demand for content for websites and weblogs and if you prove yourself, the payoff can be large.

    Tools, gear, etc.: Possibly a printer, ink, paper, envelopes, unless you’re working exclusively online.

    Method of promotion: Ad in college paper, business website, online ads.

23. Online copywriter.
    Copywriting for the websites of Internet marketers and online businesses can be very lucrative, though it involves an understanding of what type of writing works online, and might involve additional skills such as SEO/ SEM/ SMM and website analysis.

    Tools, gear, etc.: access to copywriting forums or other suitable references.

    Method of promotion: Your own business website and online ads.

24. SEO/ SEM/ SMM.
    This is very specialized work that has both adherents and detractors, with the latter often being very vocal, thanks to many misconceptions about online promotions work. Suggestion: start as a virtual intern to an established Internet promotions firm, to get a solid grounding in the terminology and techniques.

    Tools, gear, etc.: access to marketing and SEO forums and articles about specialized techniques.

    Method of promotion: Business website, online ads.

25. Website analysis.
    This work requires the ability to not only decipher website performance but also to be able to draw conclusions and suggest improvements in terms of content, design, etc.

    Tools, gear, etc.: a solid understanding of website metrics and analysis techniques.

    Method of promotion: Business website, online ads.

26. Online distributorship/ drop-shipping.
    E-commerce comes in many forms. One way is to sell products on eBay and ship orders yourself – which means not only having storage space but capital for goods. Another way is promote products on your own business website and have the manufacturer dropship orders. It’s important to note, however, that just building your website is no guarantee that anyone will visit or even purchase. You might want to employ the services of an SEO/SEM/SMM (mentioned above).

    Tools, gear, etc.: product to sell (possibly).

    Method of promotion: Business website, online ads.

27. Flipping online properties.
    There are online entrepreneurs who have made tidy sums flipping websites and domain names. Not everyone who does this type of work makes a profit, but those who know what is valuable, how long to hold a property, when and where to sell, and have an automated process can make a very lucrative living in just a few hours a day.

    Tools, gear, etc.: software for registering domain names, access to forum marketplaces for selling/ purchasing online properties.

    Method of promotion: Forum marketplaces, business website, online ads.

28. Online hiring firm or job listings site.
    With so many companies ditching print-based ads for jobs, there are many opportunities for online hiring firms and specialized job listings – especially if you supplement your business website with advice for job seekers and put in place the right kind of filters for better matching of job seekers and employers.

    Tools, gear, etc.: sophisticated employee matching filters, easy job ad placement and job application entry.

    Method of promotion: Business website, online ads, forums.

29. Internship placement.
    Come Summer, some companies are looking to find students to intern at jobs. Students are looking for internship and will even pay to be placed because they want the experience on their resume. You’ll need patience and an ability to deal with hard-to-satisfy employers and students. You can decide to focus on local internships or cover the country.

    Tools, gear, etc.: fax, printer, ink, paper, envelopes, stamps, courier service.

    Method of promotion: Ads in the college and local paper, word of mouth, business cards, college website, business website, online ads.

30. Apartment listings site.
    If you get into the real estate rental/ flipping business mentioned in the “offline” section, you might want to promote it with an apartment listings site that covers more than local listings. You can also accepted paid ads from other landlords, with an emphasis on student-friendly housing.

    Tools, gear, etc.: fax or online listings entry form.

    Method of promotion: Promote online. Also, print off a batch of t-shirts and physical “bookmarks” (that is, to mark a spot in a book) and pass them out on campus and at local businesses.

31. Event listings. This could go hand in hand with an offline, local event/nightclub promotion business that promotes both your business and accepts club/ event listings anywhere in the country. Be creative, come up with a way to be unique and standout.

    Tools, gear, etc.: fax or online listings entry form.

    Method of promotion: Ads in local and college paper, word of mouth, business website, online ads.

32. Tips on how to start a business.
    If you succeed as a student entrepreneur, share your knowledge on a weblog with advertising or as a blogger for hire. If you have the experience and understand professional blogging requirements, you can make a very healthy living writing about business, marketing and entrepreneurial issues.

    Tools, gear, etc.: Solid experience running successful businesses helps but even discussing mistakes and failures is valuable.

    Method of promotion: Business blog, forums.

7 Tips For Raising Capital For a Startup Business

Many of the businesses above can be started with little or no capital. Some do require a few thousand in materials, tools, gear and the like, but you can often build up to it. Here are some suggestions for raising business startup funds, which overlap slightly with finding funding for business school.

1. Tutoring. This is an ideal way to get started with a student business: no startup capital, and the earnings can be invested towards starting another business.
2. Sell your possessions. Well, some of them – anything that has value and which you haven’t used in a while.
3. Borrow from parents, grandparents, aunts or uncles. Just keep in mind that borrowing money can and does divide families and ruin relationships.
4. Use your student grant/ loan. Quite often, this is an ideal way to kickstart a student business. But it assumes that (1) you’re eligible for a student grant or loan; and (2) that you don’t actually need all of that money for school expenses.
5. College awards. Some schools offer small cash awards to students that are at the top of their class each semester and/or school year.
6. Reinvestment. Start with a low-capital business, then keep putting the earnings into a safe investment. Use the return on investment to buy tools and materials for a higher-earning business.
7. Sell your blood. This is more extreme and obviously not something for everyone.

5 Tips For Balancing Studies and Work

Any student can start a business. It takes a lot more to balance work and studies and maintain success in both efforts. Here are some suggestions, partly culled from an article at College Startup.

1. Decide on priority of effort. Not everyone cares about a piece of paper (i.e., diploma) with their name on it. If that’s you, then save on school fees and just start the business.
2. Decide on course priority. Success in course depends on you ability to prioritize which classes require more effort.
3. Multi-task. If you’re taking time out to do laundry, take a notebook or laptop with you to work on business (or school) tasks while you wait.
4. Partner up. You may not find a suitable business partner when you start up, but keep your eyes and ears and open, and let classmates and friends know you’re searching. When you do find the right partner, you might just enjoy a synergy of effort.
5. Enjoy yourself. If you start hating work or studies or both, then maybe its time to take a break – even for a day.

Good luck with your entrepreneurial efforts, as they can help in paying for business school.

Niche markets enable small companies to compete with the giants. Niche businesses can provide their customers with a variety of choices in a specific product or service area. Companies seeking to appeal to a targeted sector of customers are now focusing on a narrow line of products, like lotions and soaps, plus sizes, skin care, chocolate, sneakers, condiments, vitamins, organic food, surfboarding products, natural cosmetics, mature women’s clothing, and natural pet food. Combine the targeted products with quality service and you have a winning formula.

It goes back to the days of the corner hardware store, a place where customers could go to get whatever they needed to fix something, and also find a knowledgeable store employee who could give them some advice on how to do the job. National chains just can’t compete with that. Big box stores are trying to serve everyone in the community by offering just about one of everything.

The niche market has a different appeal, concentrating on a specific product line and the customers who need those products.

One of the fastest-growing niche markets is the sneaker market. Big chains can’t offer every type of sneaker and all the brands customers are looking for. That leaves the door open for sneaker stores that can entice their customers with sneakers designed for running, walking, tennis, volleyball, basketball, cross-training or lots of other activities. These sneaker specialty stores can also fill their shelves with sneakers in an array of colors for the fashion-forward sneaker aficionado.

These niche stores fill a very important need. For instance, there is a whole market opening up in clothing for husky children. In the past, this was a totally overlooked market. But there is a real need for this type of clothing, and parents and kids are not going to find what they’re looking for–certainly not a wide-ranging selection–in a big chain store.

These niche stores generally have well-trained employees who know the products they sell, and if they don’t have an item in stock, they know where to find it. Return customers are critical to these businesses; satisfied customers are a must. The standard big chain answer to a customer query–”Whatever’s out there is what we have”–just won’t cut it in a niche business.

Paying attention to customers, knowing what they want, and offering free services that chains might charge for, such as home delivery and assembly–that’s what drives customers to these businesses.

Not every niche business will be successful in every region, and that’s where a good business school education comes in. Business schools teach students how to conduct market research to determine if there is a customer base and customer interest in a particular niche product and to identify those customers and reach out to them. Demographics figures into this process as well. There may not be a need for two sneaker stores within a 10-mile (16km) radius, so why open a second one? However, perhaps that area doesn’t have a store that caters to holistic shoppers, might need one, and you could tap into that niche market. Finding the right niche product and opening up a business in the right locale are as important as providing good customer service.

But what if an area can sustain two niche sneaker stores or two niche clothing stores–or even more? Then it might be worthwhile for someone to consider opening up a distributorship for that niche product to serve these stores. That propels the growth of the entire niche industry.

Here’s something to think about: While the big retailers reported a somewhat disappointing Christmas 2007 season at the cash register, sales at niche retailers were reported up during the same period.