BUSINESS MODELING: THE NEW APPROACH TO ENTREPRENEURSHIP. The premise is that traditional business planning is not ideally suited to new ventures. Formal business plans and pro forma financials presume the new venture must support the founder on a full-time permanent basis (a legacy from their genesis in large-company planning) and that the business will be an instant success. However ...
- Long-range financial projections are generally dismissed by investors. According to John Seiffer, former president of the Angel Investor Forum, "It is not an efficient use of time and energy to prepare elaborate 20-page pro formas on untested concepts."
- A new-business concept is at best a set of unproven hypotheses. Typically, these include: demand per price point, production costs, feasible distribution channels, cost for post-purchase customer service, production lead times, repeat sales rates, customer retention, and preferred features.
Champions of business modeling Steve Blank of Stanford and Thomas Eisenmann of Harvard assert that start-ups need a plan to FIND a sustainable business model in the first place. Nathan Furr, a contributing writer to Forbes, differentiates the two approaches this way: “In a business plan, you are trying to plan, inside the building, the optimal solution that you can execute. In a business model process you recognize that everything is a guess that has to be tested, outside the building, with the goal of learning” what will work. (Nathan Furr, Forbes, February 2, 2012, “Practical Insights on the Management Science of Entrepreneurship.”)
This text adheres to the Business Modeling approach, and is based upon entrepreneurial and teaching experience, discussions with other professors, interviews with angel investors and venture capitalists, and research into current best practices in entrepreneurship education.
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Entrepreneurship and Small Business Management
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