Page 35 - Business Plans that Work A Guide for Small Business

26 • Business Plans that Work

opportunities! This demand is part of the punishing and rewarding Dar-
winian act of entrepreneurship: many will try; many will fail; some will
succeed; and a few will excel. There are about 23 million firms in the
United States. A vast majority are very small businesses with one to five
1
employees. In 2009 about 6.8 million new enterprises of all kinds were
launched in the United States, or more than 550,000 each month. Of
2
those, only 10 to 15 percent will prove to be good opportunities that will
achieve sales of $1 million or more. More thoughtful planning will mean
a better chance of being in the 10 to 15 percent who not only succeed,
but thrive.
Recognizing that you can’t do thorough business planning for each
and every idea you think has merit, it is important to quickly screen ideas
to determine which ones deserve more attention. The Quick Screen is a
tool that can help you weed out poor ideas quickly. Opportunities consist
of “Four Anchors.”

1. They create or add significant value to a customer or end-user.
2. They do so by solving a significant problem, or meeting a sig-
nificant want or need, for which someone is willing to pay a
premium.
3. They therefore have robust market, margin, and money-making
characteristics: large enough ($50 million+), high growth (20
percent+), high margins (40 percent+), and strong and early free
cash flow (recurring revenue, low assets, and working capital),
high profit potential (10 to 15 percent+ after tax), and they offer
attractive investor realizable returns (IRRs) (25 to 30 percent+
IRR).
4. They are a good fit with the founder(s) and management team at the
time and in the marketplace and with the risk-reward balance.

If most sophisticated private equity investors and venture capitalists
invest in only one to five out of every hundred ideas, then one can see how
important it is to focus on a few superior ideas. The ability to quickly
and efficiently reject ideas is a very important component of an entrepre-

1 www.census.gov/epcd/www/smallbus.html, accessed August 23, 2010.
2 The Kauffman Foundation, “Despite Recession, U.S. Entrepreneurial Activity Rises in
2009 to Highest Rate in 14 Years, Kauffman Study Shows,” press release May 20, 2010,
www.kauffman.org/newsroom/despite-recession-us-entrepreneurial-activity-rate-rises-
in-2009.aspx, accessed August 23, 2010.