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Why does the principle of minimal resources work for entrepreneurs? It reduces risk and lowers fixed costs, which favorably affects breakeven. And it lowers the cost of choosing to abort…Minimal resource commitment also lowers the risk of owning obsolescence. No wonder computer leasing caught on early and has prevailed, especially with entrepreneurs, given the rapid change rate in that technology! Once a system is bought and installed, you are stuck with it. Given the flux and uncertainty of market and technology in which most entrepreneurs must survive, the inflexibility of ownership can be a curse.

Although entrepreneurial talent and valuable business ideas undoubtedly affect whether or not founders get external financing, some more basic things also have a big effect on which new businesses get financing and which do not. One is the age of the business. The odds that a new business will get either external debt or equity financing increases as the business gets older. Simply surviving for a few years improves the odds that a new business will get money from external sources.

Another often-forgotten factor is the business’ level of development. Informal investors, and banks and other debt providers, tend to put their money into new businesses that have sales, positive cash flow, and employees. As a result, new businesses that have made sales or achieved positive cash flow are more likely to get capital from outside sources.

Why don’t most business plans deliver? Over the years, the business plans we have seen share some common—and unfortunate—traits. First, far too many business plans are written in the first burst of enthusiasm without a shred of real evidence to support their assertions. Simply put, most business plans are written too soon. Analogs, antilogs, tested hypotheses? Few or none…Second, rarely is there anything like a plan to discover and learn. The plans assume that most everything is already known up front—not the case, as the company histories that comprise this book have shown. Third, and related to the second point, the rampant uncertainty about what lies ahead goes entirely unacknowledged. As General Douglas MacArthur is reputed to have once said, “No plan ever survives contact with the enemy.”

Focusing on a particular set of customers or needs usually involves the willingness to incur opportunity costs. As previously mentioned, the McKinsey partners turned away market survey work and studies for sale managers to build a “top management clientele.” Hewlett and Packard turned down large production contracts during the World War II [sic] to focus on developing high-quality instruments…The willingness to incur such opportunity costs likely derives from a strong conviction about the merits of the underlying principle, as well as considerable self-control and capacity to delay gratification.

To successfully incubate a new business, you must identify a foothold market, a small geographic region or customer group that will serve as a low-cost laboratory. Preferably familiar or otherwise friendly, the market nevertheless needs to be representative of the larger target market you intend ultimately to pursue…Incubating a new business in your white space is filled with uncertainty, but it needn’t be filled with risk. Foothold markets allow for safe, low-cost, structured testing that yields demonstrable results.

It’s no wonder that few strategic plans lead to the creation of blue oceans or are translated into action. Executives are paralyzed by the muddle. Few employees deep down in the company even know what the strategy is. And a closer look reveals that most plans don’t contain a strategy at all but rather a smorgasbord of tactics that individually make sense but collectively don’t add up to a unified, clear direction that sets a company apart—let alone makes the competition irrelevant. Does this sound like the strategic plans in your company?

This brings us to the second principle of blue ocean strategy: Focus on the big picture, not the numbers. This principle is key to mitigating the planning risk of investing lots of effort and lots of time but delivering only tactical red ocean moves.

[T]hink of your business in terms of the overall value proposition: Are the elements in place to proceed with a new venture? Is there a reasonable likelihood of success? Typically, five things characterize a viable business, each of which we’ll explore in the sections to follow:

• It represents a new approach to existing business processes, ideally by applying technology in a new way.
• Real, existing corollaries exist in the marketplace, today.
• Today’s market for the solution is large, representing revenues of at least $1 billion a year
• Equally large ancillary markets, either vertically or horizontally aligned to the space, also exist.
• Most important of all, the startup team possesses good execution skills in the chosen space.

Dozens of traits have been peddled as integral parts of the ideal entrepreneur: high levels of energy, intelligence, determination, and resourcefulness; a high degree of motivation, diligence, creativity, youthful bravado, and self-confidence; a high need for achievement, and the ability to look at things differently, to persevere, and to make quick decisions. Successful entrepreneurs have also been said to be self-directed, outgoing, proactive, in control, hardworking, deadline-oriented, the oldest child or the only child—just to name a few. But common sense tells us that no one could possess all those attributes.

Several noted management gurus, such as Henry Mintzberg of Canada’s prestigious McGill University, convincingly argue that there is no such thing as the ideal entrepreneur—that entrepreneurs display a diverse range of personality traits; gregarious or taciturn, conservative or not, analytical or intuitive; some see the big picture; others do not—in short, entrepreneurs are no different from the rest of us.

The Aim process develops the differentiation, features, and details of your product offering before you’ve actually built the product…In the real business world, there is a risk that you will have spent the effort on Aim and found yourself without a viable market. That is a very real possibility. Let’s step back to first Market Validation principles: We are investing, up front, 5 percent of the development budget to figure out if there is a market for our product. If the answer is no, we may not like the answer. But we have accomplished our goal.

Competition is a wonderful thing…if you are on the buy side…However, if you are on the sell side, preempting and dominating a market could mean the difference between a successful business and bankruptcy. The entrepreneur must consider the possibility of preempting others from sharing the bounty of his or her idea. The higher that possibility, the more likely the company and its products will persist in the face of a determined competitor. If there are already others in the market, it is too late for preemption, but there is still a chance for domination—can the new venture dominate the market?