STAT4610 Project 5- “So You Want to be an Entrepreneur?”
INTRODUCTION
Starting a new business can be an exciting adventure! Who doesn’t want to find themselves at the top of the next Microsoft, Apple, Facebook, Myspace, Instagram, Beanie Babies, Pet Rocks, Roto-Rooter, Enron, WorldCom, (OK, you get the point!)?
The problem with starting a new business is it carries an inherent amount of risk. (OK, a considerable amount of risk!) One-third of businesses fail within the first two years, and over half are gone in five years. That’s a waste of a significant amount of toil, sweat, intellectual effort, creativity, and—oh yes—capital! Failed businesses have stripped entrepreneurs of their life savings (and the savings of others) for millennia, but the successes have also lined the pockets of a lot of savvy investors.
Since most people can’t afford to fund their own startups, a popular strategy involves convincing others to get behind your great idea. Venture capital funds are always willing to chase the next big thing, but unfortunately there is a limit to the patience of the world’s check-writers, and most of them didn’t get rich without recognizing when it is time to cut losses.
There is hope, however! Analytics can help every new business set realistic expectations for their investors, and in fact are essential in the formulation of a business plan. Because of the uncertainties involved with startups (in terms of costs, timelines, returns, rates of success, etc.) it is often difficult to forecast the progression of a new venture, but with a sufficient knowledge of the field and the tasks required, a simulation can frequently get an entrepreneur into the right ballpark. Sometimes this is enough to start the money flowing!
PROJECT OVERVIEW
In this project you will develop a business plan for an Angel Investor in order to secure funding for your new startup. You will require funding until the point that your company generates a profit and is actually able to return capital (or positive equity) to its investors. Expenses may include payroll for developers or designers, facilities and infrastructure, marketing and sales, purchasing or collecting data, research, and a variety of other costs that you may want to identify. Obviously, you will have to identify a viable product around which to build your company, and if you’re stuck without an idea, feel free to go back to your Gateway Course and build a business around app development. Finally, you will need to determine the cost of executing your business plan across this timeline in order to secure sufficient funding.
[As an aside, the particular product or service is not essential to this project—you may use something developed in another course, some cool idea that you might have in mind, or something entirely fictional.]
You may make any assumptions you want concerning the availability of personnel (whether you will be required to hire them or if they are already onboard as part of your venture) and you will need to calculate the rates required to retain their services (market rates for most skill sets are readily available from a variety of sources).
PROJECT REQUIREMENTS
- Develop a timeline (flowchart) of the tasks that need to be accomplished in order to make your company profitable. Build in as much efficiency as possible by completing tasks in parallel.
- Identify appropriate distributions for all of the tasks on your timeline, to include sales and the potential for them to generate revenue.
- Build an Excel-based simulation of your timeline and create a histogram of possible durations for the company to become a success.
- Apply the “Clint Eastwood” rule to your simulation output (“How lucky do you feel?”) Remember: being too aggressive can get you burnt if you don’t achieve your goals, but being too conservative in your estimate and asking for too much can result in your proposal getting turned down.
- Generate Cost and Revenue curves for your timeline from step 4.
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You will have two deliverables for the project, which are due together as documents in Canvas at the beginning of class, Lesson 19.
DELIVERABLE 1. A business plan proposal and funding request for your Angel Investor. This should be brief, and should focus on specifics and results. In particular, specify how much money will be required to fund this venture, how long it will take to generate a profit, and how much return can be expected on the initial investment over time.
[This should be organized to be presented to an Angel Investor.]
DELIVERABLE 2. A summary of the simulation you used to support your decisions. This should include a flowchart of tasks, each distribution you used in your simulation, a summary of the simulation output (to include time to each critical point), the decisions you make from your output in terms of time to completion, and the cost and revenue analysis associated with the timeline.
[This should be organized to be presented to a business partner (or a Professor).]
