The innocent lies of would-be entrepreneurs

2. Summary 2 • Executive Summary • Did you say "innocent lies"? • Why these "innocent lies"? • Did you say "cognitive dissonance"? • Did you say "rational"? • The 16 Lies of the Novice Entrepreneur • Did you say "lie by omission"? • The 6 Lies by Omission of the Novice Entrepreneur • Conclusion

3. The purpose of this presentation is to prepare you personally to understand the issues related to entrepreneurship. As a novice entrepreneur, you are your biggest challenge! You will have to question yourself and your ideas, perceptions and convictions. Indeed, it is not easy to find the right person for the right job. It is not unusual for passionate entrepreneurs to lie to themselves and others, whether through lack of knowledge or without even realising it. In this presentation, we go back over the erroneous assertions that many novice entrepreneurs make every day. The objective is to warn you against "innocent lies" or "lies by omission" that could, in the long run, harm your project, especially with investors, banks, and so on. We go back over 16 "innocent lies" and 6 "lies by omission", detailing them for you to detect and defuse. The ultimate goal is, of course, to increase your chances of success as a novice entrepreneur! Executive Summary 3

4. Did you say “innocent lies”? 4 • Almost all prospective entrepreneurs make precisely the same mistakes... and often lie to themselves...! • ... while entrepreneurship can be learned: there are rules... methods,... and a process... that reduce the risk of failure...

5. Why these “innocent lies”? 5 • Entrepreneurship is about changing worlds and becoming someone else … • …to think & act differently… • the entrepreneurial practice has also evolved... at the same time as the world... we don't do things today as we did yesterday... • Finally, we don't really have an entrepreneurial culture... and entrepreneurship is not being taught enough in schools...

6. Did you say “cognitive dissonance”? 6 • Léon Festinger: The individual in the presence of cognitions (knowledge, opinions or beliefs about the environment, about oneself or one's behaviour) and which appear incompatible with each other create an unpleasant state of tension. • How to reduce cognitive dissonance : Consequently, the individual will implement unconscious strategies to restore cognitive balance. • The rationalisation process : One approach to reduce cognitive dissonance consists in modifying beliefs, attitudes and knowledge to match the new cognition. This strategy is called the “rationalisation process”.

7. “When, during my research, I discover elements that tend to invalidate my working hypotheses, I immediately note them... because they are the ones I am most likely to forget!” Did you say “cognitive dissonance”? 7 Charles Darwin on “Cognitive Dissonances”:

8. Did you say “rational”? 8 • Starting a business is fundamentally an irrational act! • A being who is 100% rational will probably never create a business! • “Traditional management” methods are adapted to a stable environment .... • How can we introduce rationality and manage ambiguity and uncertainty at the same time? • Without falling into the false security of the theoretical & rigid Business Plan ...?

9. Lie n° 1 : “My idea is great!” 9 • Yes, so what? • An idea has little or no value.... • Everyone has ideas all the time... • What has value is an idea that has been tested, validated, refined, put into a chronological perspective, can be activated with a good chance of success... so we can talk about an “entrepreneurial opportunity”. • As long as we have not made the trajectory to transform the entrepreneurial idea into an entrepreneurial opportunity... this idea cannot be brilliant... or in any case nobody can claim it!

10. Lie n° 2 : “I don't want to talk about my idea because I don't want it stolen” 10 • No problem … keep it for yourself ☺! • Once again, an idea has no value until it is “worked” & “shared / confronted”. • If one simply mentions “someone risks copying it and making money out of it”, it is because anyone can replicate the idea... tomorrow or the day after tomorrow! • It also suggests that the prospective entrepreneur is in love with his idea and will, therefore, have difficulty confronting it with positive or negative criticism. • Many people will therefore spend years with their idea without ever turning it into a company or a product. • Asking a coach / investor for an NDA, how do you expect him to manage his activities: he sees dozens of files per week and he has probably seen 5 ideas like yours in recent months?

11. Lie n° 3 : “I have the best product on the market” 11 • The “Best product” is an expression that means NOTHING...! • The best product for whom? For which customer segment? • With which characteristics: performance, security, access, service, experience, use, customisation,...? • At what price? With which business model? • With which related services: access, service, after-sales service, related service,...? • There are hundreds of customer segments with different needs... someone who says “I have the best product on the market” probably hasn't made any strategic choices and/or doesn't know the market!

12. Lie n° 4 : “I have no competitors, no one does what I do” 12 • 99 times out of 100 this means that the entrepreneur has not done his market research and segmenting work. • Bad news, there are not only competitors, there are also substitutions that consume the budget of potential consumer customers! • If he is right, he is probably in a niche where there is only him or almost only him, and the demand is poor! • Finally, if this is true, it will prevent its sponsors from analysing and understanding the attractiveness of a market (size, growth, and so on), the positioning of the competition, and the accounts of its competitors. • Most often these words testify to a love of the product that prevents us from seeing the competition.

13. Lie n° 5 : “I have done market research, it confirms that my company will be a success” 13 • At best, a quantitative study (questionnaires on the Internet), often unsuitable for a start-up, with questions asked without prior identification of the hypotheses to be invalidated / confirmed. • A desire to seduce and reassure oneself... not to challenge one's self by testing the main assumptions of the business plan = danger! • Starting a business is not a theoretical end-of-study work... it is a contact sport! • What market research? 95 times out of 100 expensive uninteresting theoretical research carried out exclusively on the Internet and without any confrontation with the customer!

14. Lie n° 6 : “The market is huge: I only need 1% of the market share and.... jackpot!” 14 • If you are saying this, you have probably not done your homework. To identify smaller markets with specific needs that you can satisfy. A market small enough that you are not too competitive and large enough to be profitable and, if possible, a market with growth potential to allow you to expand with this market (example of New Tree). • If this market is so large and growing: ➢ Existing, powerful and efficient stakeholders automatically desire it! ➢ It attracts a large number of new people! ➢ It is probably too late for a “small stakeholder” with few resources, look for a sub- segment adapted to your skills and resources!

15. Lie n° 7 : “My turnover forecasts are conservative but very promising” 15 • This is a pitfall of the Business Plan: too weak; these sales will not attract investors and bankers; too high, they will immediately be discounted by financiers. So “objectivity” & “testing”! • Why “conservative”? Just describe to me how you will generate sales, what are your assumptions, and how did you test / validate them? • Too often, we are faced with a “spontaneous turnover generation process” whose final amount is dictated by the Excel table of the financial plan! • But where is the sales generation process? What is it? Can you describe it? How was it created? • Has a test been carried out? If not, why not?

16. Lie n° 8 : “I am protected because I have filed patents/licenses” 16 • If you insist too much on patents, it becomes suspicious: does the company only have this as a value? • The value of a start-up is not so much in patents as in the ability of a structure — a project to create value around these patents. • Explain, instead, explain how these patents would prevent competitors from selling to your customers. • Yes, so what? Patents are generally not yet confirmed, and in any case, you do not have the means to sue those who could possibly copy them!

17. Lie n° 9 : “The large competitors are too slow / I have a first mover advantage” 17 • Rarely does a radical innovation emerge from a market leader... mainly because of the risks (you take them!)... but it is often a larger company that recovers the project when it becomes lucrative, and it has been confirmed! • If your project is not innovative... and you are the first on this concept, ask yourself honestly to understand why other companies have not ventured there! • Also, ask yourself about the possible reactions of the competition... • Don't forget the customer...! • The “first mover advantage” is rarely verified in the real world: take a look at the concepts “cross the chasm” and “S curve”!

18. Lie n° 10 : “My financial plan is pessimistic” 18 • What the coach or investor is looking for is: • Oh, really... why? • No need to be pessimistic! ➢ A step-by-step plan that outlines in detail the cost and revenue dynamics ➢ The description of the underlying assumptions, how they were set... ➢ Plan B in case they fail ➢ Tests to confirm the underlying assumptions (a test is better than a business plan to assess the risk of an entrepreneurial project).

19. Lie n° 11 : “According to analysts, my market will explode within 10 years” 19 • Financiers (investors, business angels, banks) are not so much interested in the size of the market, but instead, in the share of the cake, you can capture. Instead, explain your strategy for acquiring a share of the market and quantify the cost of buying it. • These projections rarely come true! • This time horizon does not interest any of your stakeholders.

20. Lie n° 12 : “Our sales strategy is based on online (Internet, Facebook...)” 20 • Of course, there are E-Commerce activities, but for others, Facebook & Internet do not magically solve all business issues... • Reading this in a business plan is like thinking immediately that the candidate- entrepreneur has not sought/found his distribution channel. • However, this does not mean that Facebook & Internet should not support trade policy or make it possible to interact meaningfully with the consumer. • If there was a way to sell using Facebook & Internet, you would know about it...!

21. Lie n° 13 : “There are many customers interested in my product/service waiting for me to get started!” 21 • Do you have letters of intent? • Have you ever talked about prices? • These “interested” people, are they: • What does “interested” mean concretely? • Have you ever sold or attempted to sell? ➢ Customers (who pay) > B2C? ➢ Are they users? ➢ Retailers > B2B? • Which commercial tests did prove the “Proof of Business”?

22. Lie n° 14 : “I'd rather do this myself than leave it to someone else” 22 • Have you tried to build partnerships? • Why do it alone? It's suspicious: ➢ In the test phase, why do it yourself and suffer from the constraints of learning curves and fixed costs? ➢ In the start-up phase, what are the reasons to do things yourself when the risks and stakes are so high? ➢ If yes, why did they not materialise? ➢ If not, are you a lone wolf who wants to do it all by himself?

23. Lie n° 15 : “I prefer to start by myself ” 23 • Why do you prefer to start on your own? Is it voluntary...? • Have you tried to build alliances? • Are you talking about your project? • If so, what conclusions do you draw about your leadership, the risks associated with your project, your ability to identify problems early enough and find solutions? • What are the impacts on you and your project of this solo start? • “Lone wolves” never create great and rewarding entrepreneurial adventures!

24. Lie n° 16 : “Our first customer will be profitable” 24 • If you say/think it is profitable, you probably have no idea of the cost of acquiring your first customers...! • Instead, your first customer is a test that validates a whole series of parameters and assumptions in your Business Plan. Duration and process of the sales cycle, customer reactions, use of the product/service, price sensitivity, perceived value, value delivery, payment duration, and so on.... • You must study your first client with the eyes of an anthropologist, a sociologist, a psychologist: the act of purchase, use, comment,... and adapt your offer. • It is almost impossible for your first customer to be profitable... and it is not even necessary...!

25. Did you say “lies by omission”? 25 1. The development of turnover? 2. The customer's acquisition cost? 3. The length of the sales cycle? 4. The person who will sign the contract (B2B)? 5. The ability to produce/deliver? 6. Are you quantifying the value proposition?

26. Lies by omission n° 1 : “The development of turnover” 26 • Absence or low commercial, advertising and marketing costs in the Financial Plan...! • Linear growth in turnover in the Financial Plan without threshold effects and without an increase in fixed or variable costs, from the first day! • Process of spontaneous generation of turnover! • Trade Policy: ➢ It is vaguely described in the Business Plan...! ➢ Not very detailed in the Financial Plan: a box in an Excel table often without a formula...!

27. Lies by omission n° 2 : “The customer acquisition cost” 27 • Process of spontaneous customer generation... without necessary strategy, marketing costs, advertising or sales force... • Determination of turnover as a “financing requirement” to balance the income statement! • While the determination of the acquisition cost can lead the prospective entrepreneur to profoundly modify his strategy: not all strategic options are financially “assumable”. After a correct estimation of a customer's acquisition cost, an entrepreneur may decide to switch from a B2C strategy to B2B. • Already described above... and in the lies by omission no. 1...

28. Lies by omission n° 3 : “The time required for the sales cycle” 28 • Results: • As potential entrepreneurs are reluctant to talk to potential customers, they are even more unwilling to test their business process and simulate sales. ➢ They often start by selling to the wrong person (B2B or B2C) ➢ They will discover by selling the configuration problems of their offer: superfluous elements, lack of certain features, related service(s),... ➢ They underestimate the length of the decision-making process...! • These types of errors will have a significant impact on the company's financing needs.

29. Lies by omission n° 4 : “The person who will sign the contract” 29 • The person who signs the contract must be the one with the decision-making power and the one with the most significant problem (or need). • The economic feasibility test confirms the identity of the so-called Decision Maker Unit (DMU). • In B2B and even in B2C, the end user, even if he pays and can be called “consumer”, is not necessarily the customer (the one who signs the order form): ➢ Example of Pepsi-Cola ➢ Example of the Curtius ➢ Example of Spotfire

30. Lies by omission n° 5 : “The ability to produce/deliver” 30 • ... especially if you do everything yourself...Making prototypes, pre-production lines allow testing of the technical feasibility “Proof of Concept”... • but also to have one (or more) product (s) to confront potential customers to make “Proof of Business”! • Depending on the results, if they are not convincing, for example, the option of outsourcing or entering into strategic partnerships may be a contingency strategy. • A Business Plan is not a guarantee of being able to produce or deliver the product...

31. Lies by omission n° 6 : “Quantify the value of the proposal” 31 • If we identify a specific market, with a similar offer; if we look for competitors and substitutes, it is possible to identify a series of criteria/values for each of the proposals on the market. By weighting each of these criteria, we can compare the offers... • ... and possibly quantify the real value for the customer! • Advantage: it simplifies the positioning and sale of the product > return on investment concept! • Say “I am the best in this market”, but be unable to prove it.

32. Conclusions ? 32 • Be aware of the risk of cognitive dissonance... • Don't start alone.... look for contradiction! • Surround yourself with trustworthy people with experience in entrepreneurship... • Get out of your office: entrepreneurship is a contact sport... ➢ Meet as many potential customers, distributors, experts as possible, explain your project to them, note their reactions,... ➢ Meet as many technical experts as possible, talk to them, ask them as many questions as possible, note their reactions,.....

33. Conclusions (2) ? 33 • Test everything that can be tested: from production to sales... with a minimum of fixed costs...: invest or get into debt only when the tests are successful. • Don't be afraid to try test sales with an MVP (Minimum Viable Product), even if you can't deliver. • Forget quantitative tests, focus on qualitative interviews! • If you do quantitative tests, make sure you determine in advance what you are trying to disprove and confirm (and this also applies to qualitative interviews).

34. Conclusions (3) ? 34 • Your first sales are life-size tests: play the ethnologist, sociologist, anthropologist to understand how the customer decided, how he uses the product/service, and what he thinks about it! • Your first sales are laboratories that are part of the development process! • The risky journey does not stop with the first sales, but you can significantly reduce the risks if you use this launch phase properly to understand what needs to be changed quickly. • Changing your mind is not dishonourable... • The paradox of Business vs Test...

35. Conclusions (4) ? 35 How to seriously assess sales? • In reality, no candidate-entrepreneur can predict sales, especially when the product is innovative. • The ideal is to have letters of intent or firm orders (the best financing for the start-up is the customer!). • Provide reasonable and defensible assumptions, in line with the target market, your value proposition, and existing competition. • Unveil the Excel formulas in line with the assumptions to make financiers understand the revenue model and reassure them about both your managerial logic and your skills.

36. info@IntoTheMinds.com www.IntoTheMinds.com ©2020 Reproduction interdite Are you starting a business in the Brussels Region, are you an entrepreneur and looking for information? Feel free to contact 1819 by phone or visit www.1819.brussels For any question or request relating to market research (documentary research, competition analysis, qualitative and quantitative studies,...) contact us via our website: www.IntoTheMinds.com or by email info@intotheminds.com

37. Good luck, entrepreneurship is one of the last great adventures available! And don’t forget: LIFE BEGINS AT THE END OF YOUR COMFORT ZONE! 37