Random (but well thought out) thoughts on entrepreneurship

After reading thousands of pages of theoretical and academic papers on venture capital, innovation, entrepreneurship, etc.; after browsing through and sitting though dozens of business plans; after reading about business cases/studies on the category, I've come to believe in the following ingredients of a good business FOR ME.

Caution:
1) most of the elements below are nothing new, and only repeated
2) none of these elements are indispensable, and success can come from other criteria.

Stuff that I now systematically look at in a new venture:

- the entrepreneur, and his team. OK nothing new, but boy, isn't this important. First and above all, there must be a great fit between a VC and an entrepreneur. I wouldn't go as fas as to say that mutual trust and confidence must develop, but at least that mutual respect, and a thorough understanding of each others' expectations, limitations and goals is key. You are giving your money to a guy, you better feel confortable with that. You are inviting a financier for dinner every week for the next couple of years. You'd better have something to talk about together. Business is a people business. Good people are self driven, honest, reliable. Past experience helps but is not indispensable. Skills are necessary but can be built together. Honesty can't. Good entrepreneurs reduce the risk of an investment. Good VCs enhance the value of the deal. There is no magic formula between people, just special chemistry.
This of course, is also valid for choosing business partners at any level.

- market size: "are you talking to me about a 1 billion euro company" said a high-street VC to me the other day. OK dude, you can't always strike gold, but is Skype such a company ? probably. You can easily identify the market category, some of its dynamics, its size, its yearly growth, etc. When you play football, or tennis, or any sport, you understand what the playing field is. You know who and where the other players are. You know how fast you can go.
Make sure you know who you're playing with or against. What the potential of business is, hence what you're potential marketshare can be, because once multiplied by a 'multiple', and again by the % of equity of the VC, he can calculate his exit future value, hence his ROI...
Small niche markets can be very profitable if you're the only guy in town. Otherwise you'd better be playing in a very big market and try to grab as much market share as possible.
A good rule of thumb: can your company become a global player in this category (global, period. Not national!). Even better, can your company be the #1 or #2 in its category ? (Hi Jack!). Are you creating a gorilla, or an epiphenomenon in your backyard ?

- barriers to entry: what makes your company unique ? what is it you are creating that will now allow new entrants such as competition to steal your idea, process, dsitribution network, etc. and hence steal your market share, hence your revenue ? A company with no business protection is no business. It can come in many ways: intellectual property, process patent, technology, people, partnerships, etc.

- a got to have, not a nice to have. Remember: customers are going to give you their money for a good or a service. They'd better be compelled to do so, instead of being begged to do so. A simple and stupid example: you will give a coin or two to a jazz band in the Paris metro right ? But not to the erratic beggar? More seriously, what "pain" in the market is your company solving? What customer frustration is it solving?
This is what consultants call a 'value proposition'. Just make sure there is a lot of value in the proposition.

- finally, I only work in Internet-related ventures. That's were my competence, and tastes have led me to. I have really no clue about biotech, or recyclable energy, and I'm not interested whatsoever in learning about them :) But in my space, the Internet, I absolutely love viral business models, where customers become the sales force. Hotmail, MSN, AIM, Skype, Flickr, blogs are some of these examples. Great models to look at, but yet, not enough as such.

- the other usual stuff I love to look at: how the company makes money (how do you build revenues ?), what is the cost structure (ie. direct/semi-direct/indirect costs => gross margin, EBIT, EBITDA, CAPEX), how does the cash flow statement look like, and a sensitivity analysis.

And with that, if you meet these criteria, you know where to send a copy of your business plans ;) Again, I'm not in the business of screening documents day in and day out. Not in the business either of meeting every aspiring entrepreneur and serving as your sounding board while you refine your business idea. I'm in the business of helping entrepreneurs launch successfully a new venture or boost it, bringing to the table our network of partners, and our experience of building hockey stick growth.

My final word: building a business is a very old idea. It has one simple rule: you must sell what you buy with a profit. The question we must all answer next is: how big a profit ?