The POEM Framework®
To start and sustain a successful innovation business like any other, an entrepreneur requires a compelling Vision that will drive execution of all the activities required to bring the vision to life as a successful startup venture. The life of that venture is measured by progress towards the realisation of that vision.
It is that journey to the successful delivery of the vision by the entrepreneur that innovation hubs and early stage investors such as business angels seek to contribute and help along the way in anticipation of a reward from the expected outcomes. As angel investors, innovation hubs and the entrepreneur are primarily interested in the commercial success of the venture, focus must be on how its product/service offer creates value by solving a problem or meeting a need for a specified set of customers and delivery of the solution as a product/service offer that satisfies such customers is achieved to generate revenue for the venture.
My POEM Framework® is a simple model that helps Entrepreneurs, Innovation Hubs and Business Angels meet their needs of a structure for understanding and communicating about the venture as they journey together to commercial success.
So, the start point is the entrepreneurs Vision. What exactly do you see in the future in terms of value that the venture you are about to build will create for those who will benefit from it? Until this fundamental question is answered in a detailed enough manner to get others (co-founders, friends and family) to agree to spend time and money on it, it’s not compelling enough. However, once your vision is well understood by those around you, the next thing is to build a business that actually brings that vision to life.
Bring the entrepreneurs vision to life is where POEM actually comes in and I am not talking about the piece of writing in which the expression of feelings and ideas is given intensity by particular attention to diction (sometimes involving rhyme), rhythm, and imagery you were taught in elementary/primary school. What I am talking of is an acronym that stands for the Proposition, Organization, Economics and Milestones of your venture as it proceeds on its journey to commercial success.
Let’s start with your Proposition which is the promise you are actually making when you come to market, it’s the offer of value you are making, who you make it to, who you are competing against in making that offer and if there a regulatory environment, knowing what it is and how to ensure your ventures compliance with it. As an entrepreneur you will have assessed and have a clear understanding about the value of your target market, the potential customers in it, their various segments, profiles and all the things that combine together to generate revenue because that’s what business is at the end of the day- making money.
As you review your proposition, you must consider why potential customers would want this, what problems they will be solving with it or what they will be able to do that they could not do without it and who else is actively providing them with what they are using to meet those challenges today. Once you have considered that, you then delve into the details of what features, functions and facilities the offer you are making provides to the target market.
By doing this simple assessment continuously and iteratively, you will have as good an idea as it gets, of what value you are creating and clarity on the revenue associated with its delivery to the market. That is what I mean by Proposition.
Your Organisation is really about the people, processes (including policies and procedures) and the technology used to create and deliver the value your venture is offering to its customers. Starting with people and how the venture is governed you assess individual as members of the venture’s Board of Directors/Advisors who guide the strategic direction of the venture. You want to be sure that there are enough Senior or Junior Management team, what staff do you have, exactly how are you structured to create value? Once we know who the people are; the question is how do we create value, what are the processes you adopt to generate revenue that meet the promises you made in your proposition. In between these two, you have the underlined technical component that makes up your organization.
Now let’s talk about how you measure progress towards bringing the vision to life by the organisations delivery of the proposition to the market. The first measure is the Economic measure which I call “show me the money” coming from the proposition generating revenue and the organization expenditure to deliver the value with any capital investment needed to initiate and sustain momentum. Using financial ratios such as profitability, liquidity, leverage, efficiency, and growth, you can tell financial health of a startup. Profitability ratios measure how profitable a venture is by looking at ROS, ROA, and ROE. Liquidity ratios measure how quickly the venture turns assets into cash to pay-off short-term liability and they include Current Ratio, Quick Ratio, and Cash Ratio. Leverage ratios measure how much long-term debt a venture has relative to its assets or equity. Efficiency ratios measure how efficiently a firm uses its assets. It is like a physical exam for people and you can tell the fiscal status of a startup using financial ratios. You can also develop pro forma financial statement using financial ratios. Using pro forma financial statement, you can tell future financial status of a startup as well as cash flows. In addition, using information from pro forma statement and valuation methods, you can even do the valuation of your venture.
The second measure is time and that is where Milestones along the journey comes in; where do you start? where are you today and where are you going? In measuring a venture’s milestones along the way, you are assessing your proposition (your customers- how are they growing and your product/service offer — how does it fit with demand) and your organization (boards and employees — how many do you have and how much value each is creating, processes — how well defined and repeatable, and technology — how differentiated and mature) as you bring your vision to life using the POEM framework.
At Incubation (aka Ideation), you should have a well-defined concept, a team with a business model and ad Hoc Expenses funded by the founders, their friends & family (FFF), Grants and competition Prizes. The milestone marker for this stage is the Minimum Viable Product (MVP) which means you have customers and are a StartUp.
Once you’ve cracked MVP and become a Startup you need to ensure you firmly establish the product/service offer to your ventures customers and have an operational structure in place for its delivery. By this stage you should be aiming for a steady burn rate with FFF, grants, prizes, business angel and even early stage VC Funding. The milestone marker for this stage is your Product-Market Fit (PMF) which means you have a growing number of repeat customers.
The Growth stage should see your venture increase its market share while the organisation is getting operationally efficient in its use of repeatable processes that are independent of individuals. It is somewhere at this stage that you ideally should be breaking even using business angel and VC series seed or A funding. Some ventures may start looking at new product(s)/service(s) that extend the revenue base while taking advantage of the existing cost base. The milestone marker for this stage is your traction which means you have an increasing customer base and revenue with competitive margins.
The advantage of the growth stage is when managed right can get the venture to where it can Scale by adding new products or entering one or more new markets. By this stage the venture would have perfected its repeatable processes and achieved unit profitability. This is also the stage when the milestone markers Series A, B etc. funding from VC’s typically kick in.
When scaling has been successfully executed and the venture has become one of the market leaders, it’s time for a new vision, trade sale or if big enough considering an initial public offering (IPO). By this stage the venture should be self-funding although it may have retained previous investors as shareholders. The milestone marker for this final stage is an agreed valuation that is multiples of where the venture was at StartUp.
For more on Milestones, see https://medium.com/@TomiDee/venture-milestones-7bb7a0f22730
POEM assessments provide entrepreneurs (especially innovators), tech and innovation hubs, early stage investors such as business angels and other stakeholders with a tool they can use with as much documentation as they need to give a holistic snapshot of the venture’s commercial health at any time.
The POEM Framework® presents a model that meets the need for organising the business of any venture in a form that can used on a day to day basis easily.
Each letter in POEM acronym presents strategic guidance for execution by ensuring critical information is given consideration while leaving its users with freedom to determine level of detail required for each activity or peculiar situation be it operations, marketing, selling, soliciting for funding, recruiting resources or others.
I hope you have found this article useful. If you would like to know more then please get in touch by email or through my social media handles. I look forward to hearing from you.