Category Archives: Before you write a business plan

Business Plan Competitions vs. Business Model Contests

No One Wins In Business Plan Competitions

Business Plan Versus Business Models
Where did the idea that startups write business plans come from?  A business plan is the execution document that large companies write when planning product-line extensions where customer, market and product features are known. The plan describes the execution strategy for addressing these “knowns.”  In the early days of venture capital, investors and entrepreneurs were familiar with the format of business plans from large company and adopted it for startups. Without much thought it has been used ever since.

The Alternative – Business Model Competitions
I’ll offer that to be useful for startups Business Plan competitions need to turn into Business Model competitions. A Business Model competition has a radically different goal than writing a business plan.  The Business Model competition measures how well students learn how to Pivot by getting outside the building (not by writing a plan inside one.)

Read the rest here

Don’t forget to keep it simple – Recomended reading from Steve Blank

From Steve Blank’s BLOG post:    Turning on your Reality Distortion Field

Our product is really complicated

After hearing more details about the features of the product (I think he was heading to the level of Quantum electrodynamics) I asked if he could explain to me why I should care. His response was to describe even more features. When I called for a time-out the reaction was one I hear a lot. “Our product is really complicated I need to tell you all about it so you get it.”

I told him I disagreed and pointed out that anyone can make a complicated idea sound complicated. The art is making it sound simple, compelling and inevitable.

Turning on your Reality Distortion Field

The ability to deliver a persuasive elevator pitch and follow it up with a substantive presentation is the difference between a funded entrepreneur and those having coffee complaining that they’re out of cash. It’s a litmus test of how you will behave in front of customers, employees and investors.

30-seconds
The common wisdom is that you need to be able to describe your product/company in 30-seconds. The 30 second elevator pitch is such a common euphemism that people forget its not about the time, it’s about the impact and the objective.  The goal is not to pack in every technical detail about the product. You don’t even need to mention the product. The objective is to get the listener to stop whatever they had planned to do next and instead say, “Tell me more.”

How do you put together a 30-second pitch?

Envision how the world will be different five years after people started using your product. Tell me. Explain to me why it’s a logical conclusion. Quickly show me that it’s possible. And do this in less than 100 words.

The CEOs reaction over his half- finished muffin was, “An elevator pitch is hype. I’m not a sales guy I’m an engineer.”

The reality is that if you are going to be a founding CEO, investors want to understand that you have a vision big enough to address a major opportunity and an investment. Potential employees need to understand your vision of the future to decide whether against all other choices they will join you. Customers need to stop being satisfied with the status quo and queue up for whatever you are going to deliver. Your elevator pitch is a proxy for all of these things.

While my ex student had been describing the detailed architecture of middleware of electric vehicles I realized what I wanted to understand was how this company was going to change the world.

All he had to say was, “The electric vehicle business is like the automobile business in 1898.  We’re on the cusp of a major transformation. If you believe electric vehicles are going to have a significant share of the truck business in 10 years, we are going to be on the right side of the fault zone.  The heart of these vehicles will be a powertrain controller and propulsion system. We’ve designed, built and installed them. Every electric truck will have to have a product like ours.”

75 words.

That would have been enough to have me say, “Tell me more.”

Lessons Learned

  • Complex products need a simple summary
  • Tell me why I should quit my job to join you
  • Tell me why I should invest in you rather than the line outside my door
  • Tell me why I should buy from you rather than the existing suppliers
  • Do it in 100 words or less.

Start up Resources

Start up resources:

  • Entrepreneurial Finance: For New and Emerging Businesses by James McNeill Stancill  (Available from Amazon.Com)
  • * The Business Startup Checklist and Planning Guide: Seize Your Entrepreneurial Dreams! by Stephanie Chandler  (Available from Amazon.Com)
  • * How to Really Start Your Own Business, Fourth Edition by David E. Gumpert  (Available from Amazon.Com)
  • * How to Really Create a Successful Business Plan: Step-by-Step Guide by David E. Gumpert  (Available from Amazon.Com)
  • * What No One Ever Tells You about Starting Your Own Business: Real-Life Start-Up Advice from 101 Successful Entrepreneurs by Jan Norman  (Available from Amazon.Com)
  • * Business Start-Up Kit by Steven D. Strauss  (Available from Amazon.Com)
  • * Start Your Own Business (Entrepreneur Magazine’s Start Up) by Rieva Lesonsky  (Available from Amazon.Com)

Web Sites:
http://www.sba.gov/financing/index.html —  SBA Financing
http://www.entrepreneur.com – Magazine website
http://www.startupjournal.com – Wall St. Journal “Small Business” website
http://www.nolo.com/legal-encyclopedia/article-29743.html — Nolo’s Start up Advice

Pulling numbers out of the air

No, You Can’t Just Pull Numbers Out of The Air

Question: I’m in the process of writing an Internet startup business plan to present to prospective investors. The site isn’t live so I don’t even have a basis for speculation with respect to the financials. I would essentially be pulling numbers out of the air. Being that the Internet business as it pertains to advertising revenues is so mercurial, is it feasible to present the plan without having the financials included? If not, how can I make more realistic financial assumptions?

My answer: No, you won’t get anywhere presenting a plan to investors without financials. I’m glad you asked me instead of just moving ahead with that idea.

Every new business, including website business as well, has to be able to present a reasonable forecast if it’s going to hope to get an approval from outside business. And it can never be “pulling numbers out of the air.” The assumption is that before you start a new business you have some idea how it’s going to work, based on some experience. If you have no idea, no investor wants to even share the same elevator with you.

In this case, the website business, you need somebody on your team who can project website traffic and sales based on real experience with search terms, search engine optimization, Google ad words and its competitors, conversion rates, and so on. Your traffic doesn’t get pulled out of the air, it’s a function of what you plan to do and what you plan to spend. Know your key search words and the traffic those words and phrases get for others, right now. Know reasonable conversion rates. Make estimates based on real assumptions about real variables.

For more information on this, you could try:

Life plan before a business plan

Life plan before a business plan

To really get a good picture of your life plan as an entrepreneur, answer the following questions:

  • What kind of lifestyle do you want to have as an entrepreneur?
  • How big do you want your business to get in terms of profits and staff?
  • Will you have employees?
  • How many hours a week will you work?
  • Do you need to meet the school bus every day or take off every Friday?
  • Are you willing to work seven days a week? If so, how long can you keep that up?
  • Will you need a partner and could you handle working with one?
  • How will you fund your household while you start your business?

You may have a great business idea, but you must decide if it’s a good business for you and your family.  Do not trade a soul-sapping job for a business that you hate.   With a life plan you will have a goal, then you can develop a plan that will lead to personal and professional success.

Before You Write a Business Plan

Look. Thinking through your business start-up is essential. But there are some steps you should take before you sit down to write your business plan. And in some (many?) cases the business planning process just interferes with the essential “real-world-proof-of-concept” step.

From Tim Berry’s free “Plan as You Go” book and website.

Before You Write a Business Plan

Validating the idea and understanding the business model are pretty important steps that should come before writing a business plan. That’s hardly a novel idea.

Still, novel idea or not, successful entrepreneur Vivek Wadhwa spells out the early stages very well in a BusinessWeek special report published in early 2008, “Before You Write a Business Plan.”

He starts with a short list for validating the idea:

  1. Write down your thoughts on the product you want to build and the needs you want to solve. You’ll be detailing your hypotheses.
  2. Validate these hypotheses with as many potential customers as you can. Ask them if they will buy your product or service if you build it. Learn about what features they need and what they will pay for, ask them for more ideas, and be sure that there is a large enough market.
  3. Build a prototype of your product or offer a test run of your service and again ask potential customers what they think about it. You’ll find that customers usually provide much better input when they can actually try out a product.

Then Wadhwa also suggests a slightly longer list for developing the business model, by answering s a series of questions. …

To read the entire article click here

The Art of the Start & Crazy Entrepreneurs

Guy Kawasaki on The Art of the Start (video)

You Aren’t Crazy, You’re Just an Entrepreneur

You aren’t crazy—there are good reasons why starting a business feels hard. Like any big change in life like getting married or having a baby, entrpreneurship has its ups and downs.

Once you get over the initial rush of your launch, certain that everything is going to go according to plan, you run into some snags. Your website developer disappears with your site half done. A sure-thing client cancels his project. Your Mom wants her dining room back and you have to start to pay for office space.

Martha Beck, O Magazine columnist and author of Finding Your Own North Star, has a very useful framework for describing the cycle of change experienced by new entrepreneurs. I explain it at least once a week to reassure my clients that “nothing is going right and it feels like the universe is conspiring against you, but you are not insane for thinking of starting a business, and once you get through this rough patch, things really will get better.” See if you can identify which square of change you are currently in according to Beck’s framework:

Square One: Death and Rebirth

Characteristics: This first stage of change happens when you consciously choose to move from employee to entrepreneur. Nothing is familiar anymore, and you grasp to both feel normal and explain your new work identity to others.

Mantra: I don’t know what the hell is going on, and that’s okay.

Recommendation: Stay focused inward, on your own insights and creativity. Exercise, eat right and stay grounded. Don’t worry about figuring everything out at this stage, just pay attention to how you feel, and stay open to possibility.

Square Two: Dreaming and Scheming

Description: Once you get more comfortable with your shift in identity, you begin to brainstorm a bunch of different business ideas and scenarios. The sky is the limit as you imagine yourself as a software genius, media tycoon, or rich inventor.

Mantra: There are no rules, and that’s okay.

Recommendation: Don’t edit your imagination. Run wild and think up new ideas for products and services. Don’t worry if they don’t make sense, or that no one you have ever known has ever been successful at it. The important thing is to brainstorm as many possible ideas as you can and gather lots of data from different sources.

Square Three: The Hero’s Saga

Description: You whittle down your big list of business ideas to one that appears to be viable. You launch the business. Everything goes wrong. People criticize you. You question your sanity.

Mantra: This is much worse than I expected, and that’s okay

Recommendation: Don’t get flustered. Expect that things will go wrong. Do not beat yourself up when they do. Focus on tweaking, learning from mistakes, and moving forward. Surround yourself with smart people and good support.

Square Four: The Promised Land

Description: When you get through the awful growing pains of Square Three, business will stabilize. You will have paying clients, make a profit, and get the right team in place.

Mantra: Everything is changing, and that’s okay.

Recommendation: Enjoy it while you can! Save your money, clean up your systems, and be smart about growth. Sooner or later, you will either be forced through the cycle again—or will go through it willingly.

For an in-depth, multimedia overview of the change cycle that entrepreneurs go through, click here.

Estimating entrepreneurial risks

Don’t Quit Your Job Until You’ve Talked to a Small Business Failure

Over the last week I’ve done several posts on different surveys showing how small business owners view risk. A quick summary is most small business owners think working for someone else is more risky than owning a small business and they are very good at minimizing business risk.

Several people have asked me does this data mean that small business ownership is less risky than traditional employment? The quick answer is yes, but only if your small businesses is successful.

The reason is the referenced surveys onlysurveyed existing small business owners. This is almost always the case with small business surveys because most research is focused on what is going on at existing small businesses.

But if your goal is to find out how all small businesses owners think about risk, this approach is flawed. This is because former small business owners – the folks that went bankrupt, lost their companies or were removed from their jobs – are no longer small business owners so theyaren’t included in these surveys. Because business failures are excluded, the survey resultsare biased towards successful small businesses.

It’s possible (probably likely)that failed small business owners consider small business ownership riskier than those still in business.Andincluding them might change the survey results.

This is called survivor bias and it is a common research problem.

My favorite example of survivor bias is surveyingexisting customers to develop satisfaction ratings. I was once asked to figure out why a company was losing so many customers despite having stellar customer satisfaction ratings.

It turned out they didn’t include customers that left prior to the annual customer satisfaction survey. After all, they explained, they weren’t customers anymore.

Not surprisingly, when surveyed this group rated the company very low in several important areas. But because of stellar ratings fromthe shrinking number of customers that stayed with them, the company was unaware of these problems.

So if you are considering small business ownership, entrepreneurship or self-employment keep survivor bias in mind as you read surveys and talk to people. Also, make sure to talk to folks that have failed. They will give you important and likely different perspectives than people thathave succeeded.

New book – ‘Fundamentals for Founders’

‘Fundamentals for Founders’: What Every Startup Should Know from Knowledge at Warton

“Everyone has a plan — until they get punched in the face.” These words of wisdom from boxer Mike Tyson begin a new book titled, Fundamentals for Founders: The Practical Guide to Kick-Starting Your Business. As co-authors Peter Burchhardt and Dan Hou note, starting a business from scratch is an adventure led by passion, inspiration and innovation. However, like any adventure, startups hold plenty of surprises, and not necessarily all good ones.

It doesn’t have to be that way. In Fundamentals for Founders, Burchhardt and Hou, who have founded a number of businesses in the U.S. and China over the past decade, walk budding entrepreneurs through what they see as the building blocks for a successful startup. Those include lessons on how to conduct market and competitor research, design user-friendly products, use marketing techniques like online advertising and search-engine optimization, as well as craft a financial model to show how much cash the startup needs along the way and which parts of the business will drive profitability. …

The Root Canal Theory of Business Planning

For years I’ve lived with my own “root canal theory of business planning.” Do the Google search for that phrase and you’ll see that my previous writing about this comes up first. Like root canals, business plans were something people dreaded, but needed. Happily, things have changed.

Unlike a root canal, modern-day business planning should not be painful, is not something you do all at once, and ought not to be a cure for anything like a toothache. Instead, it should be fun and interesting, and a regular process. It’s preventative, not curative. I call it plan-as-you-go business planning. The plan stays alive. It’s not painful to do, you like doing it because you’re running your own business and the planning part of it is fascinating. It’s your future, your life, and controlling your destiny.

It’s only now-obsolete myths that liken the business plan to the root canal. They might have been true in the past, but are definitely not true anymore.

I had the worst kind of reminder yesterday: a root canal. This one repaired one done 20 years ago. Root canals have changed. Technology has improved. But they’re still bad.

It was just after having that first root canal that long ago that I developed the root canal theory of business planning. I’d had a horrible toothache back then, a sleepless night, and by the time I got to the dentist chair the next morning I really, really wanted that root canal. I wanted the pain to end.

Back then — late 1980s — I thought about how people only did business plans when they absolutely had to, for investment or business loans; and about how when they did have to, they wanted that business plan fast, and they wanted it badly. But it seemed like nobody who didn’t have the urgent need wanted to do a business plan. Our fulfillment house noted that our business plan software orders had the highest ratio of overnight shipping of all their clients.

Today I believe what I posted on this blog two years ago: If you dread business planning, keep your day job.

From Tim Berrys’ BLOG