I recently ran a couple of business planning seminars at the 5th Annual Inventing the Future Conference put on by Young Inventors. Since it was a no Powerpoint affair (yeah!) I have no slides to share but here is a quick summary:
Business Plans DO NOT EQUAL Business Planning
It’s amazing how much stock we put in business plans considering they are works of fiction. Few startups really know their precise target market, product, pricing or cost structure. How could they? I guess writing a business plan is a good exercise in research and discipline but only if it doesn’t distract you from real business planning. My personal favorite is figuring out the size of a market. Any time there is 3rd party research on market size your product is probably too late. You can’t really size a market you’re creating from scratch so don’t sweat the details. Just show an intelligent attempt and that will be impressive enough. A recent WSJ article claims that Business Plans Don’t Matter to VCs (though not all agree).
All Customers Are Not Created Equal
There’s not much I can write about targeting specific customers that hasn’t been covered by Geoffrey A. Moore in Crossing the Chasm. If you haven’t read it please stop reading this blog and buy the book! If you have, a re-read will remind you how it still holds true in so many cases. Startups should realize that there is no such thing as a generic customer. When you’re planning, it’s important to find a niche where you can find customers with specific pain points. Even within this niche you have to figure out how to target early adopters, i.e. people who are willing to take a risk on a startup. Targeting the early majority (i.e. more practically-minded people who need proof before they buy) is a waste of time until you have bona fides with early adopters.
Real-world planning tip: Create fictional caricatures of your customers (e.g. “Joe the plumber”, or more precisely “Joe the small residential plumber looking for ways to level the playing field against bigger rivals”). You should have one caricature for each of your customer types. Then keep these ‘people’ in mind every time you make a strategic decision in your company.
Find The Value
Business plans make us believe that commercializing new products is a linear progress of steps leading outwards from the original idea. Reality is a lot less linear. Sure you may have a breakthrough technology or a wonderful idea and have a great plan to push it to market, but it has to pass the “Who Cares?” test first. It’s easy to convince yourself that people (especially generic people…) will buy your product. It’s a lot harder to go out and talk to them. I always ask entrepreneurs if they’ve talked to 100 prospective customers of their products. This actually takes less time than writing a business plan!
Real-world planning tip: Get to the core of your idea by figuring out if you have a vitamin or a painkiller. The good news is that this early in the game it’s not expensive to start over.
Real-world planning tip: Since Frederick Winslow Taylor invented time and motion studies people have been measuring and analyzing user behavior. Though I’m not recommending startups take up cameras and stopwatches, I am recommending you quantify the value you purportedly add. Think your solution saves time? Detail exactly how much time, in minutes or seconds. This presumes you know what your customers were doing before they bought your product. Once you have a convincing argument bring it to a customer and try to convince them. Then on to 99 more.
Write Once, Don’t-Survive-Battlefield Everywhere…
To summarize, I’m not saying that business plans are evil. Sometimes it’s good for entrepreneurs to work out ideas on paper before committing time and capital to them. Other times you have no choice, e.g. for banks or VCs. But don’t confuse writing a plan with real business planning. A plan is something you write, print, file away and celebrate with a pint. Business planning is a continuous discpline you’ll use throughout the life of your business.