Category Archives: Business Planning

A Two-Day Startup Fest at Rice Business Plan Competition

Business Plan Contest, Venture Contests

A portable device to quickly diagnose strokes. An additive that doubles the strength of fiberglass and carbon fibre materials. A new way to use magnesium to heal broken bones. Those are just a few of the dozens of startups I saw earlier this month at the annual Rice Business Plan Competition. This was the tenth year I’ve been a judge. It gets better every year. Two days of plans and pitches. I wouldn’t miss it. The picture here shows the finals, six amazing finalist teams competing for 300 judges in a very full Rice business school auditorium.

RBPC Finals 2017

More than $1.2 billion in funding

As a judge of this event, I read six business plans cover to cover. Then I spent two days watching and asking questions as several dozen startup teams pitch their startups. I do six of them on Friday and 10 on Saturday, which includes six finalists. The pitches take 20 minutes or so, and of course they include questions and answers. The 42 startups chosen from more than 700 applicants must have at least one student, and only the students can do the pitch. They come from all over the United States, plus Canada, U.K., Germany, India, and Hong Kong.

In the 10 years I’ve been doing this, the startups get steadily better. At least 80 percent of the ones I saw this year look like they should be getting angel investment, and all of the six finalists will get funded for sure, and launch. The statistics get steadily more impressive. Here are some numbers published by the organizers:

In 2016 we screened more than 750 applications. More than 180 corporate and private sponsors support the business plan competition. Venture capitalists and other investors from around the country volunteer their time to judge the competition, with the majority of the 275+ judges coming from the investment sector. 161 past competitors have gone on to successfully launch their businesses and are still in business today, with another 15 having successful exits. These companies have raised in excess of $1.2 billion in funding.

Serious investment possibilities

This year’s winner developed a portable device that identifies stroke victims fast. Although their pitch at Rice isn’t public, they link to a previous pitch presentation. This is Forest Devices, from Carnegie Mellon.

Forest Devices earned $635,000 in prize money and investment. Most of this is conditional, tied to angel investment that comes with fairly standard conditions including equity for the investors. Most of the teams end up accepting the terms and taking the investment, although that generally takes a few weeks of legal work before it’s final.

Medical Magnesium, which finished in third place, landed $709,000 in proposed investment with term sheets. It is developing bioabsorbable magnesium implants that turn into bone instead of being removed. It came from the University of Aachen, in Germany.

Palo Alto Software gives a prize for the best written business plan entered. This year that prize went to AIM Tech, from the University of Michigan. It develops low-tech, low-cost medical devices for emerging marketings, including an award-winning low-tech infant ventilator.

 

The Crystal Ball and Chain

Business Planning, Business Stories, Management

One of the somewhat hidden benefits of good planning process in a business is management accountability. And one of the problems that comes up, in organizations that introduce good planning process, is what I call the “Crystal Ball and Chain” problem. I’ve run into it several times as I’ve introduced the planning process into a new company or organization.

Fear of accountability and commitment

People in the organization sometimes fear business planning. In the background, the fear is related to accountability and commitment. Usually they don’t realize it. They state their objection as:

“But how can I possibly know today what’s going to happen six months from now? Isn’t that just a waste of time? Can’t it actually be counter-productive, because it distracts us, and we spend time trying to figure out things in the future?”

I’ve heard this from some people who really did seem to be worried about accountability and commitment, and I’ve heard it from some who were stars on the team, not worried at all about their own position, but legitimately worried about the best thing for management and getting work done.

The answer is that projecting future business activities isn’t a ball and chain at all, because in the right planning process the existence of the plan helps you manage effectively.

The solution is collaboration

Here’s a concrete example: it’s September and you are developing your plan for next year, which includes an important trade show in April. You plan on that trade show and set up a budget for expenses related to that trade show. Even though it’s September, you have a pretty good idea that this will happen in April.

When January rolls around, though, it turns out that the trade show that normally takes place in April will be in June this year. Does that mean the plan was wasted time? Absolutely not! It is precisely because you have a plan running that you catch the change in January, move the expense to June, and adjust some other activities accordingly.

In this example, the plan isn’t a brick wall you run into or a ball and chain that drags you down; no, it’s a helpful tool, like a map or even a GPS device, because it helps you keep track of priorities and manage and adjust the details as they roll into view.

It’s normal for the crystal ball and chain to appear as an objection when a planning process is introduced. The solution is simply good management. The people involved in implementing the plan learn with time how regular plan review sessions help them stay on top of things, and when assumptions change, how the plan changes. Changes are discussed, nobody gets fired, and you have better management.

The underlying idea here is directly related to the paradox in a previous post: business plans are always wrong, but still vital to good management.

Do We All Undervalue Bootstrapping?

Bootstrapping, Business Planning, Business Stories, Business Strategy, Growing a Business

In business schools, in popular blogs, in business publications, and in general discussion of starting a business, we undervalue bootstrapping. We teach starting a business as if every new business requires sophisticated venture capital. I understand how this can be educational. It means teaching business planning, which is the ultimate business teaching tool, and investment analysis, ROI, IRR etc. Still, of the 700,000 or so new businesses launched every year, about 5,000 had VC money, and maybe 30,000 had angel investment. The rest were bootstrapped.
Kids with Boots

Outside investment is overrated

I think the investment option is overrated. It’s better to own your own than to land investment, at least if you can pull it off. As the old song says, “God bless the child that’s got its own.” The opportunity itself should determine whether investment is required. lf it takes more resources than the founders can muster, then it needs investment.

The cliché asks which is better, a piece of a watermelon or a whole grape. But what if that comparison is skewed wrong? Which would you rather have, a slice of an orange or a whole tangerine?

I have good associations with bootstrapping. I was on the board as Philippe Kahn took $20K from his father, plus one $90k bundling deal from a PC manufacturer, and levered up Borland International without outside investment until he didn’t need it. He did it with a great product, strong demand, smart management, and cash-only sales instead of the mainstream, working-capital-hungry channels. Borland went public less than three years after it started. Palo Alto Software grew slowly without outside capital. We had to slipstream a larger vendor whose advertising budget was 10x ours. We ended up with 70% share in our niche and owning the company outright.

The luxury of owning it yourself

Bootstrapping isn’t just about owning the whole pie. It’s also about the luxury of being able to experiment and, at times, making mistakes. Philippe was unconventional. Could he have had that freedom if he’d had conventional VC financing?

A few years ago I was judging a major intercollegiate venture competition in which one team looked especially strong, it’s $5 million 3-year forecast seemed as likely as any of the others, but it didn’t need any outside investment. It was the best plan (IMHO) but it didn’t win. The judges, mostly investors, couldn’t figure out how to deal with that plan. It didn’t win the competition. It should have.

(Image: copyright Timothy J. Berry. All rights reserved.

A Good Resolution: Schedule Regular Management Meetings

business plan, Lean Business Plan, Planning Process

It’s not too late to schedule your monthly management meetings for this year. Use some regular meeting schedule such as the third or fourth Thursday of every month. Review your business plan milestone dates, deadlines, tasks, plan vs. actual results, and upcoming milestone dates and deadlines. All the managers committed to the plan will know way ahead of time so there are few reasons to miss a meeting.

Plan Run Review Revise

Some excuses will come up. There will be events like trade shows or client events that some managers have to attend. However, with a preplanned schedule for review meetings, these problems won’t happen that often.

If your planning process includes a good plan — with specific responsibilities assigned, managers committed, budgets, dates, and measurability — then the review meetings become easier to manage and easier to attend.  The agenda of each meeting should be predetermined by the milestones coming due soon, and milestones recently due.  Managers review and discuss plan vs. actual results, explain and analyze the differences.

The monthly plan vs. actual review includes financial results and other measurables — product milestones, support calls, sales events, etc. — and takes just two hours a month.

It doesn’t take that much time, but there is very little in management more valuable.  It makes your plan a planning process. And planning process turns planning into management.

7 Small Businesses Lessons From Tech Startups

business plan, Business Planning, Starting a Business,

Small Business Lessons from High Tech

What can every small business learn from tech startups? David Rose, founder of Gust.com and long-time leader of the New York Tech Angels, says normal businesses are different from tech startups, and offers small business lessons he’s taken from decades dealing with what high-end tech startups do as they start. He says:

One of the most valuable lessons I’ve seen proven true over and over again, is that many of the biggest obstacles that businesses face along the way can be avoided IF you take care to start things up correctly from the beginning. When launching a company, investing a little bit of time and money at the very start can pay large dividends later…but only if you have a solid foundation, a thoughtful structure, and a strong focus.

That’s from 7 Lessons Small Businesses Can Learn From Tech Startups, published in Forbes yesterday.

What’s a startup to you?

For the record, David’s view on startups is somewhat different from mine. I think of every business that starts up as a startup. He defines startup more narrowly:

While all businesses “start up” and start out “small”, not all “small businesses” are “startups”. Whereas a small business is founded to be profitable and create a good living for the entrepreneur and his or her family, a “startup” is founded with the intention of rapidly achieving exponential growth through scale, and either being acquired in a few years by a larger company, or becoming a “unicorn” and going public in an IPO…in both cases bringing in massive returns to its founders and investors.

The 7 Small business lessons

We come back together, however, on what David Rose recommends all businesses do. He’s recommending all businesses should take the same care that his version of startups do. That includes:

  1. Get smart. Read up on it. There’s so much wisdom available for a few dollars. Take the time to browse the essentials. David doesn’t mention it in this context, but his book Startup Checklist is a good one.
  2. Resolve your business model. Know how you make money. How will people pay you, and why.
  3. Get initial feedback. Talk to people about it. Find people you know who have experience. And listen.
  4. Analyze the market. “You must understand the landscape you are about to enter, inside and out.”
  5. The business plan. All businesses deserve business planning. I’m quoting him in detail in the next section, below.
  6. More feedback. Now you have market knowledge and an initial business plan. “At this stage you are looking for substantive comments about the business and market, along with specific critiques (don’t take offense; listen to them carefully!) and actionable insights.”
  7. Put it to the test. Launch. Do it. “The biggest test will be to see if customers really want or need what you are providing, and to understand if they are willing to pay for it at a price at which you can afford to supply it.”

The business plan we all need

And my favorite of David’s recommendations is the business plan.

“Many entrepreneurs draw up a complicated business plan as step one, but end up wasting a lot of time rewriting it as they work through their business concept. If you’ve done all the previous legwork and feel confident that your concept is marketable, viable and profitable, the next step is to begin to write it down. You’ll want to use a simple, structured format to note the various things that you are going to need to do to implement your business idea. For now, don’t worry about a long document for investors…just start by writing down bullet points outlining what is supposed to happen, a timeline, assignment of responsibilities, cost analysis, and revenue projections.

I strongly agree with him on this. We may not all need a that “long document for investors,” but we can all use the kind of business plan he suggests, “bullet points outlining what is supposed to happen,” and so forth, in that last sentence.

And then there’s this, my favorite part of David’s article, his recommendation.

There are some great resources available for this, and the best I’ve seen is the web site leanplan.com, by Tim Berry, the legendary author of Business Plan Pro. The site offers an online course you can purchase, as well as commercial online tools such as LivePlan, but it also includes the entire text of Tim’s book ‘Lean Business Planning’ for free. As you’ll learn from Tim, the most important thing about a business plan is not that it be long, but that it be live. An effective business plan is a living document, reviewed and updated every month, that adapts to the market, the field, and your actual results.”

Did I bury the lead?

 

What? Me do a Business Plan? But I’m Not a Start-up!

Business Planning, Growing a Business

Are you a business owner? Do you have a business plan? Is your answer to that question: “Business plan? but I’m not a start-up. Why would I want a business plan?” business management

My answer is that you do want business planning. You want business planning as a way to set strategic focus, priorities, effective tactics, measurement, and task assignments. Make those clear and record them so you can revisit monthly. Then track progress and performance as you do a monthly review. Add in plan vs. actual accounting to compare projected sales and spending and use that process to kep a close eye on cash flow. Anticipate problems. Accommodate rapid change. Give yourself a process to optimize your management.

Maybe you don’t want a traditional business plan

The disconnect is the problem of what is a business plan. I agree that you don’t want a business plan if you think of that as a formal traditional business plan document. The traditional static document, that you do once and then forget, is not useful to real businesses.

The shame, though, is what gets lost in the shuffle. The real business planning process is such a great tool for growing a business, but so many people dismiss it as a one-time plan used only to start a company or raise financing. That myth of the business plan for start-ups only gets in the way far too often. If you own or run a company, you probably want to grow it.  And if you want to grow a company, then you want to plan that growth. And the planning is only the beginning; you want to use the full planning process to manage growth.

The real benefits of business planning

Think for just a minute about how many different reasons there are for an existing company to plan (and manage) it’s growth. There’s the need first of all to control your company’s destiny, to set long-term vision and objectives and calculate steps to take to achieve vision. Without planning the company is reacting to events, following reality as it emerges. With planning, there’s the chance to pro actively lead the company towards its future.

For an existing company that wants to grow, planning process is essential. Everybody wants to control their own destiny.  The planning process is the best way to review and refresh the market and marketing, to prioritize and channel growth into the optimal areas, to allocate resources, to set priorities and manage tasks. Bring a team of managers together and develop strategy that the team can implement. Work on dealing with reality, the possible instead of just the desirable, and make strategic choices. Then follow up with regular plan review that becomes, in the end, management.

This normally starts with a plan.  The plan, however, is just the beginning.  It takes the full cycle to make a plan into a planning process.

Planning Principle: It’s Business Planning, Not Accounting

Planning Fundamentals

It’s business planning not accounting.  Your projections, although they look like accounting statements, are just projections. They are always going to be off one way or another, and their purpose isn’t guessing the future exactly right, but rather setting down expectations and connecting the links between spending and revenue. Then when you do your monthly reviews, having made the original projection makes adjustments easier.

This is the fifth of five principles of business planning. Others include do only what you use; it’s a process not a plan; it’s for managing change; and it develops accountability.

Planning and accounting are two different dimensions

Accounting goes from today backwards in time in ever-increasing detail. Planning, on the other hand, goes forward into the future in ever-increasing summary and aggregation.

Understanding this difference helps you with the educated guessing involved in making projections. The reports that come out of accounting, called statements, must accurately summarize the actual transactions that happened in the past. For example, a proper and correct Profit and Loss statement in accounting is a report summarizing all the actual transactions recorded as sales, costs, and expenses for a specified period of time (month, quarter, or year).

But projections, unlike financial statements, are just educated guesses. They aren’t reports of a database of actual transactions. Where accounting reports on records in a database, for projections there is no database. We guess what the totals might be. So you don’t try to imagine all the separate transactions in your head, for the future, and then report on them. You estimate the totals. That’s not only easier, but better. It’s a better match to how the projections help you manage, and how we humans deal with numbers.

You estimate and aggregate

So you don’t try to imagine all the separate transactions in your head, for the future, and then report on them. You estimate the totals. That’s not only easier, but better. It’s a better match to how the projections help you manage, and how we humans deal with numbers.

In the example below, the reported sales of $36,945.00 for services in the month of April of 2014 is a database report. Every transaction recorded in that month is included in the database. The number shown is the calculated total of all the transactions that included sales of a service item. It’s not a guess or an estimate. It’s a calculated total. On the other hand, the projected sales of $30,000 for some future month is the business owner’s guess – an educated guess, or an estimate – of what the total will be for that future month. Nobody imagines or guesses all of the individual transactions that will happen in that month in the future, and then totals them. We guess the total. The database report showing $36.950 is accounting. The projected sales of $30,000 is planning.

Planning not Accounting

Planning Principle: Good Business Planning Empowers Accountability

Lean Business Plan, Planning Fundamentals, Planning Process

It’s easier to be friends with your coworkers than to manage them well. Every small-business owner suffers the problem of management and accountability. Good business planning empowers accountability.

gears

Good business planning sets clear expectations and then follows up on results. It compares results with expectations. People on a team are held accountable only if management actually does the work of tracking results and communicating them, after the fact, to those responsible.

This is the fourth of my five principles of business planning. The first is do only what you’ll use. The second is that planning is continuous process, not just a plan. The third is that planning helps manage change and is not voided by change.

Good business planning develops metrics

Metrics are part of the problem. As a rule, we don’t develop the right metrics for people. Metrics aren’t right unless the people responsible understand them and believe in them. Will the measurement scheme show good and bad performances?

Remember, people need metrics. People want metrics. You and your business need metrics.

Then you have to track. That’s where the lean business plan creates a management advantage, because tracking and following up is part of its most important pieces. Set the review schedules in advance, make sure you have the right participants for the review, and then do it.

Good business planning develops expectations and feedback

In good teams, the negative feedback is in the metric. Nobody has to scold or lecture, because the team participated in generating the plan and the team reviews it, and good performances make people proud and happy, and bad performances make people embarrassed. It happens automatically. It’s part of the planning process. Besides, guilt and fear tactics are the worst kind of fake management.

And you must avoid the crystal ball and chain. Sometimes — actually, often — metrics go sour because assumptions have changed. Unforeseen events happen. You manage these times collaboratively, separating the effort from the results. Your team members see that and they believe in the process, and they’ll continue to contribute.

Planning Principles: Business Plan in Constant Change

Planning Fundamentals

One of the strongest and most pervasive myths about planning is dead wrong: planning doesn’t reduce flexibility. It builds flexibility. Lean business planning manages change. It is not threatened by change.

This is the third of my five main principles of business planning. The first was do only what you’ll use. The second is that planning is continuous process, not just a plan.

Why plan when things change so quickly?

Regarding this third principle, people say, “Why would I do a business plan? That just locks me in. It’s a straitjacket.”

business planning is like dribbling
business planning is like dribbling

And I say: wrong. Never do something just because it’s in the plan. There is no merit whatsoever in sticking to a plan just for the plan’s sake. You never plan to run yourself into a brick wall over and over.

Instead, understand that the plan relates long term to short term, sales to costs and expenses and cash flow, marketing to sales, and lots of other interdependencies in the business. When things change — and they always do — the plan helps you keep track of what affects what else, so you can adjust accordingly.

Change does not undermine planning; actually, planning is the best way to manage change.

So running a business right requires minding the details but also watching the horizon. It’s a matter of keeping eyes up, looking at what’s happening on the field around you; and eyes down, dealing with the ball – both at the same time.

Business planning manages constant change

Which reminds me that dribbling is one of my favorite analogies for business planning. In soccer or basketball, dribbling means managing the hand-eye or foot-eye coordination of the immediate detail while simultaneously looking up and watching opponents and teammates, and developing plays. When I was coaching kids in soccer, I’d try to help them remember to look up and not just down at the ball. The best players did this naturally. Change does not undermine planning; actually, planning is the best way to manage change.

Here are a couple of additional ways dribbling is like planning:

  1. Dribbling is a means to an end—not the goal. Planning is like that too. It’s about results, running a business—not at all about the plan itself. Good planning is measured by the decisions it causes. It’s about managing, allocating resources, and being accountable. I’ve written this in several places: “You measure a business plan by the decisions it causes.” And this: “Good business planning is nine parts execution for every one part strategy.”
  2. Think of the moment when the player gets the ball in the wrong end of the court or field. That’s either a defensive rebound in basketball, or a missed shot on goal in soccer. The tall player gets the basketball and gives it to the one who normally dribbles up court. Or the goalie gets the ball and gives it to a defender. At that moment, in a well-coached team: 1) there is a plan in place  and 2) the player knows the plan but is completely empowered to change it instantly, depending on how the play develops. Business planning done right is very much like that. The existence of a plan—take the ball up the side, pass to the center—helps the team know what ought to happen. But changes— the opponents doing something unexpected—are also foreseen. The game plan doesn’t lock the players in to doing the wrong thing or failing to respond to developments. It helps them make instant choices, changing the plan correctly…and when they do, the other players can guess the next step better because of the plan.