Category Archives: Business Planning

Business Plan Events and Why They Matter

(Note: I posted this earlier this week on the SBA Industry Word blog. It’s reposted here for your convenience.)

What do you think of when you hear the phrase “business plan?” Does that bring to mind a formal document that starts with a summary and includes modules describing your business’s products, market, strategy, team, and essential projections? If so, let me introduce you to the concept of the business plan event and explain why this is worth thinking about.

The more common business plan events

Sometimes, in the normal course of running a business, growing a business, or starting a business, you need a business plan. I refer here to situations that require showing a business plan document to somebody outside the organization.

For example, the most common business plan events are:

  • Banks often require the business plan document as part of a business loan or other commercial credit. Most SBA loan programs, which guarantee bank loans made by local small business banks, require a formal business plan.
  • Angel investors usually require a business plan from a startup as part of the process of seeking investment. Unlike the common myth, they don’t use the business plan as an introduction to a business. Instead, they use it during what they call the due diligence phase, after they’ve met with founders and had a pitch, when they study the details before making a final decision.
  • Business plans are usually part of the process of buying and selling a business. That applies to the small business transactions that happen all the time, as well as to major acquisitions by big businesses.

There are other business plan events that come up. When I started my business 30 years ago, I needed to show a business plan to my bank just to get authorized to take credit cards. And I’ve heard of business plans used as part of negotiating divorce settlements and inheritance claims.

Widespread confusion between plan and planning

If you answered yes to my question in the first paragraph above, that you do think of a business plan as something hard to do that has only specialized use, then I say you are in good company. Let me suggest that you’d be better off, as a business owner, with an attitude adjustment.

My recommendation is that you dismiss the idea of the daunting big formal business plan, but adopt business planning instead. The distinction, in my mind, stands out with the famous quote from former president and military strategist Dwight D. Eisenhower: “The plan is useless; but planning is essential.”

I love that quote and use it a lot because it leads to what I call good planning process.

  • The process starts with a simple, lean business plan that covers the main points you need to write down. You can do this with simple bullet point lists and tables. Set down strategy, tactics, major milestones, metrics, and essential projections.
  • Then, as you steer your business with ongoing planning process, take that lean plan and review results regularly. As results uncover insights, revise that plan. Keep it lean, and review and revise it often.

The business conclusion: planning, not plan

My suggestion for business owners: Think about what business plan events are. Separate, in your mind, the business plan required for a specific business plan event from the business planning you can use on a regular basis to run your business better.

Then, once you’ve seen the difference, manage a lean plan that’s always fresh, with regular reviews and revisions. And when you face an actual business plan event, then and only then take your latest version of your lean business plan and dress it up, adding descriptions and summaries, as a formal business plan document.

20 Reasons to Write a Business Plan

all businesses need a business planQuestion: What are some of the main arguments for writing a business plan?

Here are 20 good reasons to write a business plan. Please note, however, that a business plan is not necessarily a traditional formal business plan. It ought to be a lean business plan that gets reviewed and revised often. It ought not to be static, used once, and then forgotten.

These apply to all businesses, startup or not:

Key elements of a lean business plan

  1. Manage the money. Plan and manage cash flow. Will you need working capital to finance inventory purchase, or waiting for business customers to pay? To service debt, or buy assets? To finance the deficit spending that generates growth? Are sales enough to cover costs and expenses? That’s planning.
  2. Break larger uncertainties into meaningful parts. Go from big vague objectives to specific numbers, lists, and tables. It’s compatible with the way most humans think. A plan makes it easier to estimate and visualize needs, possibilities, and so forth
  3. Set strategy. Strategy is focus. It’s what you concentrate on, and why. It’s who is in your market, and who isn’t; and why and why not. It’s what you sell, to whom. You need to set it and then refer back to it, frequently, as things change. You can’t revise something you don’t have.
  4. Set tactics to align with strategy. Tactics like pricing, messaging, distribution, marketing, promotion have to work and they have to align with strategy. You can’t manage a high-end strategy with low-end pricing.
  5. Set major milestones. Concretely, what is supposed to happen, when? who is responsible? Humans work better towards specific milestones than they do moving in general directions. New product launch, website, new versions, new hires. Put it into milestones.
  6. Establish meaningful metrics. Of course that includes money in sales, spending, and capital needed. But useful metrics might also include traffic, conversion rates, cost of customer acquisition, lifetime customer value, or calls, emails, ads, trips, updates, hires, even likes, follows, and retweet. Good planning includes methods to track.

Dealing with business decisions

  1. Set specific objectives for managers. People work better with specific objectives, especially when the come within a process that includes tracking and following up. The business plan is the perfect tool for making this happen. Don’t settle for having it in your head. Organize and plan better, and communicate the priorities better.
  2. Share your strategy selectively. Let other people involved with your business know what you’re trying to do. Share portions of your plan with key team leaders, partners, spouse, bankers, allies. Don’t you want them to know.
  3. Deal with displacement. You have to choose, in business; particularly in small business; because of displacement “Whatever you do is something else you don’t do.” Displacement lives at the heart of all small-business strategy.
  4. Decisions on space and locations. Rent is a new obligation, usually a fixed cost. Do your growth prospects and plans justify taking on this increased fixed cost? Shouldn’t that be in your business plan?
  5. Hire new people or not. Who to hire, why, and how many. Each new hire is another new obligation (a fixed cost) that increases your risk. How will new people help your business grow and prosper? What exactly are they supposed to be doing? The rationale for hiring should be in your business plan.
  6. Make asset decisions and asset purchase or lease. Use your business plan to help decide what’s going to happen in the long term, which should be an important input to the classic make vs. buy. How long will this important purchase last in your plan?

More on sharing information

  1. Onboarding for new hires. Make selected portions of your business plan part of your new employee training.
  2. Manage business alliances. Use your plan to set targets for new alliances, and selected portions of your plan to communicate with those alliances.
  3. Lawyers, accountants, consultants. Share selected highlights or your plans with your attorneys and accountants, and, if this is relevant to you, consultants.
  4. When you want to sell your business. Usually the business plan is a very important part of selling the business. Help buyers understand what you have, what it’s worth and why they want it.
  5. Valuation of the business for formal transactions related to divorce, inheritance, estate planning and tax issues. Valuation is the term for establishing how much your business is worth. Usually that takes a business plan, as well as a professional with experience. The plan tells the valuation expert what your business is doing, when, why and how much that will cost and how much it will produce.

The standard arguments that apply more to startups

  1. Create a new business. Use a plan to establish the right steps to starting a new business, including what you need to do, what resources will be required, and what you expect to happen.
  2. Estimate starting costs. Aside from the general in the point above, there’s the specific estimates that list assets you need to have, and expenses you need to incur, in order to start a new business.
  3. Seek investment for a business, whether it’s a startup or not. Investors need to see a business plan before they decide whether or not to invest. They’ll expect the plan to cover all the main points.
  4. Back up a business loan application. Like investors, lenders want to see the plan and will expect the plan to cover the main points.
  5. Vital for your business pitch and summaries. You can’t really do a good business pitch without knowing already the key parameters you estimate in your business plan, for headcount, starting costs, and of course milestones and key strategy and tactics.

 

Take Real Steps to Fight Sexism in Tech

Harassment in the workplace. Sexism. Genderism. Bigotry and prejudice. Brogramming. Not just everywhere, but also in high tech, which – you’d think – should have been advanced past that backwardness.

Silicon Valley too. Blue city, blue industry, in a blue state. If you’ve been off the grid for a while, read this from the New York Times, Or google “Dave McClure Apology”, “Chris Sacca apology”, or “Justin Calder harassment” and you’ll see. Or just go straight to google brogramming. And these are just the most recent tip of the iceberg.

I don’t want to just wring my hands and write how bad it is (although I can’t resist some of that, but I’m putting it at the end, below) … I have compiled some lists of what, concretely, you can do about it.

Steps to fight sexism in tech. Seriously. Now.

Minda Zetlin published a three-point list in this article in Inc:

  1. VCs must publish the percentage of their funds they invest in women- and non-white-led startups.
  2. Hire more female VCs.
  3. Create an organization where women can make anonymous complaints.

Stephanie Manning of Leher Hippeau Ventures published a five-point plan (excerpts):

  1. Talk about it. Blog about it, Tweet about it, or reach out to your team about it. Acknowledge that this is unacceptable behavior and communicate to your team that this isn’t how you do business. Don’t think this isn’t my fund, this isn’t my co-investor, this isn’t my problem. It’s a problem for all of us.
  2. Don’t be creepy. Just don’t. Don’t put yourself in a position where actions or words could be misinterpreted. If you think “could this be crossing the line?” go out of your way to make sure you’re on the right side of the line and then take 5 steps back.
  3. STSD. Shut that sh*t down. If you are a male leader or any male within your organization and hear or see inappropriate things coming from your colleagues, shut it down. Right then and there. You can choose to do it in front of everyone or pull that person aside, but do it in real time. Make sure to follow up with the female who received the inappropriate comment to let her know that behavior will not be tolerated, you’ve confronted the individual, and you’d like to know if anything else comes up.
  4. Diversify. Look at your team, maybe you have all male leaders/partners/executives but where are the women? If they are already on your team, include them in important meetings and decision making. Studies show diverse teams outperform homogeneous ones so it’s mutually beneficial to bring more women to the table.
  5. Educate yourself. Don’t use the few women on your team as the go-to “token females” to answer all your questions about gender diversity. Seek out feedback from friends, family, and colleagues. Reach out to friends at companies that tackle diversity and inclusion exceptionally well.

Human rights of women entrepreneurs

Reid Hoffman, founder of LinkedIn, published a manifesto titled The Human Rights of Women Entrepreneurs that concluded with a pledge that all of us should take. He has his own list of three points (excerpts):

  1. VCs should understand that they have the same moral position to the entrepreneurs they interact with that a manager has to an employee, or a college professor to a student. If you are interested in pursuing a business relationship of some kind, you forfeit the prospect of pursuing a romantic or sexual relationship.
  2. If anyone sees a venture capitalist behaving differently from this standard, they should disclose this information to their colleagues as appropriate – just as one would if one saw a manager interacting inappropriately with an employee, or a college professor with a student.
  3. Any VC who agrees that this is a serious issue that deserves zero tolerance – and I certainly hope most do think this way – should stop doing business with VCs who engage in this behavior. LPs should stop investing. Entrepreneurs of all genders should stop considering those VCs.

And finally, an earlier list, 5 Ways For Men in Tech to Support Workforce Equality While Barely Trying, published in 2015 by Megan Berry, head of Product at OctaneAI and previously RebelMouse (also one of my four daughters). Megan wasn’t in the specific context of venture capital and investors, but was very much immersed in the day-to-day of high tech. She had her own 5-point list (again, excerpts)

  1. I’ll get it”. It’s all too common for the woman in the room to be asked to get coffee or water or pick up lunch. It’s usually done casually, even unintentionally, but all too often. Here’s a thank you to the guys who interrupt the ask to the only woman in the woman and say “I’ll get it.”
  2. Actually, you’re the pretty face.” True story. I was once leaving the office to give a talk, accompanied by a male co-worker. As we were getting ready to go, he made a joke about how I was the “pretty face.” A coworker told him, “Actually, you’re the one we’re sending to be the pretty face. She’s giving the talk.” Whenever you can turn a sexist joke back on the joketeller, women everywhere will thank you.
  3. Come grab a drink with us!” It’s easy for the only woman in a group to feel unsure if she’s welcome at the happy hour, the casual beers in the office or similar situations. These casual environments are important for anyone’s career. You gain mentorship, bond with your coworkers and get the insider knowledge to advance in the company. Don’t assume she feels welcome, welcome her.
  4. What do you think we should do?” Women are more hesitant to speak up in meetings than men. This is a generalization and not a rule (just ask my coworkers, I’m sure they’ll assure you I have no issue speaking up), but if you find yourself in a meeting with only one woman in the room, it can’t hurt to make sure she feels comfortable speaking up. It’s so easy to do and, hey, maybe she’ll have the best idea in the room.
  5. It’s so easy a dad could use it” The examples we use in everyday language and business are surprisingly powerful. If you talk about it being so easy a “mom could use it” I encourage you to push your creativity a step forward to think beyond the simplest of stereotypes.

OMG it’s 2017!

Jeez! This sh*t was obsolete years ago. I grew up in the 50s and 60s and even then, already, my mom taught me better than this. And, God knows, there was a whole lot of bias back then. (Mad Men was realistic for my generation. But it’s been 50 some years since Betty Friedan first published The Feminine Mystique. And 35 years since my sister encountered sexism in her career in Silicon Valley high tech. And 20 since one of my daughters first encountered it.

For those of us old white guys, it’s way too easy to forget, or ignore, that this is going on. I was shocked when my sister encountered it in a 1980s tech company that eventually went public. Shocked and saddened, when I discovered, via my daughters (I have four daughters, all in tech) first encountered it was they merged into the work world beginning in the late 1990s. Dismayed when my youngest got it in a San Francisco SOMA startup in 2012.

For the record, I haven’t been ignoring it. I’ve been fighting it. It’s been a thing in this blog for 10 years. I may be older white male, but I do know right from wrong.

Sexism in tech is a cancer. Stop it.

What Do Business Plan Financials Look Like

People often ask: What do business plan financials look like? You can get away with a sales forecast, spending budget, and cash flow plan. That’s enough for actually running your startup. It’s the essential numbers in a lean business plan.

If you want to do it right you take it further and present projected (also called Pro Forma) versions of the three main business plan financial statements: Income Statement (also called Profit & Loss), Balance Sheet, and Cash Flow. Here’s how they are related to each other:

And here’s another view:

Projected Profit and Loss (also called Income)

This is where you project sales, costs, and expenses; and what’s left over is profits. Here is a general summary, and you might also check out Your Profits are Way Too High, How to Forecast Sales and Profits Without Just Guessing.  Profits are the performance of the business over a specified period of time, like a month, quarter, or year. You project sales, direct costs, and expenses.

Here’s what it looks like in a plan.

Projected Balance Sheet

 The balance sheet shows your financial position at a specific time. That means assets and liabilities. For more on that, in detail, this post on how to do a projected balance sheet. And here’s what it looks like in a business plan:

Projected Cash Flow

The cash flow is the most important, because your business lives on cash, not profits. You can project cash flow using the direct method, or the indirect method. Either way works if you do it right. Here’s an example of what an indirect cash flow projection looks like in a business plan.

Do It Right?

As I suggested in my opening, if you just want the bare minimum to run your business, you can get away with projected sales, spending, and cash flow, without the formal projections. But for a business plan that passes muster when you show it to outsiders, better to have the formal projected Profit and Loss, Balance Sheet, and Cash Flow, the way analysts expect to see them.

Are There Statistics on Inaccurate Forecasts?

How often do forecasts fail? How many business forecasts are accurate? Are there statistics on inaccurate forecasts? It’s a good question. It relates nicely to my view that all business plans are wrong, with the addendum, but vital. While I almost never host guest posts on this blog – opinions here are mine – but I liked this one enough to post it here.

It’s a Quora answer, by Hubertus Hofkirchner, to the question Are there any statistics available on forecasting failures?

Here’s what he wrote:

This is a dangerously simplifying question in a highly complex subject. Let’s forget crystal balls, Gandalf, and Harry Potter for a moment. Let’s use Prediction Science. There are three hidden levels to this question.

Level 1 – Simple Prediction

  1. A forecast impacted by human action can never be 100% certain, because humans will react to forecasts with unforeseen actions which in turn can change the future dramatically, in accordance with chaos theory.
  2. We can only measure the accuracy level and forecast bias of a specific method for multiple predictions – not a single one – with regards to specific forecast topics.

So: What level of unavoidable inaccuracy or bias do we chose to call a failure? What is the commercial worth of more accuracy compared to the cost of producing it with a more expensive method?

Level 2 – Decision Making

Human decisions combine forecasts with their subjective (and never known) purpose and value judgements. This brings the next level: every human action has a purpose. The decision maker can act on an inaccurate or biased forecast but still achieve the actual purpose successfully.

So: Do we chose to call a success then a prediction failure?

Level 3 – Deception Intent

Also, the question assumes a one-way causality, that politicians act on forecasts, implying that bad forecasts will cause bad decisions.

However, politicians often work the other way round. Let’s assume that a politician (or the lobbyist paying him) wants to trigger a war. He produces a forecast by which the citizens’ purpose will support the liberation (politically correct word for war) of some country, somewhere. For example, the politician might predict the existence of unspeakable weapons. The public diaspproves the weapons, thus approves the war.

Of course, when the fabricated prediction fails to materialise, the public purpose is frustrated.

So: Do we chose to call this a forecasting failure? After all the politician’s real intent did work out perfectly fine.

The Riddle’s Answer

The big answer is not “42”. It is “50%”.

Explanation: There is no such thing as a forecast failure (see 1. above). There are right and wrong decisions (see 2. above), and “failure” is but the non-achievement of the decision maker’s purpose (see 3. above).

For economics, let’s assume that the investor wants to make a return in line with benchmark. On the stock exchange, it is obvious by tautology, that 50% of investors will perform above benchmark and 50% below. This very tautology is of course exactly valid for economic and political decisions. So the answer is 50% of forecasts fail.

Nice job.

A Two-Day Startup Fest at Rice Business Plan Competition

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

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?

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

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

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?