While I really like the answer business plan — I’m a business planner —I don’t completely agree. If I weren’t biased down to my bones, I’d answer “something else” and clarify that what you really need, more than anything else, is customers. You can have money, idea, business plan, and the guts to go for it and still fail miserably if nobody wants to buy what you’re selling.
However, realistically, not all startups have the luxury of early customers. While ideally you find some early customers, or promises, or prepaid sales, sometimes you need to create something first (such as a product, website, app,etc.) before people can buy it. And in those cases, the business plan is the next best thing because — if it’s done well — it focuses on real indications, real information, and reasonable estimates of believable sales prospects. So that makes business plan is a good compromise.
And business plan alone isn’t enough; it has to be a realistic, practical, concrete business plan that you can execute on.
The guts to go for it isn’t enough. It’s what we call a necessary but not sufficient condition. You’re nowhere without it, but you might be even worse than nowhere with it. Courage without customers, for example, is a terrible combination.
In breakfast, the chicken is involved, the pig is committed.
In the business planning process, commitment is essential. Plans need to be implemented, and implementation means commitment. There has to be accountability, and peer pressure. You have to follow up on what was planned to make sure that it was actually carried out. Here are some ways to develop commitment within your team:
Use the SWOT Analysis (Strengths, Weaknesses, Opportunities, Threats) to start discussion. SWOT brings team members into the strategic discussion. It makes strategy understandable. Your managers have to be part of the team that discusses strategy.
Make the budgeting elements of the planning process visible. Managers should see what their peers are spending and should hear why. One of the best things I ever watched, as a consultant, was a management group that argued over the activity budgets during the planning process. Each manager had to defend his or her budget, showing what sales and marketing budgets would come out of it. There was a lot of peer pressure.
Make sure people know that actual results will be compared to plan. With time, in a company that uses the planning process, this becomes second nature. In the beginning, however, it is extremely important that the main company owners and operators set the standards by scheduling plan review meetings each month and attending them. This has to be important.
The bottom line here is that planning process, for a growing company, is about the people more than the plan. Not only does everything have to be measurable, but it also has to be measured, after the fact, and tracked, and managed. Your people must be committed to your plan.
Displacement:In the real world of small business, everything you do rules out something else you can’t do.
Understanding displacement is vital for business planning, vital for growing a business, vital for small and medium business in particular. Consider the picture here, marbles dropping into a full glass of water. The water comes splashing out of the glass and onto the table. That’s a good illustration of displacement and how it works in business.
I’ve seen it so many times: trying to plan their business, people start making lists of things that ought to be done and end up with huge unrealistic and impossible business plans because they haven’t come to terms with displacement.
Everything you do displaces something else that you can’t do. Learn to live with this and you’ll do better planning your business, and, particularly, growing your business.
No surprise to me: Alexandra Levit reports on Amex OPEN that big-company CEOs are “abandoning command and control.” IBM studied more than 1,700 chief executive officers from 64 countries and 18 industries.
Of course. Look around. You’ll see complaining sometimes about alleged millennials, but all they’re doing is wanting people to care what they think. That’s true of Gen-T too, and us aging hippy baby boomers as well. Nobody wants to mindlessly obey. Computers and software first, then the Internet, created a meritocracy of sorts. People share jobs and work from anywhere and it’s about results, actual work, not time warming seats.
Just a couple days ago I was sharing with a good friend that I thought I was bad as a manager building my own business because I wasn’t good at structure and command. I didn’t like authority that much. Now it turns out I was just ahead of my times. Hooray.
My favorite part of this report is the conclusion:
The IBM study has revealed a new type of CEO—one that lives on the ground rather than in the ivory tower and one that is able to adapt to a rapidly evolving business world. In many ways, small-business owners and entrepreneurs are accustomed to this form of leadership.
Hmmm … so in the smaller companies, the startups, the grass roots entrepreneurs are leading this change? Are you surprised? Big company leadership is taking longer to figure this out? Still surprised?
What I like is that what we started in the late 1960s is rolling along towards 2012. Power to the people, and all that.
Today I’m answering, with this post, a lot of similar questions I get often in email, where somebody is asking me how to get connected to or hooked up with or recommended properly for angel investment. Here are some unpleasant and unpopular facts about startups and investment.
Only friends and family believe in you and invest in you because you’re you. And that’s if your friends and family do believe in you; that’s not true for everybody. Outside investors, in sharp contrast to friends and family, either believe in your business prospects, your market, and your team, or they don’t invest. They’re doing it to make themselves money. (back story: I get a lot of emails from people asking how they can get investment for their business when they have pretty much nothing to offer investors. The answer is: You can’t.) Or not at all.
About that great idea you have that’s worth $5 billion for which you need $500 million to get started: unless you’re already a startup star, or an oil prince, or family wealth princess, just forget it. Mark Andreesen or Mark Cuban or Paul Allen could maybe get $500 million for a new idea. You can’t. (If it makes you feel better, neither can I). Give it up or scale it down to a $5 million idea that takes $5,000 to get started; or just forget it.
All of you newbies – new to entrepreneurship, no successful startups, no traction — asking how you start your business with no money: Please, get real. Once in a blue moon a foundation or government agency will grant some money, and usually that’s just a low-interest loan, to some proposal that has social and economic value that fits government priorities. We see this in special development zones, some scientific or defense-related research areas, and occasionally with private money committed to social good. But it’s rare. If you aren’t one of those special cases, forget it. And if you are, do your homework, find out what really happens with grants and such.
If you’re still interested in a startup, stop looking for some pie-in-the-sky solution. Get a job in the business area that interests you, and learn the business. Partner up with people who’ve been there already. And do your homework, look up all those web pages full of good advice about startups, including this one, bplans.com, which is full of information about what you can and can’t do. If you’re in the U.S., connect with your local Small Business Development Center, or Women’s Business Center, or Small Business Administration (SBA) office. If not, find the equivalent in your country. Get some real info, and then do the work: do some research, develop a realistic plan, take real steps.
Starting a business isn’t a right. The government doesn’t owe you your startup. You have to make it happen.
You may have missed Alyson Shontell‘s piece asking an answering the question When You Should Quit Being An Entrepreneur? I marked it when it first appeared earlier this year, then left it in the back burner. If you’re an entrepreneur, especially if you’re engaged in a startup and not yet rolling strong and on your own, it’s a good piece to read. After musing about multiple pivots and startup failures, she concludes:
While we’re not trying to encourage quitting, more founders should ask themselves tough questions. Maybe it’s time to help someone else make their dream really big. Tomorrow’s companies depend on it. Plus that corporate experience could be what makes your next startup a success.
That relates to a really interesting comment added to my April 20 post on the myth of persistence. The comment, signed by faxauthority, was:
Most common phrase I hear from successful entrepreneurs: it was all about persistence.
Most common phrase I hear from failed entrepreneurs: I’m glad I got out before all my money ran out…
That comment is a great illustration of survivor bias. We hear only from people who succeeded, never from people who failed.
Have you read Seth Godin’s The Dip? Here’s a quote:
The old saying is wrong-winners do quit, and quitters do win
Do I sound negative about entrepreneurship here? I’m not. My wife and I own a multi-million-dollar company we started ourselves, without outside investment, that has 40 employees, profits, and no debt. But I am negative about sloppy thinking in entrepreneurship myths. On this one I’m with Alyson, faxauthority and Seth Godin.
(Image: bigstockphoto.com. It’s suppose to represent a bottomless pit. Y’know, where the money goes, when an entrepreneur sticks with a bad business?)
Pricing is magic. There are no good algorithms. No best practices. Grab a theory — competitive pricing, value-based pricing, scientific wild-assed guess pricing, you name it — and stick with it. If it works, stick longer. If it doesn’t change it.
Some reflections on pricing:
Yesterday I bought a short story, off of Amazon.com for $0.99. I bought it and read it while waiting for lunch at a sandwich shop. We used to have to buy an album for $10-$15. Now I buy tunes on a whim all the time.
I regularly buy tunes off of amazon.com for $0.99. Choose, click, and done. I just bought Bonnie Raitt’s new album for $5.99 because the album was cheaper than buying half of its songs. Nowadays I get sample chapters free, read them, and half the time buy the book. I’m not reading more now, but I’m sure buying more.
I paid $695 for Lotus 1-2-3 in 1983. Wordstar was $295, and dBaseII $495. They were all mainstays of early PC software (and those last two started on CP/M, before the IBM PC and DOS.
How much did the DrawSomething people make with a simple app? Zynga bought the company for $250 million (or so). The app had a free version, and cost $0.99. I saw somewhere that they’d had 350 million downloads. But that was a couple of months ago.
Back in the 1990s we almost acquired full rights to a software product (name omitted on purpose) from a company that had been selling a few hundred copies a year at $1,000 per copy. We didn’t because that software did less for its users than our own Business Plan Pro, which we were selling to tens of thousands of people at $100 a copy.
Is it not strange? Everybody thinks $2.99 is really expensive for an app now. Reviews often dock the good apps because they expect much more as such a high ($2.99) price. Wait, what?
Hypothesis:
Whatever else is going on with pricing, it’s microeconomics turned on its head: low price doesn’t cause high volume. High volume causes low price.
Corollary: the optimal price is inversely proportional to the size of the market.
Second corollary: whoops! There I go trying to make order out of chaos. Pricing is magic. If it works, hooray, and if not, experiment.
What, no coffee break? This feels vaguely like the idea that so-called grazing all day is better than three good meals and nothing else. Clearly, I’m way too old-fashioned. I just discovered that traditional coffee breaks do nothing for productivity.
And I do mean traditional. The idea brought me quickly to this old number, from a musical that debuted in 1961, which was made into a 1967 movie, and is now a hit revival. This is a piece of history. It’s from decades before Starbucks. What happened to coffee at your desk? Before we discuss micro breaks let’s consider what we’re losing: (The YouTube number here is from How to Succeed in Business Without Really Trying. Or you can click this link to see it on YouTube.)
The microbreak idea is from Boost Your Productivity with Microbreaks, and HBR Ideacast from earlier this month. Portland State professor Charlotte Fritz studied the problem of productivity and breaks. It turns out that what works for me — the quick walk, the change of pace, a non-business phone call — doesn’t actually work that well.
Microbreaks are a term that me and some colleagues came up with to describe all the little things that we do during somewhat unofficial breaks during the workday. … going to the water cooler, chatting with a colleague, checking in on your family … we were looking at these microbreaks, thinking about them in terms of recovery at work. So, the little things that keep us energized throughout the workday that aren’t bigger breaks.
And what they discovered was not what you’d expect (or at least not what I expected):
….the work-related tasks, and specifically tasks that were associated either with learning something new, realizing the meaningful pieces about your work, or connecting positively with others at work, those were the ones that seemed to be related to feeling energized at work.
Not that anybody actually takes old-fashioned coffee breaks. Do you? Don’t we all grab the coffee (or tea, or Pepsi (yech)) quickly and sip it in the morning while we deal with email, blog posts, Twitter, and the business morning routine? So I think Starbucks is safe.
And the study doesn’t say productivity depends on working all day every day without stopping. There is this comforting note:
this was the first study that ever looked at it that way, so we need to be a little bit cautious with our interpretation. But with regard to those microbreaks, yes, going for a walk and so on, going outside for fresh air, that wasn’t related to energy at work. However, I would say, maybe it’s because we were just specifically looking at shorter breaks, microbreaks. However, during a lunch break, I would still encourage people to go for a walk, go outside, and get some sun in.
And this one too:
we do know by now that vacations are good for us. So, definitely again for well-being and health, helps reduce burnout and so on. We do find that they’re good for us. But we also find that the effects fade out relatively quickly. So, within two or three weeks after we come back from vacation, all the positive effects have pretty much faded out. What that suggests is that, rather than taking one long break per year, it would be good to take vacations, maybe a week, like five to six days long or something, or even maybe just long weekends several times per year to recharge.
How often do you see successful entrepreneurs, experts, teachers, and various other experts telling would-be or wanna-be startups that starting a business is all about persistence? Too often. It’s a dangerous myth.
Why: persistence is only relevant if the rest of it is right. There’s no virtue to persistence when it means running your head into walls forever. Before you worry about persistence, that startup has to have some real value to offer, something that people want to buy, something they want or need. And it has to get the offer to enough people. It has to survive competition. It has to know when to stick to consistency, and when to pivot.
So persistence is simply what’s left over when all the other reasons for failure have been ruled out. Those successful entrepreneurs who talk about their experience? They’re not lying. They look back on it, and it was persistence that saw them through. Because every startup is a lot of work, a lot of mistakes, a lot of failures. So a lot of startups that might have made it otherwise fail because it’s just too damn hard to stay with it.
And then, if everything else is right, persistence matters.
Paradox is the spice of life. Maybe. Because life is full of contradictions and other hands. Take this very interesting juxtaposition. Kevin Systrom, founder and CEO of Instagram, just sold it for $! billion to Facebook. And he built the Instagram prototype himself, in his spare time, after teaching himself to code, also in his spare time. Here’s more detail, from Instagram’s product genius is a self-taught programmer on The Next Web:
Systrom, an active user on Quora, is a largely self-taught programmer. While working in the marketing department at Nextstop, which Facebook acquired in 2010, he would spend his evenings learning to program. According to Systrom, small projects included combining elements of Foursquare with Mafia Wars.
The “new breed” of Valley people are dubbed “user experience designers” and can fetch as much as $80,000 for an entry level position. In some situations, designers are becoming embedded in the conceptIon of new features — Facebook, for example, has begun assigning a designer to consult with a team of engineers led by a project manager.
True, designers aren’t engineers. But they aren’t do-it-yourself programming-at-night entrepreneurs either.
Go figure. The pots of gold aren’t always where they are supposed to be.
Displacement: In the real world of small business, everything you do rules out something else you can’t do. 
You must be logged in to post a comment.