Category Archives: Back to Fundamentals

Online Video on Lies About Business Planning

Back to Fundamentals, Self Promotion

(Note: the webinar this post was originally announcing already happened. It was on Nov. 17, 2010. As of today we’re waiting for the video to go online. It will include the slides, the narration, the questions, and the answers as they happened that day. I assume the way to access this from now on will be with this link. I apologize if yesterday’s recording isn’t available there yet.)

Business plans are a waste of time? That’s a dangerous lie. Don’t bother, because nobody’s going to read it anyhow? That’s another lie, because it’s about running your company, not whether somebody else reads your document.

OK, I admit: I’m keying on lies in the title because people like the negative. But the recorded webinar is about what to do with business planning, for your company, to optimize management and control your destiny, whether you need financing or not.

This is Global Entrepreneurship Week, and for the third year in a row I offered a webinar, which is now an online video, on business planning. The theme this year is the top 10 lies about business planning.

I’ll be using the lies theme to make some points about what to do and what not to do to adapt better planning to make your business run better. To move it towards what you call success.

Would you take a trip without planning it? Would the plan be a big honking document? Would it matter to you whether anybody else read it? Would having a plan mean you couldn’t change it when a flight got cancelled?

Please join me tomorrow. Here’s the link you need to access the videos of the entire series: click here to view.

Does the term “free webinar” worry you? I promise: no selling. It’s about business planning. No product will be mentioned. Yes, it’s sponsored by bplans.com (an entirely free site, which you are on as you read this) and Palo Alto Software, publisher of Business Plan Pro. But that’s all the sales pitch you’re going to get.

Is Work Life Balance in a Startup A Good Thing?

Advice, Back to Fundamentals, Work Life Balance, ,

What do you think about this (quoting a discussion at thefunded.com):

I Don’t Believe in Work Life Balance as a Startup Person. Am I Wrong?

In the discussion on thefunded.com, the person who asks the question is co-founder and CEO of a startup, and is working 60 hours a week. But there are problems: 

I wish we all would work like there’s no tomorrow, at least until we reach certain status where we can be confident that we have reached product market fit… However my co-founders have their families and they have to go home when work hours end … I am very dissatisfied because I feel like we can do much more if we tried harder.

If you get into that discussion, you’ll see that the startup community there is divided. There is no consensus.

Just yesterday blogging guru Chris Brogan posted an eloquent argument for balance in his Pay Yourself First:

But when you wonder how I’m getting as successful as I am, oddly, it’s because I’m doing the opposite of what you’d suspect. I’m working fewer hours now than I used to work last year. The trick of it all is that I’m working the right hours, and I’m managing my time and demands on my time much better.

This question keeps coming up. I jumped on a similar discussion a couple of years ago, when I posted Is Startup Life Life, which followed a public debate about work/life balance triggered by this zinger from Jason Calcanis in his How to Save Money Running a Startup: 

Fire people who are not workaholics. Come on folks, this is startup life, it’s not a game. Don’t work at a startup if you’re not into it. Go work at the post office or Starbucks if you want balance in your life.

Me? I’m not sure.  I hope for that happy medium, the gray area that isn’t either black or white; a startup that people believe in enough to work like mad, but one that gives them meaningful work to do, and one that hopes they manage to preserve a life as well. As if that were possible.

Top 10 Business Plan Mistakes #9: Pitching Without Planning

Back to Fundamentals, Business Pitch, Business Planning, , , , ,

(Note: this is the second of a 10-part series listing my revised top 10 business planning mistakes. The list goes from 10, the least important, to 1, the most important.)

I’m guessing that the idea of doing a pitch – meaning a slide deck driving a presentation, about 20 minutes’ worth maximum – instead of a business plan is popular mainly because of a huge misunderstanding. People mistakenly think of a business plan as a big honking document, difficult to do, unwieldy, and off putting. So they want to do anything they can to avoid it. Then in walks somebody who ought to know better saying no, you don’t need to do the plan, just do a pitch.

A pitch without a plan to base it on is like a movie without a screenplay. It makes no sense. The pitch is summarizing the plan.

Whether or not you show a plan document to anybody, whether that somebody sees the pitch and not the plan, the plan is your most recent take on what’s supposed to happen, and both the pitch and the document are outputs of the plan. A pitch slide deck summarizes a plan. It doesn’t stand alone.

In the angel investment group I’m a member of, we read summaries first, then watch the pitches that survived the first cut. But nobody gets serious interest without having a business plan, and a pitch without a plan shows up like a sore thumb. As soon as people start asking questions, the pitch alone doesn’t answer them.

The plan itself isn’t a document, or a slide deck, or a memo; it’s what’s going to happen, and why. It’s a combination of strategy and specific steps to implement strategy. It makes the connections between the different functions and relationships in the business. And usually it lives on a computer.

Those documents, the pitch presentations, and the summary memos, even the elevator speech? Those are all just output of the plan.

Business Plan Writing Can’t Perfume a Pig

Back to Fundamentals, Business Planning

I hate to deliver bad news, but sometimes I just can’t help it. Sometimes the only fair and proper response is bad news. Like answering this email:

I have a web business idea that no one believes it would work. I believe if I have a well written business plan that might help my chances of getting it started. Please help.

That’s word-for-word what I received last week, with nothing left out except the “Dear Tim” and “thanks in advance.” I get emails like this often, and I can’t pretend there’s a pleasant answer, except for the please help part of it (see below).

Before I begin, though, let’s make it clear: I’m in favor of business planning, and I’m in favor of well-written business plans. I should be; I read hundreds of business plans every year. I can see how a well-written business plan can communicate a good idea that isn’t being understood. But I’m taking you at your own word: you said you have a business idea that nobody believes would work. And you didn’t say that it actually will work. You said you need a great business plan. So that’s why my reaction is this negative.

What’s wrong with this? Let me count the ways:

  1. If no one believes your idea would work, it probably won’t. Sure, you might have that one-in-a-million exception to the rule. But are you ready to fight those odds? Are you sure this isn’t one of those other 999,999?
  2. Fix the idea, not the plan. A well-written business plan won’t help. Business plans are good or bad based on actual content, what’s going to happen; the quality of writing is way less important. A good business will create a good business plan. Formatting and layout and spelling and editing are nice, but what matters is content. And for that, business planning is a great idea. Doing the business plan can be golden. That’s because the planning sets the opportunities apart from the ideas, focuses on what has to happen. Business plan writing is nice, but you should try business plan thinking.
  3. People don’t invest in business plans; they invest in people, markets, technologies, and opportunities, and so forth. A good business plan communicates well and pushes the process a long, while a poorly written plan gets in the way because it interferes with the communication; but applying artifice to ideas that won’t work doesn’t do anybody any good.  pigA well-designed brochure helps you buy the car, because it communicates features and such. Buy you don’t buy the car because you like the brochure.
  4. Business plan writing can’t perfume a pig.
  5. If you have the time and energy to get outside help, get help with the business idea first, leave the business plan writing for later. Find people you trust who have done web businesses well. Make your idea one that experienced web people believe in. There’s a huge difference between a business idea and a business opportunity.
  6. Once the idea is right, then the business plan process gets pretty easy. Keep the writing in simple bullet points, do the lists and numbers, and if and only if you are showing the plan to some third part outside of the business, then double check spelling and grammar.
  7. If you don’t like planning the business, then that’s another clue.  Maybe you should keep your day job. Do you like planning your next vacation? Planning the business should be fun and exciting. It’s not a doctoral thesis, it’s a business plan. That document is just output, and you can deal with it later.
  8. Thank your lucky stars you have people telling you it’s not going to work before you do it. If that keeps you from jumping into a bad business, you’re way better off. Even businesses that everybody says will work can fail, and failing really hurts.

So you asked for my help. That you can have: bplans.com, The Plan-as-You-Go Business Plan, and Hurdle: The Book on Business Planning, and all three of those are free content. And here’s a final thought for you, just to finish up. People who take your money to dress up a business that won’t work with a well-written business plan are kidding you, or themselves, or both. That’s like putting a false front on a building that’s going to crumble.

(Image credit: Dirk Ott/Shutterstock)

Give Me Planning over Inspirational Speeches Any Day

Back to Fundamentals, Business Mistakes, Business Planning, Entrepreneurship

You’ve probably heard and read the “you can do it” speech, directed at starting your own business and entrepreneurship, often. A lot of people, usually people who have actually done it, give that speech. They tell stories of overcoming obstacles to build a business. They cue the stirring music. You can do it. All you need is (more stirring music) to believe in yourself. Keep trying. Never give up.

Not necessarily.

Running repeatedly into a brick wall, or digging yourself deeper into a hole,can be bad for your business, your dreams, and your life.

That’s why people need to plan first. They need to take a good long look at realistic sales potential, realistic costs, expenses, and cash flow. It’s not just some document, it’s a matter of breaking down the uncertainty, understanding what it’s going to take, and making real decisions based on decent best guesses. No, you’ll never really know, but yes, you can break what you don’t know down into more meaningful pieces.

You’ve probably heard of the 3, 4, or 5 Ps of marketing, right? How about the more important P equation of starting a business: planning is worth more than patience, persistence, and perseverance put together.

Inspirational speeches are usually delivered by people who made it across the chasm. They mean well, but are they taking responsibility for the people who will never make it, when they encourage them to jump? 

I don’t believe that every business idea is an opportunity. I don’t believe that patience, persistence, perseverance and such is enough. Maybe you shouldn’t spend your life’s savings on that business you dream of. Maybe you’ll just lose your life’s savings.

Be realistic. Be skeptical. Watch for fatal flaws. Test your assumptions. Be careful.

The Three Most Common Pricing Mistakes

Back to Fundamentals, Business Strategy, Management, ,

(Note: This was first posted last week on the Amex OPEN Forum. I’m reposting it here, with permission, for the convenience of my readers here. Tim.)

All the years I’ve been following business, strategy and small business—from the late 1970s through today—I’ve always wished for a magic formula for proper pricing. What’s the right price for this service? How should you price a new product? In teaching, writing and answering emails, this question comes up all the time. And, much as I’ve looked for the right answers, they aren’t at the back of the book.

Pricing is magic. There is no formula that works for you, or me, or any generalized group. You set your pricing as a matter of situation, strategy, costs, competition, weather, instinct and all of the above.

While I can’t really tell you how to set your pricing right, I can at least share something that I’ve learned—in classrooms, in making mistakes, in growing my own company—about how NOT to set your pricing.

Here are the three most common pricing mistakes that I see. And, just to be clear, while I wish I could drum up some rigorous research to back me, this is based on anecdotal evidence, common sense, and three decades of dealing with business problems.

1.  Trying to be the lowest price provider

One of the most damaging cliches in business is the idea that the lower price gets the highest volume.  The whole lower price equals higher volume idea, a fundamental law of economics, is for undifferentiated commodities, not your business or mine.

Successful lowest-price strategies are unusual. They usually take a lot of capital, resources and visibility. What works for Costco and Walmart doesn’t work for the corner store, some discount airlines and gasoline stations, but those strategies usually require a lot of capital and very large scale implementation.

2.   Mixing your pricing message

We forget way too often—and too soon—that price is the most powerful marketing message you have. Do you think people don’t buy your work because it’s too expensive? But isn’t it worth it? Don’t you believe in it? It’s about positioning. How are you different from the others? Is what you sell better than the one across the street? Does your price say so?

Would you get a root canal from the cheapest dentist in town? Would you save money by buying two-day-old sushi? And why isn’t the cheapest car made the most popular?

I lost a consulting job I really wanted once when I bid $25k for it and a competitor bid $75k. The guy who gave me the bad news told me everybody liked my proposal, but they wanted the best, so they went for the higher price.

What would you rather have for dinner: a $1 hamburger or a $20 steak? We used to go to a restaurant that had really good food and surprisingly low prices. But I often wished they’d raise their prices so we didn’t have to wait 45 minutes or more to get a table. And guess what: they no longer exist. They went out of business. Do you think pricing had something to do with that? I do.

3.  Underestimating real costs

Businesses go under when they run out of money. The research on how they run out of money is confusing and ambiguous, and there are rarely single identifiable causes. Still, just betting on what I’ve seen with my own eyes through a lot of years, I think businesses frequently run out of money because they underestimated real costs.

We talk a lot about gross margin in business analysis. That’s your selling price minus your direct costs. So if you buy that widget for $2 and sell it for $6, then the gross margin is $4, and your gross margin percent is 67 percent.

Unfortunately, focusing just on gross margin isn’t enough. Aside from the $2 you paid for that widget, there are all those other expenditures, including your rent, your payroll, your insurance, your electric and water bill, all of your marketing costs, and lots of hidden costs, like the computers and software you’ll need to buy next year. We call that overhead and tend to forget it. Which is a shame, because a lot of businesses forget about it all the way to the business grave. You run out of money.

The Sad Truth About Best Practices

Back to Fundamentals, Personal Productivity, , ,

… is that most of the time, they won’t work for you or me. They worked for somebody, some time, in some situation, in the past. Sure, the idea of best practices is attractive. Supposedly you or I can follow along, obediently, and succeed using so-called best practices. Too bad it doesn’t work.

For example, Jim Collins’ blockbuster business book Good to Great, published in 2001, featured 11 supposedly great companies. All of them did extraordinarily well on the stock market for 10-20 years. But by 2008, when Steven Levitt posted Good to Great to Below Average on Freakonomics, two of them had died. He wrote:

Nine of the eleven companies remain more or less intact. Of these, Nucor is the only one that has dramatically outperformed the stock market since the book came out. Abbott Labs and Wells Fargo have done okay. Overall, a portfolio of the “good to great” companies looks like it would have underperformed the S&P 500.

I don’t mean to criticize Jim Collins, his book, or his methodology. I do mean to question the whole idea of so-called best practices. There are so many built-in problems. What works in one case is hard to translate to the next case. It’s different times, places, people, resources, problems, and so forth.

The best use of the so-called best practices is as generator of new practices, new ideas, new possibilities for you, in your business, that you might be able to take in, digest, and adopt to your situation. It’s a lot like business cases and business stories, not intended as recipes to be followed, but rather as examples of what other people did.

However, you have to be careful. Don’t ever just blindly follow. You always think about it, consider the options, how it might be different in your case, and then, if it still sounds good, try it. Carefully.

If I ever give you any advice, I want you to please never take it without thinking first, analyzing, and deciding for yourself whether or not, and how, and to what extent what I say fits your situation.

Jonathan’s 7 Extraordinary Moments

Back to Fundamentals, Business Education, , , , , , ,

Jonathan calls this collection The 7 Keynote MBA: How to Save 2 Years and $100,000. page viewA bit of an exaggeration, perhaps, but there’s certainly a lot of education here. And if some posts are great reading, this one is great watching.

Jonathan has collected seven of the best-ever videos about small business, small business marketing, work, and life, and put them into a single post.

It starts with Guy Kawasaki’s Art of the Start video, and goes on from there. That one and two others have appeared on this blog before. All seven of them are golden.

Jonathan calls them “seven extraordinary moments with seven great visionaries.” I agree.

The first one, Guy Kawasaki, takes the better part of an hour. The others are all 15-20 minutes.

The Best Business Email Might Be a Phone Call

Baby Boomer, Back to Fundamentals, Personal Productivity, Plan-as-you-go Planning,

This morning I picked up Finding the Right Words for Business Emails, a recent post by Bradford Shimp on his Allbusiness Answers blog. Bradford’s a smart person, and he has good advice here. Use language you’d use for a friend. Be careful with the subject line. Avoid phrases that sound like spam. And this, my favorite:

You can’t control how a reader will interpret your email, but you can work hard to find the right words to communicate your message clearly. Avoid murky language. Instead, go for crisp, clear sentences. If you want to make a point, repeat it a couple of times in the email. One thing to avoid in email is sarcasm. It just doesn’t translate. Satire may be pretty hard to pull off as well.

Even so, Brad’s good advice about email notwithstanding, the post reminds me how I’ve come full circle on email in 25 years. I used to love email, but these days I say dial the phone.

In the beginning of email (I was on Applelink, CompuServe and the Source in the middle 1980s) it was a fabulous productivity booster. My favorite business relationships were the people I could reach in email.

Lately, however, every day I see more of the occasions when email is a weak second-best alternative to dialing the damn phone and talking to somebody. Talk, and more important, listen. Have a conversation. You have the benefit of two-way conversation, tones of voice, inflection, and so forth. Email gets lost, quarantined as spam, misunderstood, and misinterpreted. It’s dangerous. Once you send something in email, that person has control of it, forever. It gets forwarded without context to the wrong people.You can’t get it back. And if it’s misunderstood, you might never get to explain it.

I find email seems like an easy way out sometimes, because I’m too lazy to talk to an actual live human being. When it matters at all, use the phone, talk, and listen.

Is Your Startup Fat or Lean?

Back to Fundamentals, Starting a Business, Venture Capital, , , , , ,

When two clear big winners in the high-end startup world disagree on something as basic as lean vs. fat startups, I’m fascinated. First, because both of them have a lot to say to the rest of us. Second, because it illustrates, once again, how much of startups and entrepreneurship defies rules of thumb and generalizations.

measure the appleIn The Case for the Fat Startup, Ben Horowitz tells how he burned hundreds of millions of investor dollars while building up Loudcloud/Opsware  for a stunning $1.6 billion exit in 2007 when it was acquired by Hewlett-Packard. Clearly, this was a huge win. It’s a hall of fame story. And he makes raising a ton a money one of the keys to success (I’m quoting):

As you listen to the virtues of the lean start-up–lightweight sales, light engineering, and so on–keep the following in mind:

  • If you are a high-tech start-up, your value is in your intellectual property. Don’t stare at your spreadsheets so long that you get confused about that.
  • You cannot save your way to winning the market.
  • The best companies can raise money even in this market. If you are one of those, you should consider raising enough to wipe out your competition.

Thin is in, but sometimes you gotta eat.

Fred Wilson, founder of Union Ventures, a big winner as professional investor, and an eloquent blogger, answered that post with Being Fat is Not Healthy. He says:

The very best investments that I have been involved in established product market fit before raising a lot of money. That’s how Geocities did it. That’s how Twitter did it. That’s how Zynga did it. That’s how every single one of my top twenty web investments in my career did it.

I have to admit, I like the lean option better, but then most of the companies I’ve built or helped to build were bootstrapped. And times have changed, too, so what Horowitz is calling “fat” isn’t really an option very often. But the dialog doesn’t stop there. Horowitz came back and responded with The Revenge of the Fat Guy. He makes two points back:

  • Product market fit isn’t a one-time, discrete point in time that announces itself with trumpet fanfares.
  • My experiences [with Loudcloud/Opsware] are highly relevant to other entrepreneurs. In fact, they are more relevant than Fred’s pattern matching.

Ouch? Pattern matching? Really. Read the Fred Wilson post, see if that’s fair. Also ask yourself whether he’s really guilty of underestimating the time it takes to get the product-market fit. I can’t resist adding this quote from the Fred Wilson post favoring lean. It rings true to me:

In short, since I started investing in the web in ’93/’94, I have invested in about 100 software-based web companies. And the success rate of fat companies versus lean companies is stark. I have never, not once, been successful with an investment in a company that raised a boatload of money before it found traction and product market fit with its primary product.

The rest of us, meanwhile? I think we have to admit, the debate is pretty much moot for the rest of us. There might be a few dozen people around who can still raise hundreds of millions of dollars based mainly on their name and track records. Ben Horowitz and his partner Marc Andreessen are two of them. But I’m not; and, no offense, but the odds are you aren’t either.