Category Archives: Business Planning

Hooray the Late ’60s Are Finally Winning

Back to Fundamentals, Leadership, Management, ,

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.

It’s about time.

(Image: bigstockphoto.com)

Truth and Beauty Make Better Sales Projections

Business Planning, ,

(Note: I posted this on American Express OPEN first. I’m reposting it here with permission.)

Are you doing a sales forecast? Projections that draw good-looking curves are better than straight lines. That’s because sales are the result of human behavior, and human behavior is a natural phenomenon. Natural phenomena come much more often in sweeping curves than in straight lines. Look at the spiral of a snail’s shell, or the curve of a giraffe’s neck. Rarely in nature will you see straight lines.

And that’s true in the world of commerce. Business phenomena—sales, users, growth and such—are natural phenomena. Cycles sweep up and curve over in big S curves or bell curves, graceful waves—not straight lines.

One important trick in forecasting (and I mean real, practical, business forecasting) is finding the built-in curves inside the straight lines. And with one simple mathematical formula, plus some creative thinking, you can do that for your own forecasts.

Take the example shown here, a collection of line charts, from real data for a SaaS (software as a service) app a few months after launch. In the first chart, the blue line represents sales, which went sweeping up as the product launched. There’s a nice curve there, reminiscent of the famous bell curve of diffusion of innovation.

Then I plotted the month-to-month growth rate, not the actual sales, but the month-to-month growth. You can see that in the orange line in the second chart here. That’s natural, too. It’s easy to grow at high rates from a small base, but as the base grows, the rate of growth slows. It happens all the time.

What I wanted was the green line, the underlying curve, so I could use it to project the near future, which you can see below in the third line chart. So I used the standard compound growth rate formula, and applied it to the growth rate to find the underlying average decline in growth. I used the standard formula for any kind of compound growth:

((most recent period growth/starting period growth)^(1-number of periods))-1

Where the ^ sign, the little arrow that’s normally the shifted uppercase over the number 6 key on a computer keyboard, means “raised to the power” as in ^2 means squared and ^3 means cubed. In this case we had growth of 57 percent declining to 20 percent in eight months of growth. So the formula actually applied to the spreadsheet is:

((.20/.57)^(1/8))-1

Which results in a growth rate declining at 12 percent per month. This isn’t a straight decline, it’s a slowing of the rate of growth. The third line chart here starts with 57 percent growth and drops that growth rate by 12 percent per month for eight months, ending up at 20 percent.

So that gives me the underlying formula for the natural decline, which I can then project forward to create a forecast.

I hope the visual in the third chart, with the underlying growth phenomenon extended, show you the point of the exercise. To finish the actual curve with a future projection, I use a spreadsheet to apply the projected growth rates to existing numbers. Take the most recent month’s sales and increase it by the growth rate plotted on the green line.

Obviously there is no guarantee that this gradual curve is better than a straight line. But does the gradual curve feel like it’s more useful than an arbitrary straight line?

One final thought: Don’t expect to accurately predict the future very often. Forecasting isn’t about guessing right, but rather about teasing apart the assumptions so you can track results.

Don’t Expect Truth When You Ask an Entrepreneur

Business Research, Entrepreneurship,

I enjoyed this thoroughly and I’ve been meaning to post about since Scott Shane first posted Entrepreneurs’ Job Creation: Expectations Versus Reality on Small Business Trends last March. His chart, shown here below, compares what entrepreneurs said were their hiring expectations to the actual hiring: 

Job-expectations.png

You can read the details on Scott’s post. I don’t really care about the research specifics. I think it’s wonderfully eloquent as is, a picture worth at least 1,000 words. 

Conclusions:

  1. Once again, research based on asking people what they are going to do is inherently flawed because most people don’t know and most people say what they feel good hearing themselves say, not what they really think. 
  2. Entrepreneurs are optimistic about hiring. 
  3. Entrepreneurs are most optimistic about hiring when asked by a pollster how many people they are going to hire. 
  4. If you could invest in the difference between what entrepreneurs say will happen and what actually happens, you’d be very rich.  

Marketing Plans vs. Business Plans: What’s The Difference, and Why Do You Care?

Business Planning, Marketing, ,

What’s the difference between a marketing plan and a business plan? Doesn’t a business plan include a marketing plan? Why would anybody do one without the other?

Good questions, and since I get them a lot, I decided to answer them here:

  1. A business plan covers the entire business, including overall strategy, financial plans, target markets, sales, products and services, operations, and how they all relate to each other. A marketing plan, in contrast, focuses on the marketing: marketing strategy, target markets, marketing mix, messaging, programs, etc. Cash flow is vital for a business plan, but not usually included in a marketing plan
  2. Yes, a business plan almost always includes the marketing portion. Emphasis varies, and I’ve seen some plans that focus much more on product or service than on marketing. But those are unusual.
  3. Lots of people do marketing plans rather than business plans because their job or their attention or their focus is on the marketing, not the whole business.

I wrote 5 steps to creating a marketing plan in one of my columns for entrepreneur.com. I’m including a summary here:

Step One: Your identity as a business.

Create separate lists that identify your business’ strengths, weaknesses and goals. Put everything down and create big lists. Don’t edit or reject anything.

Then, find priorities among the bullet points. If you’ve done this right, you’ll have more than you can use, and some more important than others. Kick some of the less important bullets off the list and move the ones that are important to the top.

This sometimes requires input from your managers as well. For example, your management team thinks being conservative on spending is a weakness but you don’t. That might be something to drop off the list.

Step Two: Focus on markets.

The next list you’ll need to make outlines your business’ opportunities and threats. Think of both as external to your business — factors that you can’t control but can try to predict. Opportunities can include new markets, new products and trends that favor your business. Threats include competition and advances in technology that put you at a disadvantage.

Also make a list of invented people or organizations who serve as ideal buyers or your ideal target market. You can consider each one a persona, such as a grandmother discovering email or a college student getting his or her first credit card. These people are iconic and ideal, and stand for the best possible buyer.

Put yourself in the place of each of these ideal buyers and then think about what media he or she uses and what message would communicate your offering most effectively. Keep your identity in the back of your mind as you flesh out your target markets.

Step Three: Focus on strategy.

Now it’s time to pull your lists together. Look for the intersection of your unique identity and your target market. In terms of your business offerings, what could you drop off the list because it’s not strategic? Then think about dropping those who aren’t in your target market.

For example, a restaurant business focused on healthy, organic and fine dining would probably cater to people more in tune with green trends and with higher-than-average disposable income. So, it might rule out people who prefer eating fast-food like hamburgers and pizza, and who look for bargains.

The result of step three is strategy: Narrow your focus to what’s most in alignment with your identity and most attractive to your target market. In other words, focus on the area that is shared by all three lines in the diagram here.

Step Four: Set measurable steps.

Get down to the details that are concrete and measurable. Your marketing strategy should become a plan that includes monthly review, tracking and measurement, sales forecasts, expense budgets and non-monetary metrics for tracking progress. These can include leads, presentations, phone calls, links, blog posts, page views, conversion rates, proposals and trips, among others.

Match important tasks to people on your team and hold them accountable for their successes and failures.

Step Five: Review often and revise.

Just as with your business plan, your marketing plan should continue to evolve along with your business. Your assumptions will change, so adapt to the changing business landscape. Some parts of the plan also will work better than others, so review and revise to accommodate what you learn as you go.

3 Essential Truths About Startups and Investment

Advice, Angel investment, Back to Fundamentals, Starting a Business, , , , ,

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.

  1. 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.
  2. 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.
  3. 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. 

True Story: A Great Presentation Wins Big

Business Plan Contest, MBA, Venture Contests, ,

Do great presentations launch businesses? Not always, perhaps, but sometimes, yes. And in this case, yes. Or maybe it’s just a great business. 

I was in Austin TX at the event last Saturday when NuMat Technologies, a startup launched at Northwestern, won the University of Texas’ Venture Labs Investment Competition.   I was also at Rice in Houston two weeks earlier when NuMat won the Rice Business Plan Competition. 

Both of these victories matter. The Venture Labs competition pits winners of other competitions against each other. It was the first of the big MBA-level business plan competitions when it began in 1984, and bills itself as the SuperBowl of these contest. The Rice version has the highest payoff, more than $1.5 million total prizes, and close to $1 million for the winners. Both of them require at least one MBA student, from any accredited institution, for eligibility. Both of them include startups from Asia, Latin America, and Europe. 

I haven’t read the NuMat business plan, but I did see the NuMat pitch, which was sensational. The key was explaining the science just enough to be credible, focusing on the business, and keeping it clear and flowing from point to point. I hope NuMaT  will do an online video of that so you can see it.

In the meantime, I’ve embedded a very short YouTube video that explains the science surprisingly well in just about one minute. Clearly, somebody on this team is a good communicator: 

If you don’t see that here, you can click this link to see it on YouTube. The quick summary is that it seems  poised to change the way gases are stored. Think about those very heavy metal compressed gas tanks like the LNG fuel tanks in LNG-powered vehicle. Think what would happen if the same or more gas could be stored in a new substance that wouldn’t let it leak but wouldn’t require compression. This looks like a real game changer. 

Conclusion? Yes: hey NuMat, post your pitch online!

Disrupt Education … Please!

Angel investment, Business Plan Contest, Venture Capital, Venture Contests, , , , ,

I wonder if we as a society are ever going to figure out how technology can disrupt our antiquated systems for educating our children.

Think about what’s happened to information, social interaction, research, and business over the web — not to mention mobile technology — and then think about education. Preschool, K-12, and higher education.

Would anybody disagree that the institutions we depended on as kids are now embattled and crumbling as a result of political and economic factors? Higher ed has had the worst inflation of any industry I can think of over the last two generations. And the K-12 still depends on the old model of the teacher and two or three dozen students in a single classroom.

Innovation, yes, all over the place … but has it really changed anything yet?

And why not? Last week Shelley Palmer‘s email update tipped me off to Harvard and M.I.T. Offer Free Online Courses on YTimes.com, and a new Stanford-related venture called Coursera, a Web portal to distribute a broad array of interactive courses in the humanities, social sciences, physical sciences and engineering.

Also last week I received this in email…

(The innovative minds at TED have brought a new educational video website to the head of the class. Today, TED-Ed launched http://ed.ted.com a site that features TED-Ed’s original K-12 animated videos with accompanying lessons and quizzes. On top of that, the site allows educators to create original lessons for any YouTube video, rendering the video on a new link where teachers can monitor student progress.

And I’ve subscribed to several and offer several courses at udemy.com myself. And by this time we’ve all heard of Kahn Academy, another compilation of online courses.

How many universities are offering online courses? How many of those are simply free to users? How many at very attractive prices?

But what about attendance, homework, kids doing things they don’t want to do, people growing up, validation, certification, leverage, consistency?

My angel investment group is looking in detail at EdCaliber, which offers online tools for K-12 teachers. And I saw two additional education business plans over the last three weeks at business plan competitions at Rice and the University of Texas.

I’m hoping something really changes public education for the better. I haven’t seen it yet.

(Image: bigstockphoto.com)

Thinking of Quitting? Don’t Let Survivor Bias Ruin Your Life

Back to Fundamentals, Entrepreneurship, , , ,

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. Stranger Every Day

Back to Fundamentals, Business Stories, , , , , , ,

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: 

  1. 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. 
  2. 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. 
  3. 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. 
  4. 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. 
  5. 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. 
  6. 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.

(Image: bigstockphoto.com) 

Oh No! Microbreaks Are Productive, Real Breaks Aren’t

Back to Fundamentals, Personal Productivity, , ,

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.

Amen to that.