Friday, January 25, 2008
Get muddy. Get smart.
There was a great article in the Jan 7, '08 issue of Business Week by Vivek Wadhwa. Mr. Wadhwa is a tech startup guy and is executive in residence at Duke University and is a Fellow at Harvard Law.
From things I've learned in my own experience with startups and from helping entrepreneurs as students and clients, I will agree with his opening paragraph.
"Before I launched my last startup, I prepared a business plan exactly as I had been taught in business school. I was determined to lure professional investors, and I thought the key lay in creating lofty financial projections and carefully documenting the details. If all went according to my 40-page plan, my software company would be worth billions in five years by capturing just 1% of the market. My CEO friends told me this was one of the most professional business plans they had seen. Yet it didn't take me long to realize that it wasn't worth the paper it was printed on. It bore no resemblance to the company I finally built. I don't think that any of the 100 people I sent in to read more than the executive summary."
Mr. Wadhwa finds some merit in his research, but concludes, "But the two to three months I spent creating the plan would have been better spent if I had instead focused on building my product and speaking to potential customers to understand their needs."
There is much truth here, my startup friends.
It's my experience that the enterprise world is awash in people with ideas looking for money. The world is also awash in money looking for great ideas.
So what's the problem? The muddy middle.
For most of us the money can't see ideas. The money needs to see results and customers and buzz.
The money isn't going to pay you to do that. That's your job as a startup.
Mr. Wadhwa is exactly 100% dead on right. He encourages building prototypes and letting potential customers break them. Based on that knowledge he then offers up the 7 key points your biz plan should address with your newfound, reality-based knowledge: (summarized)
1. How are you going to find customers?
2. How are you going to set yourself apart?
3. What can you charge that's profitable for you and valuable for your customer?
4. How do you close your sales?
5. What are your sales channels to sell and service your customers?
6. How do you support customers with problems and product/service failures?
7. How do you be so good that your customers sell for you?
Yikes. If you answer those questions after you've skinned your knees on your beta tests, you've got yourself a business plan that will be the easiest pitch you'll ever make.
I personally gave the absolute worst presentation of my life to a room full of bankers. Technically the thing was a disaster. On the social stuff, I was worse than inept. I cringe as I type this.
But I was coming in from the field with a battle report. All I wanted to do was deliver that report, resupply, and get back out into the fight. It didn't matter to those good folks that I acted a bit shell shocked.
I addressed the points that Mr. Wadhwa so clearly identifies and the group signed the check.
If I'd been in there talking about what I was going to do, I am 100% certain that not a single person in the room would have approved that deal. However, I would never have been able to talk to them with just an idea in my pocket, so it's a moot point.
Here’s how Mr. Wadhwa closes, "The good news is that once you've perfected your business model, professional investors are likely to be much more interested in you. And you will have all the information you need to create a credible business plan they will take seriously."
Yep. Don't think your ideas will get you money. Lightening strikes but it's a risky bet. And if you're selling off an idea just to get money, you're not selling it for what it's worth. You'll be sorry about that later.
Do it the smarter, harder way. Get in the game. Get muddy. Get smart. Get going.
Business Week article by Vivek Wadhwa
Thanks to the Wisconsin Entrepreneur's Network, WEN, for pointing out this article.