Do Start-Ups Need A Business Plan?
Yes! The WSJ also has some other thoughts -subscription required. I look at lots of business plans in my other life as a VC. My main message keep them simple and focus on illuminating the idea. Only include data you really understand. Some highlights:
- Matt Coffin, founder and chief executive of LowerMyBills.com, a Web site sold to Experian Corp. in 2005 for $330 million, says he used a 10-page PowerPoint presentation that he spent four to six months gathering research for instead of a formal business plan when pitching his idea to investors in 1999. He succeeded in raising $4 million in venture capital by convincing them that the market for people needing a one-stop place on the Internet to refinance was ballooning.
- Tim Petersen, managing director of Arboretum Ventures, a health-care venture-capital firm in Ann Arbor, Mich. says he generally prefers getting five-to 10-page summaries of business ideas or PowerPoint presentations over lengthy business plans.
- Benson Honig, a professor at Wilfrid Laurier University in Ontario, Canada, says his research of 396 nascent entrepreneurs in Sweden from the late 1990s also found no correlation between business planning and profitability. Instead, his study found the biggest predictor of success to be knowing customers in advance. Mr. Honig says he teaches “contingency planning” to his students — or thinking about a business as constantly progressing, changing and making decisions based on the market climate — instead of traditional business planning.
The WSJ also includes links to some relevant research:
Plans and Performance
Study: “Pre-startup formal business plans and post-startup performance: A study of 116 new ventures” by Julian E. Lange, Aleksandar Mollov, Michael Pearlmutter, Sunil Singh, and William D. Bygrave (all Babson), June 2005.
Summary: The study compares the success of 116 ventures started by Babson College alumni between 1985 and 2003, using performance measures such as revenues, employee numbers and net income. Researchers found no statistical difference in performance between those businesses launched with formal business plans — roughly half of the 116 — and those started without them, and concludes that “there is no compelling reason to write a detailed business plan before opening a new business” unless the entrepreneurs needs to raise substantial amounts of start-up capital. Instead, the researchers say start-up entrepreneurs should generally just make some financial projections, especially cash flow, and open the business.
You’ll need a plan to get funded but it’s like the old saying about memos “I didn’t have time to write a short memo, so here is a long one”. Make the time.
Breakthrough Thinking the Toyota Way…
I enjoy the Change This Manifestos and this one is a really good one. Here are a few excerpts from “Elegant Solutions – Breakthrough thinking the Toyota Way” by Matthew E. May. Thanks to Guy Kawasaki for the pointer.
“An elegant solution is one in which the optimal outcome is achieved with the minimal expenditure of effort and expense.”
A big lesson – “Avoid the Temptations
- Swinging for fences. This is the “homerun or bust” trap, which invariably destroys a strong batting average over time. It carries with it huge risk, usually accompanied by high cost.
- Getting too clever. This is the “bells and whistles” trap, which can easily get out of control in an effort to outdo competitors. It carries with it the danger of complexity and customer alienation.
- Solving problems frivolously. This is the “brainstorm” trap, which is misguided creativity far afield from company direction. It’s a symptom of poorly defined work, and fraught with waste. There’s a reason we call it an organization.
- “Keep it Lean. Complexity kills—scale it back, make it simple, and let it flow. More is often just more. Unless it’s more simple, accessible, timely and efficient, which really means it’s less complicated and complex. When it comes to solutions, size and sprawl matter. Be-all, end-all, feature-rich solutions almost always miss the mark. Because they’re over-scoped and too complex. They’re usually proof that we lack real insight into our customer’s desires. Complexity destroys value, which is what matters most to the customer. The most elegant solutions always seem blazingly simple. “
Leave The Squid Alone…
If they ever do find the giant squid, I wonder how they squid will feel about it. Giant squids don’t seem to be the kind of creature you really want to disturb…
Marine biologist Peter Batson says he plans to try photographing giant squid at a depth of 3000m off the coast of New Zealand.
Lifehacker Draws Visitors With Time-Saving Tech Tips
WSJ covers Lifehacker. Worth a read. One of my fave blogs.
Is Edelman Innocent?
Microsoft’s blog fiasco raises plenty of questions. Is it ethical? Was the strategy misfounded? Is this just a natural extension of the traditional product reviews program? I’ve made my views pretty clear on these and more.
One question that shouldn’t be asked is “What was Edelman thinking?”. There is a natural tendency to paint agencies with the same brush as their clients. It’s been argued before that the reputation of an agency and their client are intrinsically linked.
But attaching Edelman to the Microsoft affair assumes several acts took place – first, the client actually took the agency’s counsel as opposed to asking, disagreeing and telling the agency to get executing. Second, that the agency had anything to do with the idea at all (Microsoft actually works with many agencies). Third, that the client is even letting the agency respond to the issue. After a bit of digging, I believe that Edelman is innocent on all counts.
There is another dynamic at play here: The Agency Of One. As much as we like to draw the parallel between bloggers and the media, in some cases a more appropriate parallel would be between bloggers and agencies. Agencies are places for many (many people, many clients). Bloggers take on the dynamic of individual PR agencies – they promote and deposition aggressively, they love to provide counsel – and, like agencies they hate it when they are ignored.
With this in mind, what bloggers shouldn’t do is judge agencies as having they same degree of freedom as they do. “They shouldn’t have told them to do that!” Or, “They should have just come clean and talked about it!” All ok if you are a blogger but much more difficult when you are dealing with one of your largest clients who are pretty much a law unto themselves and directing you on what to do. What an agency might like to do immediately suddenly gets mired down in a clients’ legal and communications bureaucracy. (I’m pretty much certain this is what happened to Edelman when trying to deal with the WalMart affair).
There is no question that the WalMart affair and Edelman’s overall aggressiveness in the blogosphere has painted a pretty big target on their backs. At the end of the day, this is a fine agency doing some of the leading work in social media and participatory communications. Their only mistake of late is not doing more to shine a light on what they have been doing.
- They’ve built a worldclass social media practice that is pretty much the envy of the industry. Is that practice being listened to by the rest of Edelman? After the Walmart affair, you betcha.
- They are pioneering PR to technology relationships – such as those with Technorati – that I expect to see more of in the next year. I’m surprised more agencies aren’t doing the same. It’s interesting seeing traditional technology business development coming to the world of communications.
- They are doing some terrific client work – I’ll leave them to tout that. Axe comes to mind.
Edelman, it would seem, is in a bit of a bind with regard to Perception and Reality. Perception is that they’ve been behind a series of blog blunders. Reality is, not really. In Microsoft’s case, perception is very much reality. Instead of schmoozing the blogerati and handing out fancy notebooks they should get their act together on the beta/trial, really integrate blogging into the launch, and learn to love those early adopters willing to beta and trial their products.
