You Can’t Handle A Business Plan!

In preparing for battle I have always found that plans are useless, but planning is indispensable.

-Dwight D. Eisenhower (Thirty-fourth President of the USA)

 

Eisenhower was a military leader of renown prior to becoming president.  His comment on the value of planning illustrates a key point that many who disdain planning would do well to heed: a plan is not the goal, but rather the exercise of thinking strategically through one’s options given a defined situation and set of resources at one’s disposal.

Serving entrepreneurs and existing business owners, I have seen the outcome of both lack of planning and belief that planning unto itself is a cure-all for potential challenges that may come the way of the enterprise. Tim Berry, author of Three Weeks to Startup, writes that, “If you’re serious about starting your business — even if you don’t have anything down in writing — you’ve already started to plan.” Yet, starting to plan is not the same as writing a business plan.

There are several planning steps that I would recommend prior to writing a business plan:

  1. Refine your idea. Think through how your business model would affect potential customers. Have a preliminary strategy in mind for each segment of your target audience.
  2. Conceptualize a winning strategy. Think through what is already available in terms of direct and indirect competition. Adjust your approach to the market based on what can win consistently.
  3. Create value before your first sale. Test your hypothetical product features and benefits, along with pricing model and go-to-market system. Secure feedback and revise your offering accordingly.

Once you have thought through these three main ideas, you are then ready to evaluate how best to launch a business. Evaluation is the point at which your first business plan should be written. Berry recommends “Your plan is for you first. Don’t make it for anybody else. Do it because it helps you divide and manage big goals into practical steps. Instead of looking at it as a document, think of your business plan as a place on your computer where you collect ideas, useful stories, lists and numbers. It’s a place where you keep track of the market, your milestones, goals and projections.”

Business planI could not agree more wholeheartedly! A plan is not a monument; it is a living, flexible document that needs to be modified on a recurring basis as long as you are in business. Early on, Berry recommends the following key components of planning:

  • Milestones: What’s supposed to happen, when, and who’s responsible.
  • Basic numbers: Simple spreadsheet projections for sales, costs and expenses.
  • Strategy: Strategy is about deciding how to focus a business offering on a key target market. It can start with just bullet points. I’ve seen it done well with pictures. It’s mostly a reminder for you and your team.
  • Cash flow: Because profits don’t guarantee enough cash to pay your bills, you need to manage cash from the beginning. Month by month, account for what you spend and what you deposit — not profit as it appears on the books, but money as it shows in the bank.
  • Review schedule: Set aside time for a plan verses actual review once a month to compare what you planned would happen in your business to what really happened. Be brief and practical.

Regardless of your market niche, whether you have attended a “hack-a-thon,” or who is on your start-up team, take the time to consider each of these components thoughtfully. Incorporating them into a plan that you are committed to revisiting and continuously improving will enhance your chances of launching a successful new business!

 

 

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Do You Understand Which Customers You Want to Develop?

Whenever I have the opportunity to sit down with an entrepreneur to discuss how an idea is going to be commercialized, a hot topic is “who is your buyer, and how will you win them?” Amazingly, many who aspire to start businesses (even some who have been in business) have very little strategic insight into the answer to this question. By going after the universe, in a shotgun method, the business owner shortchanges the enterprise of the opportunity to develop authentic connections with targeted customers who become loyalists. We break the broad question down into tactical components such as how to listen to customer input and revise a product or service offering. Yesterday I read a LinkedIn article by Steve Blank, the author of The Startup Owner’s Manual. Blank wrote about an interaction with a former student who claimed that following Blank’s advice on customer development was causing his company to fail:

We Did Everything Customers Asked For
“We did every thing you said, we got out of the building and talked to potential customers. We surveyed a ton of them online, ran A/B tests, brought a segment of those who used the product in-house for face-to-face meetings. ” Yep, sounds good.

“Next, we built a minimum viable product.” OK, still sounds good.

“And then we built everything our prospective customers asked for.” That took me aback. Everything? I asked? “Yes, we added all their feature requests and we priced the product just like they requested. We had a ton of people come to our website and a healthy number actually activated. .  . everyone uses the product for awhile, but no one is upgrading to our paid product. We spent all this time building what customers asked for. And now most of the early users have stopped coming back.”

Customer developmentWhat’s your business model?
“Business model? I guess I was just trying to get as many people to my site as I could and make them happy. Then I thought I could charge them for something later and sell advertising based on the users I had.”

I pushed a bit harder and said, “Your strategy counted on a freemium-to-paid upgrade path. What experiments did you run that convinced you that this was the right pricing tactic? Your attrition numbers mean users weren’t engaged with the product. What did you do about it? Did you think you were trying to get large networks of engaged users that can disrupt big markets? Large is usually measured in millions of users. What experiments did you run that convinced you could get to that scale?”

I realized by the look in his eyes that none of this was making sense. “Well I got out of the building and listened to customers.”

The idea of the tests he ran wasn’t just to get data – it was to get insight. All of those activities – talking to customers, A/B testing, etc. needed to fit into his business model –how his company will find a repeatable and scalable business model and ultimately make money. And this is the step he had missed.

Customer Development = The pursuit of customer understanding
Part of Customer Development is understanding which customers make sense for your business. The goal of listening to customers is not please every one of them. It’s to figure out which customer segment served his needs – both short and long term. And giving your product away, as he was discovering, is often a going out of business strategy.

Blank then shared the lessons learned by his student:

  • Getting out of the building is a great first step
  • Listening to potential customers is even better
  • Getting users to visit your site and try your product feels great
  • Your job is not to make every possible customer happy
  • Pick the customer segments and pricing tactics that drive your business model

Nurture Networking Relationships and You Will Prosper

As a former business development executive, I miss my expense account. Seriously–it has always been a ton of fun to mingle with people and get paid to do it. Now running my own consulting firm, volunteering some time at a non-profit, and helping several other founders get their businesses off the ground, I have less time and budget to do one of the things I love: networking. Jeff Hoffman, a member of the founding teams at Priceline.com and uBid.com, and now launching ColorJar, gets this. In a blog post for Inc.com today, Jeff shares with other entrepreneurs what he has learned about the value of networking, as well as some tips to the uninitiated.Networking

Launching and growing a business is hard.  You need to find those relationships (that will help), and then cultivate and nourish them, to keep them alive and healthy.  When you are trying to go from point A to point D in business…people act as bridges from point B to point C, saving you valuable time and money.

… tips:

1. Identify people who could help you and your company. 

Make a list of potential relationships you’d like to forge, either by individual’s names, or by companies and positions.  You can’t pursue your targets until you know who and what they are…write down next to each name precisely what you think the person can do to help your business.

2. Contact these people on a regular basis, and stay in touch with them. 

The most important part of this regular communication is to make sure you are acutely aware of their needs, not just yours.  Ask them what they are trying to accomplish and how you can help.  And then do it when you can.

3. Find ways to give back to them. 

Make a list of the interests of the people on your go-to list…Let each individual know you remember and care about those interests.  Interesting article? Send it to the appropriate contact.  Meet a smart person in that field? Make an introduction.  (Cool, relevant) event? Invite (them) to attend.  Provide a value to your contacts, if you expect to receive it in return.

4. Acknowledge them in your social media. 

Discuss their work, congratulate their accomplishments, and keep them in your discussions.  Show them that you are not only aware of the importance of their work, but that you follow it and celebrate it.  

5. Schedule a time in your calendar to think about and research each contact. 

Once you make this relationship list, it needs maintenance and updating.  Set a periodic time to review the list, update it, and think again about how these people can help you and how you can help them.  Your needs have changed and so have theirs.

6. Make them feel 10 feet tall from time to time. 

Send out handwritten notes.  Or fruit baskets.  Make sure the people in your network know that you appreciate them and recognize their importance in your life.  A little gratitude goes a long way.

Great advice from someone who has obviously helped many other people along the way. Now that I am in the role of advising others, I frequently encourage them to “pay it forward,” helping someone else with their needs before asking for hep with your own. Go out of your way to make introductions for all kinds of solutions–that kind of capital is priceless! 

I also like Jeff’s suggestions on how to keep the conversation alive–good stuff! Remembering to do the personal touches mentioned above is not just good etiquette–it’s great business practice! Smart networking follows these best practices.

 

 

Dissimilarity Creates Innovative Thinking

How often does your organization examine ways to apply a concept from one part of the business to an entirely different component? I’d like to suggest that you do it far more often. Many innovative ideas flow from simultaneously considering two thoughts that, on the surface, seem to have little connection. For instance, what do you think of design mixed with meeting planning? Dennis Shiao, Director of Product Marketing at INXPO and author of the book “Generate Sales Leads With Virtual Events,” thinks this juxtaposition is an interesting one. After watching a 60 Minutes episode recently that featured an interview with David Kelley, founder of both IDEO and Stanford’s d school, Shiao was inspired:

Overview: Design Thinking
The design thinking process can be broken down into three components: inspiration, ideation and implementation. To quote a design thinking article co-authored by Mr. Brown:

  • Inspiration: “Think of inspiration as the problem or opportunity that motivates the search for solutions.”

  • Ideation: “Ideation as the process of generating, developing, and testing ideas.”

  • Implementation: “Implementation as the path that leads from the project stage into people’s lives.”

Corporate events

Incorporating Design Thinking into Meetings and Events

I’ve (Shiao) taken a look at the tenets and methodologies of design thinking and considered how they could be applied to meetings and events. Let’s consider some.

Attend Your Own Event (Empathy)

Meeting and event planners should take off their “planning hats” and attend one of their events solely with their “attendee hats” on. That means that you can have no part in planning the event. Go through the entire cycle of registration, travel, sessions, workshops, social events, etc. Practice further empathy by understanding how fellow attendees are experiencing the event.

Deepen (and Broaden) Your Team Roster

Design thinking introduces the notion of “multidisciplinary teams,” in which people of assorted backgrounds (and schools of thought) ideate, iterate and collaborate. You need a group that creates divergent thinking, which, according to Mr. Brown of IDEO, “is the route, not the obstacle, to innovation.” I’d recommend adding folks from Finance, HR and Engineering. 

Where No Idea is a Bad Idea
If you make an early judgment on the quality of an idea, you may have just squashed a “germ” that would develop into a breakthrough. The ideation process is critical in creating the next breakthrough event. Instead, design thinking teaches you to build upon each other’s ideas, sort of like the “yes, and..” methodology in improvisational theater. 

Meeting and Event Prototypes
Recall that part of the ideation phase is “testing ideas.” It’s an iterative process in which you deploy a prototype, collect “real user feedback,” determine what you learned, then ideate on product refinements (repeating the cycle all over again).

Let’s say you’re planning next year’s 5,000 person sales kick-off meeting and you have innovative new ideas for it. Create a prototype using 50 sales people and actually implement those ideas in a “real prototype” (event). Determine what worked, make adjustments, then plan another prototype. When the “real thing” comes around, you’ll have a much better “product.”

This type approach is both novel and holds promise for adaptation to a variety of other tasks, disciplines and situations. What dissimilar business processes can be combined in a brainstorming session to help you approach your customers, employees, or suppliers differently? What may be the outcome of such crazy thinking? Does your culture support such “frivolous” exercises, or disdain them? While the temptation would be to apply the concept only to new product development, the value is cross-functional!

 

 

Private Equity Challenges in Family Businesses

Most family owned businesses survive through the ingenuity, hard work, and resourcefulness of the founder(s) in the first generation. As the founders grow older and the business hits certain barriers to growth, often there is a need for a capital infusion to satisfy the goals of the founders and the other stakeholders in the continued growth and success of the business. Private equity, while a viable option for many privately owned businesses, can be perceived as a solution that is unworkable for the typical family owned business because of the fear of loss of control. In an article last year in the Journal of Family Business Strategy (Volume 3, Issue 1, Pages 38-51, March, 2012), authors Florian Tappeiner, Carole Howorth, Ann-Kristin Achleitner, and Stephanie Schraml describe some research they performed on a group of family firms in Germany. The research focused on issues these firms faced in soliciting private equity investment. Excerpts are provided below, along with a diagram, and accompanied by some commentary:

Under the pecking order hypothesis, private equity is a finance of last resort. Tests of the pecking order and its assumptions have provided conflicting results. For family firms, the pecking order hypothesis is incomplete because it ignores family effects. Case studies of 21 large family firms in Germany are analysed. Testable propositions are derived. Family firm owners balanced financial and non-financial resources of private equity with the need to cede control rights. Non-financial resources were valued more highly when resolving family issues. The observed pecking order was driven by control rights. Important implications for family firms and investors are discussed.

The authors articulate that private equity is perceived as a final option for owners of family businesses. No surprise there. Control is seen as the most important factor in determining what outside resources to enlist. Private equity is seen as less widely used than non-financial resources when the goal is to resolve family issues.

Family and business influences are equally important in terms of the demand for private equity in large family owned firms. Private equity was sought out for reasons that included the exit of a sibling, parents’ wealth diversification and business growth. The authors note an “interdependence of demand and supply in financing decisions, most noticeably in the negotiation of control rights, which featured strongly in the interviews. (Sometimes the underpinning reason for seeking an investor was to consolidate control, for example, buying out a family member with conflicting views or concentrating ownership in one branch of the family, which, it was argued, would free up decision making within the family firms.)”PE Finance in Family Firms

Minority private equity investments provided study participants with needed finance while allowing the family owners to maintain family control. Private equity also provides managerial resources. The presence of outside money and potential ensuing leverage in executive decision making illustrates the potential for better corporate governance practices and enhanced expertise to pursue business opportunities, such as IPOs or globalization. Said the authors, “Firms with family issues may value the non-financial resources that private equity investors may provide. In particular, family firms wishing to reduce family conflicts may value the neutral or professional role of a private equity investor.”

It was noted that business performance issues led to loss of control in two of the family firms receiving private equity infusions. Still others negotiated control rights guidelines aggressively because of their concerns over the potential of such an occurrence. The investors, for their part, acknowledged that dealing with family firms presented a unique set of challenges usually not experienced in other deals.