Part 2: Create and manage your business plan
Updated: Feb 17, 2020
Execution is paramount.
No matter how careful your planning, forecasting, etc., things are going to come along, that will disrupt your plans. Your ability to adapt while staying focused on the ultimate goal is paramount.
Execution is a combination of focus and adaptability.
In looking for the “best way” to build the business, what matters is that you get the job done. No matter how smart the team, no matter how great the product, no matter how hot the market, if the team can’t execute it will fail.
Execution is a combination of focus and adaptability.
Like a great football running back, you have to stay focused on the end zone while weaving, dodging, hitting, blocking, and getting hit. No matter what, you have to get the ball into the end zone, or you’ve lost.
Driving revenue is the most important thing to do.
In technology companies, in particular, it can be easy to get lost in the value of adding new users, or releasing new technology, for example. Make no mistake; nothing is more valuable than adding revenue and at an accelerating rate. Revenue solves problems. It raises the value of your company; it makes raising capital easier because you’re de-risking the investment, and by increasing cashflow, you have more money to spend on growing the company.
Understand the value of your product and don’t compromise it.
A very common mistake I’ve seen in early and growth stage companies is selling your product to anyone who will say “yes” and selling for too little. The typical logic seems to be that if there is a big competitor selling for X that the little company should come in at 40% less, for example, or lower. But why? Is your product only worth 60% of the big company’s rival offering? Just because you have less to spend on marketing and you’re running a newer company doesn’t mean you should sell your product for less money. Is your product better? Take the time to gather the information you need so that you can quantify what “better” means to the companies you’re selling your product to and then base your value proposition around that. Many, many times emerging companies don’t do this. Remember, you’re asking another company to spend their hard-earned money with you. So, providing quantifiable reasons that equate to dollars and cents is a much stronger argument than just being lower priced.
Focus on building the business in aggregate.
Not just the product, or sales, or PR, etc., but building all of the pieces together. Winning in business is about pushing on a lot of levers at the same time, not just pushing one lever all the way.
Often founders, because of their background, are focused in one area, engineering or sales for example, and thus the company tends to take on the focus of their strengths. A company can’t survive on just one strong aspect; it needs to have the multiple foundational building blocks, product, sales, marketing, operations, and finance, put into place at roughly the same rate. Each component needs to be resourced relevant to the requirements of their current stage. Failure to do so will drag down the other areas. You’re only as strong as your weakest link.
Your business plan is really a guide, and it does not need to be overly complex.
See Intel’s initial plan as a great example of keeping things as simple as possible. Granted, the founders of Intel came into that business with a strong track record, but they clearly didn’t over-plan either. What they did do is clearly explain what they wanted to build and why.
Once you structure your initial plan, which will be based around logic, facts, and some assumptions, then dig deep on market modeling. Modeling often thought of as building a big spreadsheet and attempting to show how big the market is followed by what percentage of that market the company intends to win. However, there are nuances to every market that if you dig a couple of levels deeper and then map that information to your product, will enable you to more accurately and efficiently go in the direction you need to go and ultimately to succeed more quickly and efficiently.
At Abacast, we based our original model around the 14,000 US radio stations, figuring that our product was applicable for the top 6,000 and we then determined that we needed a team of 5 sales people to attack the market. Fortunately, we spent more time on the model. Upon further digging, we learned that the top 6000 stations were actually owned by approximately 600 radio station groups and therefore our prospect base much smaller than we originally thought. In the end, this was serviceable by just two sales people. Hiring 5 would have cost us a lot more and been no more productive than the two we hired.
Your initial plan certainly will change.
A lot. Why? As you build the business, the market, the product development, the sales goals, your product development schedule and a load of other factors are variables, many of which will be out of your control and will change based on new information and changing macro dynamics. Give yourself a set of timelines to review the plan and adjust. This way you’re not either constantly making changes or, conversely, not adapting to both internal and external forces. Once every three months, or so, is a good place to start.
Your plan needs details, but don’t overdo it. If you produce a spreadsheet with dozens of tabs and plan for each desk and lamp you’ll need to buy from Ducky’s or Ikea; then you’re not looking at the big picture. No one cares how many lamps you need. Yes, I was actually involved in a startup that produced a proforma that specified how many lamps and trashcans they needed. This level of detail didn’t help move the business forward.
Make sure you have the environment that enables people to be comfortable in their job and don’t spend a penny more. Buy used, but comfortable furniture. Make sure there’s coffee, lots of it. Don’t “invest” in swag; this is a waste of money, and no one, including Mark Cuban, is going to invest or buy your company because you had custom beach towels made.
What about Jeff Bezos famous “door” desk? Was he just being cheap? Should you be cheap? I proffer that he was being focused. Having a great desk didn’t determine success for Amazon. Selling books did. Obviously, Jeff did a great job at the latter. Of course, no one wants to be uncomfortable, but as a company culture statement, it set the stage for the company that Amazon is today. This is reflected in their “Day One” mantra.
Be fluid and keep an eye open for opportunities.
The fluidity of the business world can make many people uncomfortable because making adjustments can seem random. But, without a degree of opportunistic flexibility, at best, opportunities are lost and, at worst, the company fails.
A classic example of flexibility is Bill Gates doing a deal to provide an operating system to IBM before Microsoft even had an applicable product! Fortunately, Microsoft was able to quickly license DOS from Seattle Computer Products, and this became Windows. Had Bill not jumped on this deal, Microsoft wouldn’t be the company it is today. Note that it was never in Microsoft’s business plan to license an operating system to IBM. It was an opportunity that unexpectedly arose, and that Bill and Company capitalized on. Importantly, and conversely though, is avoiding “shiny object disease” which is when opportunities are chased which are outside your core product and often before the core product you are building is even fully established in the market.
This can be a fatal CEO flaw. Microsoft’s business prior to the IBM deal was writing operating systems. Thus, the IBM opportunity fell directly within their core focus.
Filing patents doesn’t make a business.
Even if the Alice decision, which gutted many aspects of software patents, hadn’t occurred, patents are a tough business. Often lost is that the primary intent of a patent is to protect your business. Akamai’s use of their core patent is a great example of this. However, what many don’t consider is that Akamai, in order to protect and defend their business, spent millions of dollars and years litigating this patent. Litigating patents as an offensive strategy isn’t what you want to spend your precious time and investment dollars on at an early stage.
What should you patent? As a small, growing company, absolute core technology and nothing else. By the time you get done with them, each patent will end up costing at least $35,000 or more. Additionally, there’s no guarantee you’ll get the patent granted either, and there is a significant time lag of at least a year between when a patent is filed and when it will be reviewed. We filed five patents for Abacast, of which four were ultimately granted. Here’s an example of one that was part of our core product. Note that it took 2 years to finally be granted. Most take 3-5 years to be granted.
There’s another reason to take the time to quantify the value of your product: your sales people will take the path of least resistance, i.e., they will always want lower prices. The combination of lower prices and quantifiable value makes the sale even easier, but this isn’t necessarily good for the company. Just like with financing and engineering, sometimes it is a good thing to say “NO” and turn down a sale.
Profits and revenue aren’t to be confused.
I believe that when a company is small, assuming the market potential is high, that you don’t necessarily want to take profits. It can subtly signal that you don’t know where to invest. Rather, you want to put as much money as possible back into growth and run CF (cash-flow) breakeven. For clarities sake, revenues are the company’s gross income. Profits are the difference between your gross income and your costs. Amazon, again, is a great example of a company running at break even or even a large loss in order to fund growth.
It is critical to the previous point that you’re aiming for a 100%+ CAGR (Compound Annual Growth Rate) and landing significant wins. Why does this matter? Because running CF breakeven on a flat or small CAGR means you’re getting left behind or the market itself isn’t valuable. Those end up being “treetop companies,” barely getting off the ground and never doing much more.
Ultimately, you’re trying to maximize the value of the company, and the best way to do this early on is with massive revenue growth.
There is one thing that’s absolutely outside your control: timing.
If your product is too early to market, chances are very high that you will fail or at best require much more capital and time than originally planned. If it is too late, then the opportunity is gone, and you can’t get it back.
People tend to forget the early losers and remember the winners as being first. However, when eBay started, for example, there were actually many other auction sites. No one remembers the others now. Just as eBay wasn’t the first company to build an online auction site, Google wasn’t the first search engine nor was the iPod the first digital media player. Importantly, though, is that once eBay, Google, and the iPod won, the companies that came before or after either outright failed or typically have a much lower valuation. These days, nobody is Asking Jeeves where to buy a brown Zune! So, while you can’t control market timing, you can control when you jump in. Spend the time to understand where the market is and correlate that to where your product maturity, current funding level and ability to raise funds, before you commit.
Broadly speaking, if your company is the only one building the product it’s building, chances are it’s too early. If you want to get into the large-scale bookselling business today, you’re too late. It is a bit of a guess, but I think the best way to do this is to look outside the enthusiasts to the general user. This was defined by author Geoffrey Moore as Crossing the Chasm. General users can be thought of as people or companies that will use your product but don’t care how it works, only that it does work, and reliably. Early digital media players needed many steps to get music on them, and they often failed and were hard to use. When the iPod shipped it was right for mainstream adoption for two reasons; the first is that an ever-growing segment of the public had been already playing with MP3 files on their PCs for years, thanks to Napster, and second, the iPod worked reliably. Apple tapped into a mainstream audience that had familiarity with MP3 files, which were trapped on their computers and offered the ability to easily make those files portable. Had Apple had to introduce the world to MP3 and digital media it would have been too early, and adoption would have taken much longer.