WALL STREET JOURNAL - BIZ PLANS!

There are dozens of articles floating around about business plans, how to write them, why you shouldn't bother writing them, etc. This article that a friend sent me is a good one and worth the glance.

Wall Street Journal - Article

PART 5 - THE EXIT

The Exit is the final section of a well written Executive Summary. In this section, you should explain to the investor how you plan to provide a return on their investment. There are some key points in my previous post "Exit...Stage Left." This section gives you the opportunity to build trust with the investor. You should be 100% certain to show the investor that you will be a good agent of his/her money. Also, you should show that all partners and founders are in alignment and understand the possible exit strategies.

Below is a good video from our friends at FundFindr about exit strategies.

PART 4 - THE REQUEST

This is an easy section of your Executive Summary. It's pretty simple...here you'll state how much money your project needs to execute the strategy and tactics you've outlined in the remainder of your business plan. This is a great section to help you build credibility. If written correctly, this section will show the investor that you have at least given some thought to where you intend to deploy the $5m you just asked for. It should clearly state, in rough estimates, how much you need for marketing, website, equipment, office furniture, and other assets, as well as how much you need for working capital to keep the business liquid until it reaches a level of fitness. You should also state here what type of capital you are looking for...is it debt or equity financing?

Again, as in the other sections of your Summary, don't be overly wordy or detailed. Give them enough info to generate interest and leave the boring and made-up details for the next start-up that is pitching to them.

PART 3 - THE BUSINESS MODEL

So far we've discussed the first two sections of a well crafted Executive Summary: The Problem and The Solution. Next in line is the section we call The Business Model.

The Business Model section of your Summary should explain to the reader how and when your cash register is going to ring. It should explain who the actual paying customer is and your best assumption as to how frequently they will buy from you. You should explain the different ways you make money and drive revenue into the business. For example, in the health club business, club members pay a monthly or annual fee that may be automatically deducted from their preferred bank account. Additionally, clubs may have other revenue streams such as value added services that may include massage and spa treatments. They also may have a snack bar that creates an additional source of revenue.

Resist the urge to write a 2 page explanation of your Model here. The Summary should be just that...a Summary.

PART 2 - THE SOLUTION

In my previous post, I discussed the section of your Executive Summary where you clarify to the investor what problem you are solving in the marketplace. The next critical piece is your Solution. In this section you should be specific but brief about what you are offering and to whom. This section should depict the essence and energy of your business because this is where you sell yourself to investors. Clearly depict your product or service with commonly used terms to state concretely what you have, or what you do, that solves the problem you identified in the previous section. You should avoid using jargon or acronyms that don't mean anything to most people. You may also want to clarify where you fit in the value chain as well as the dynamics of your distribution channels and how you fit in. You should also use this section to be clear about any current customers and revenue channels so you can show you have passed the wallet test.

NEED CAPITAL - GET ATTENTION!

Aside from prayer and/or doing the moondance naked through an investors office there are only a few real-world things you can do to get their attention. Guess what? Without their attention you don't get a check. So, pay attention!

Your business plan is one of the most important tools that you can have to create buzz about your project. The Executive Summary in your plan is often the first and last section that investors will read. If your Summary is positioned and written well then the investor will have lots of questions about your business model. If not, they will most likely show you the exit. Most entrepreneurs make the mistake of making their Executive Summary a description of their business written in operational terms with piles-o-jargon. As Guy Kawasaki puts it, the "Executive Summary is about selling not about describing."

We have had much success using a simple and straight-forward approach that includes 5 key components. Although I can't guarantee that your plan will generate a check, I can tell you that these 5 components will help you position your business for investment and perhaps soon you'll be off changing the world with your new product or service.

In the next 5 blog posts I will define these components:

1. The Problem

2. The Solution

3. The Business Model

4. The Request

5. The Exit

A BUSINESS PLAN CAN SAVE YOUR LIFE!

Most of you know that I am a big proponent of business plans. Here's a great video about how a plan can save your life and your business.

Click Here!

SHORT, BUT SWEET!

As most of you know, I am a big believer in keeping your business plan and presentation to investors brief and focused. Here is a snippit from a blog post by David Hornik on VentureBlog. David is blogging about an article he recently read in Wired about securing venture capital funding.

"ONCE INVITED" to present your plan (to VC), remember that brevity is a virtue: Use no more than 30 PowerPoint slides, and keep your presentation under 45 minutes." (Wired article)

(David's response) Yikes. 30 slides. Unless you are Lawrence Lessig, I don't think the words "30 slides" and "brevity" can possibly be used in the same sentence. I completely agree that you should aim to keep your presentation to about 45 minutes. If a VC gets excited about what you're working on, they'll spend more time with you in future meetings. But, as with entertainment, you are way better off leaving them begging for more. Get in. Pitch. Get out. There is no way that should take anywhere near 30 slides. I've blogged here before about the 6 -- yes, 6 -- slides you need to pitch your business. Even if you feel that 6 slides is too spartan, don't confuse quantity for quality. The fewer the slides and the more discussion the better.

(My response) Folks...I can't stress this enough. Resist the urge to take a presentation with a pile of slides. Simply put...don't do it. The goal of the presentation is to get their attention. Once you have their attention THEN you go into the details. Most Angels and VCs have their own process for going into the "details" of your idea.

READ THIS FIRST!

Well it's election day and I'm sure we are all distracted. However, I just read through this blog post from Rob James. It's a good one and he breaks down the 8 things he wishes he had been told prior to starting his business. I especially like his paragraph about business planning.

Here's a sneak peak...

3. Have a model, not a planOk, this is a bit of a ‘bum steer’. You do need a plan, but a fully documented business plan that is 100 pages long is so, um dotcom. Nobody reads those things, and at this stage, your business is changing by the day, if not the hour. The reason you have a business plan is to show that you have thought through all the issues. Good sessions in front of the whiteboard, and scribbling in paper gets the same result. You may want to have a 2 pager, but I generally find that whenever someone asks for one, I will rewrite from scratch anyway. But I can’t stress enough how important a model is. A model is just your spreadsheet plan of how you are going to make money. Not only is it good for any potential investors, but it is good for you. Because in your grand plan, you may have not worked out how to make money out of this idea yet. Well, if you don’t figure this out, who do you think is going to do it for you? The investors? Keep dreaming cowboy! Firstly, I speak to a lot of Angel Investors, Private Equity and VC’s and they are constantly frustrated by how many people come to them this way, and its a waste of time. If the VC does see the money potential, do you think they are going to disclose it to you? Of course not! They have to think of their investors. So they will try and get into the deal for as little as possible, and then they will make money from it. The model is also going to be good for you. After putting it together, you might see that you are not going to be cashflow positive for 24 months, can you last that long? How will you last that long? Or you might see that to realise a profitable business, you need 10 Million registered users, is that realistic? Believe me, you will live and die by your model - work on it often and don’t be scared to change it!

Read more here...

2 KOOL 4 SKOOL!

In my last post I briefly discussed the importance of evangelizing your start-up. There's a great web tool that may come in handy and help you create some buzz. It's called Zentation. It's essentially a free (for the basic service) service that allows you to upload a Power Point presentation and easily sync it with video of you talking about it.

Here's some suggested uses:

• Create a marketing message
• Explain the features and benefits of your product idea
• Pitch your business to investors
• Create a message about your company that's geared toward recruiting
• Train your customers on how to use your product or service
• Etc....

Don't underestimate the power of your pitch!

WHAT'S YOUR SOLUTION?

In my previous and magically well-written post we discussed the importance of clarifying the "problem" that your customer has that you intend to solve. This can also be stated as the customer pain that you are alleviating. This is a very important piece when starting your business. Your business plan should contain a clear description of not only the the problem that your customer has but also the solution that you are offering.

Gaining some intense clarity around these two important elements of your start-up will ensure that you are not just a solution looking for a problem. If you've spent some time identifying your specific customer's pain then you will have less trouble selling your solution and ultimately have more success in passing the wallet test.

As entrepreneurs we tend to get overly excited and often overly attached to our great ideas. When this happens it is easy to focus on the technical aspects of our product or service without enough focus on what the customer's problem truly is. However, if you think about it, our great ideas aren't really so great if there isn't a customer with a problem or pain that our business can alleviate.

Additionally, investors, partners, and vendors will be much more excited about the size of the problem than with the elegance of your solution.

3 RULES FOR DELIVERING A SUPERIOR CUSTOMER EXPERIENCE!

"80 percent of companies believe they deliver a superior customer experience, but only 8 percent of their customers agree." - Bain & Company


A good friend of mine was recently traveling back home on a United Airlines flight. She was sitting at the gate with her fully-loaded, 100% caffeinated coffee beverage, feeling weak and weary from her week's work. All of a sudden, like a trained ninja, a United rep appeared with a sign that he stuck on the board that read... ... ... ... CANCELLED. He then spun around like a ballerina and stated, "I'm going to lunch now." For those of you that are stunned, like I was, this meant she would not be going home any time soon.


Her story prompted some serious thinking from me. So I sat down with my fully-loaded, 100% caffeinated coffee beverage and began to ponder how this type of customer experience, if not dealt with, could mame, if not kill, a start-up. I have been working with entrepreneurial clients for years using The Three Rules of Market Leaders, which I will post about at some other time. However, I have tweaked them some to fit our current topic more directly.


Here they are:


1. Design your offerings and experiences (aka: value proposition) for the right customers. In other words, choose your customers wisely and narrow your focus down to that group, specifically.


2. Build your operations so that you and your employees focus on activities that deliver those offerings and experiences in a superior way. In other words, don't create a marketing message that states we offer the best service if a customer can't get answers to questions without a hassle. Seems obvious, huh? I thought so too, but isn't United's tagline, "fly the friendly skies?" Apparently, it's not that obvious.


3. Continuously develop your capabilities to please your chosen customers again and again. In other words, learn from your experience, read books (and blogs), talk with your team about how to improve the customer's experience, and "shop" your competition to see what they are doing so that you can position yourself differently.


By the way, if you're writing a business plan then this should all be emphasized in there. I know it seems counterintuitive but investors like focus.


What else can we do to ensure we deliver a superior customer experience?

AUNTIE EM, AUNTIE EM...IT'S A RECESSION!

Does the possibility of a recession have you skeered stiff? Here's a tip: You can be the deer...or you can be the headlights. Seriously, I don't know if we'll actually see two consecutive quarters of negative GDP growth, but regardless of whether we officially have a recession or not there are a few things that you should be thinking about.

One thing in particular to consider is hiring talent. For those of you that have a need or have been considering hiring some staffers, now may be a good time. In down periods, the big corporate monsters tend to downsize to control costs in a ridiculous effort to create shareholder value (the "ridiculous" comment was my subjective opinion...actually this entire blog is my subjective opinion now that I think about it). This may present an opportunity for you to pick-up some talent that may not have been so readily available in recent past. This talent may be in the form of a new employee or it may be a new partner.

Here's an example: We were recently working with an entrepreneur who had started a fitness club. He had built a nice business and was ready to expand and open a second location. He needed some additional capital and had updated his business plan to approach a bank for an SBA loan. During this time he was contacted by a friend and former colleague to have lunch. While at lunch his friend told him that he was recently laid-off due to a slowing economy and he was taking some time to re-evaluate his career. To make a long story short, the two ended up discussing the fitness club expansion and wound up partnering on location number two. The friend had cash and loved the idea of ending his tenure working for the "man." (Oddly enough, the fitness industry is generally sheltered from mild recessions)

Another example came to us a few weeks ago when a client told me he was just able to lure a top web-designer from her corporate position. She made the leap even though the pay was less because the idea caught her attention and her current company was in trouble.

My point: Use the current state of the economy as leverage in any way that you can. During recessionary times it's increasingly important to keep an open mind and utilize that entrepreneurial creativity to its max!

By the way, on our next Cafe Cast, we will be interviewing David Hansen with Plummer and Hansen. He is an expert on small business HR practices and we'll be discussing "People as an Asset."

What else can an entrepreneur do to capitalize on the doom and gloom of a recession?

BARTERING, OLD WEST STYLE!

One of the 5 Deadly Sins that Entrepreneurs make is to try to do it alone. We make this mistake for many reasons, but mostly because we're cash strapped and trying to save every nickel. There are several ways to get some help without using capital. One of them is the old fashioned bartering system. I know many entrepreneurs who have mastered this skill.

Let me give you an example:

We know an entrepreneur who has just opened a fitness franchise with the goal of opening several in the next few years. He has created a budget in his business plan and is doing his best to stick to it to ensure he has a solid amount of working capital. He also knows the importance of managing his accounting books. So, he worked out a deal with a CPA firm to offer them free memberships in exchange for monthly book-keeping services.

We also know another entrepreneur who sells unique sporting goods products. She has worked out deals with several vendors, including attorneys, to exchange their services for products.

Action Plan:

• Make a list (yes, pencil and paper) of the services you need for your start-up.
• Start communicating to your network that you have a need for these services, and begin acquiring some trusted vendor contacts.
• Now it's time to use those schmoozing skills that every entrepreneur must have.
• Develop a relationship with each vendor so that you know what their business and personal needs are.
• Create value for your vendors by connecting them with potential customers that you may know.
• If you have a product or service that they might use then don't hesitate to ask. I love the saying..."don't ask, don't get."

I bet you can work out some great win/win exchanges that will save you cash!

CONSUMER CONFIDENCE BAD? NICHE YOUR WAY TO SUCCESS!

Today's consumer confidence index sank to silly levels, which essentially means that people aren't buyin' diddly squat. Crude oil at 100 smackers doesn't paint a rosy picture either. So, what does an entrepreneur do? Work on your blocking and tackling that's what. "Business fundamentals" is the name of the game in this recessionary economy, and leading your efforts should be the concept of choosing your customers. Recently, I interviewed a marketing specialist, Melani Ward, on our Start-It-Up Cafe Cast. She outlined the importance of focusing on a very specific type of customer, including some of these elements:

• age
• gender
• income level
• location
• behaviors
• interests
• hobbies
• careers
• etc.

Basically, she is encouraging entrepreneurs to drill down and get crystal clear on who your customer is, what they do, where they hang out, and so on. The more you can hone-in on your customer the more clear your marketing message will be. With today's abysmal economy, the consumer is on high alert and getting your product to pass the "wallet test" is increasingly challenging. By choosing your customer you will not only improve on your key messaging but you will also be able to deliver superior value to that person. Don't try to be all things to all people or you risk being lost in the noise.

Action plan: Whip out the pencil and paper. (By the way, if you read a few of my posts you will probably begin to notice the power of pencil and paper.) Jot down some characteristics of your customer. Be detailed! For example, there is new battle being waged in the coffee wars between Starbucks and Dunkin Donuts. Both are crystal clear on who their customer is and what type of value he or she is looking for. Make a list that really describes the individual that has a need for your product or service. What is the problem they have that you can solve?

BUSINESS PLAN, SCHMIZZNESS PLAN!

"Badges!" "We don't need no stinkin badges!" Business plan...we don't need no stinkin...

I've had countless people ask me if they need a business plan to start their business. My answer is, no. You don't need a business plan to start your business, especially if you have the following:

• a high tolerance for pain
• a strong desire to fix something ten times when it could have only taken one or two iterations
• a love for winging-it
• a belief that starting a business is too easy and you would like to make it more of a challenge
• a passion for working with partners, vendors, and employees that all have their own idea of who the customer and competition is

(Oops, was that overly sarcastic?)

Oftentimes an entrepreneur's argument for not having a plan is their market, industry, and customer behaviors change and shift too fast. They state that creativity, vision, and innovation are what drive a new start-up. Agreed, however, a solid dose of logic, rationale, and methodology wouldn't hurt either. A business plan should house all of the above. A recent blog by Matt Winn highlights the need for both both types of focus.

I won't ramble about all of the reasons why you should have a plan. You can access Susan Wu's thoughts on business plans to see some reason's why. However, I will give you a quick "in the trenches" example of how they can help:

Recently, we were working with an entrepreneur who was selling her product direct to customers on the internet, as well as at trade and event shows. We convinced her that it was time to move her idea from Business 1.0 to Business 2.0. We started with following the process of writing a simplified business plan, which inspired her to think through many tough questions. After researching, questioning, and "penciling out" some numbers in a spreadsheet, she realized that she needed to improve her inventory turns (velocity) to really maximize her profits. This prompted her to consider the larger distrubution vehicle of selling her product through existing retailers. She initially didn't think this was a good idea because the margins were smaller, but after working through her plan she realized the volume more than made up for the smaller margins. In her case, the business plan removed a ton of dangerous guesswork.

My point: have a business plan.

YOU MUST PASS THE WALLET TEST...THE REST IS JUST BACKGROUND MUSIC

I love working with entrepreneurs. Rarely do you find an individual with more drive, committment, desire to succeed, and passion to change the world than an entrepreneur. Their ideas make our world a better place (for the most part). However, ideas are just the beginning. Ideas without the other key elements of the start-up system will eventually dissolve and leave very little behind except empty entrepreneur bank accounts.

The main element toward validating your idea is what I term the "wallet test." You can have a spectacular business plan with charts, graphs, laser light show with fog machine, and in-depth financial projections, but until someone actually takes money out of their wallet and puts it into yours in exchange for your product or service, all you have is an idea.

So, "Joe, what is your point?" My point is that customers don't BUY new ideas from start-ups; the new ideas have to be SOLD to them. Be sure that along with the myriad of other activities that you have to perform to get your business up and running that you remember to be generating demand. Many entrepreneurs make the mistake of waiting until everything is perfect to begin selling. Don't wait! Talk to everyone about your idea and how your new product will create value for people. (Incidentally, I have a free business report about creating value for customers at http://www.startupsmart.net/. It's in the big yellow box...you can't miss it. And, I'll know if you go get it or not because I use Google Analytics)

I hope this is making sense. I'm wrestling with the keyboard today. Perhaps it's time to make myself a blended salad.

DON'T FORGET...IT'S ABOUT THE EXECUTION - THOUGHTS ON NDA's

Listen up, fellow entrepreneurs! You should all have Non-Disclosure Agreements (known as NDAs) ready and waiting to be used, at the right time. However, don't lead in to any discussion about your start-up idea by whipping out one. I've witnessed new business owners who do this and they immediately put a barrier between themselves and their audience, every time.

In my experienced opinion (yes, that was my legal disclaimer that I am not an attorney), use NDAs only when your discussions with vendors, partners, and investors are advanced. Investors won't sign them until you are down the road, and even then they better not be lengthy with numerous clauses included.

• Since one of your main roles as an entrepreneur is to create a buzz about your concept, then you should learn to use a tool called a slide deck to help you present your business to others. The slide deck is a great lead-in when first courting others about your start-up. It is informative enough that you get your concept across without feeling like you just gave out the recipe. This is a great option instead of handing out copies of your 600 page, leather-bound business plan. What? You don't have such a document??


• If you're concerned about someone stealing your idea or it being compromised in some fashion, then find a way to pitch your business without revealing the "secret sauce." You want people to get excited about the idea and tell everyone they know. Don't you?


• At the end of the day, it's about EXECUTION! If your only barrier-to-entry is to keep others from stealing your idea, then your business is not sustainable anyway and you're in real trouble. Most business plans are full of great ideas, but a good business plan is useless unless the entrepreneur and team can implement it.
  

So, the lesson here is to have your NDA, but use it only sparingly. A good example of when to ask for a signature is when investors are in the due diligence process, not when your Uncle Bob is reading the Executive Summary.