Tuesday, February 10, 2009

The Business Plan Trick

They tricked me! NWEN told me I only had to answer five questions, but I essentially wrote a business plan. Just five questions, one page each, but each question had questions inside it. For "Describe the market in terms of characteristics and size," I ended up doing market research to get very precise data, then I analyzed the data to narrow in on exactly my target market. And the innocent looking question "What will be the funding requirements to grow?" caused me to create a cash flow spreadsheet to be able to provide an answer.

In the process, I ended up doing two complete rewrites. On Tuesday, I sent out what was basically the best business plan I'd ever written to a bunch of my advisors. The feedback came back that it needed a ton of rework. I did a complete top-to-bottom rewrite and sent out a new version on Thursday which was a lot better -- the new best business plan I'd ever written. Back came feedback. Yes, it was better, but it was still way off from what it needed to be. So on Friday and over the weekend (thanks to NWEN extending the deadline), I rewrote it once again and on Monday I sent out what was now clearly the best business plan I've ever written. I hope it's good enough!

I used Word to do a comparison of the first and third versions of the plan. In case it's not clear, red indicates text which changed between the first and third versions of the plan.

Despite all the red, there's a lot of similarity between the versions -- after all, they're describing the same business. But the way in which they say it changed completely.

Here are some of the things that I've learned.

Start with a hook. I decided to start every page with a hook, a sentence or two that summarizes the page. In essence, put the summary at the top, not the bottom. Your readers might not get to the bottom.

This isn't a literature contest. I had some writing that I was really proud of. It was eloquent and had a great feeling to it. Save that for your novel. I tossed almost all of it and now I have a lot of short to-the-point paragraphs and bullet points.

Stories are OK, but keep them short. Real world stories that convey customer pain that you will be addressing is a good thing. On the first page, my hook is a story that illustrates the customer pain I aim to solve. This is the only place where I kept some of the great prose I'd written.

Answer all the questions. If they've asked a question, don't make them read between the lines. Provide the answer as directly as possible. What's the value proposition? How does your business scale? What are you actually doing?

Don't answer all the questions. I like to be complete, but if you're generating your own questions, there are lots that just don't need to be answered. I removed a ton of information that was answering unasked and, probably, unimportant questions. Working through and figuring out those answers wasn't a wasted exercise -- I still know the answers if I get asked them.

Forget technology. This one was particularly hard for me. My first version had half a page on technology and more in my bio. Investors want to know that the technology is doable and that the team has the technological expertise. They don't care about the actual technology. My final version has almost nothing about technology, even in my bio.

Scaling is about your business, not your technology. Following on to the last point, investors will assume that if your business is successful, then your technology will scale (they may want details on this during due diligence). But, at the beginning, they want to know if the business is going to grow through greater market penetration, opening up additional markets, selling more expensive versions, selling additional products, etc.

Get real numbers. I think every single talk that I've been to about business plans or pitches trots out the line that you can't just say that you'll get 1% of a billion dollar market. You'll hear investors talk about the addressable market over and over again. It took me way too long to internalize that, but, when I did, it took me a lot less time to get real numbers than I thought it would.

Use real numbers. Investors will know if you're hand waving when you say you need an $X million investment with no explanation. Cash flow projections aren't that hard. Figure out your assumptions and be ready to talk about them, but get some real numbers.

Be positive. Every business plan is, in some sense, a guess. You don't have to say "We plan to..." or "We hope to..." or "We don't know ...." Everytime you do this, your readers view you as less positive, less certain, less able to be successful. They know it's all a plan and that there are many things that you don't know yet, so don't hit them over the head with it. Personally, I tend to be a bit too honest about my deficiences (for example, many people have heard me say "I suck at marketing"). The business plan isn't the place for that.

Don't be afraid to ask for help. If you don't ask, nobody will help you. I've said it before and I'll say it again: I am very appreciative of my advisors.

Monday, February 9, 2009

An Impressive Startup Weekend

When someone asks me which team I was most impressed with at Seattle Startup Weekend 2, I'll say ALL of them. Wow!

Thirteen teams demoed at the end of Sunday night, winnowed down from 47 ideas presented on Friday and 17 teams starting on Saturday. The most amazing spectacle to me was the Scrampede team, led by John Clifford, which was super organized, had giant project management charts on the wall (courtesy of Paul Osborn), and had a full pitch at the wrapup about how the business could make money and grow. The Scrampede idea came out of an idea John brought up at the brainstorming session I led at StartPad last Thursday -- after the brainstorming, when we split up, almost half the people joined his group to discuss the idea a little further. So, I'm a little extra proud of them, but, to be clear, I can't take any credit beyond providing a venue for initial discussions. But it does show the benefit of starting with brainstorming. Scrampede is one of a number of teams that has plans to continue beyond the weekend.

Another team with a hopeful future was 1nvite, which was the only team that was actually incorporated by the end of the weekend, courtesy of team member Adam Philipp of Axios Law. 1nvite's mission is to make it easy to invite your friends to multiple social networking services at the same time, particularly useful after an event like Seattle Startup Weekend 2.

There were two Twitter apps, TweetSum, which gives you information about your followers to help you determine if you want to follow them back (and a great interface for organizing followers), and TweetReporters, a souped-up Twitter widget (and infrastructure behind it) for newspapers and other news sites.

I think FavorWish was the best looking site at the end of the weekend. You can't tell the home page from a company that's been in business for years. And KnarlyVote, despite its rather, uh, knarly name, solves an interesting voting problem in a very nice way. As they said, it's not a new technique (I'm blanking on the name for the mathematical underpinnings of what they're doing), but I'm not aware of a site that does this. If they can clean it up and solve a few fundamental usability problems, I think they could have a winner. This is a good time to mention that the UX Office Hours that I have at StartPad are open to everyone -- startup entrepreneur, laid-off tech worker, or Startup Weekend warrior. If you want to take a step forward in your UX, feel free to drop by (the next one is this Thursday, February 12th).

As for me ... I didn't do much. I pitched an idea that didn't get enough votes, so I looked to join another team, but the couple I tried to join ended up disbanding. By then, other teams were in full swing and I realized that I still had a lot to do on the second rewrite of my plan for the First Look Forum (more on that later). When I wasn't writing, I walked around, encouraged people, and offered a few suggestions (and at least one got taken, that a team switch to Google App Engine as their platform).

But that does bring up one disappointment -- the selection process on Friday night produced some potential teams that were clearly not viable as weekend projects. For example, a team with zero developers or massive infrastructure needs can't get very far. That's not to say that they were bad ideas (in fact, most of the 47 original ideas were interesting ones), but they distracted. I hope this can be remedied next time out.

All in all, it was a great event. I'm looking forward to seeing which companies survive and, next time, I plan to not have a deadline on something else and dive in all the way.

Friday, February 6, 2009

Just Ten Days

I've written some complimentary posts about NWEN's First Look Forum, but this one's a bit different. The Forum was only announced a couple of weeks ago, and no information was available about what a submission looked like until last Tuesday, with a deadline of today at Midnight. That's just ten days to put together a plan. If you already have a business plan or a standard pitch deck, that's not much time for a rewrite. But, if (like me) you don't even have that yet, ten days is an almost impossibly small amount of time. If I wasn't a good and fast writer, I'd have no chance. Even so, I'm in the midst of an almost complete rewrite today based on feedback from my advisors and I'm really feeling the time pressure.

NWEN appears to have recognized this because a little while ago, I got some email saying that the deadline has been extended until noon on Monday. Unfortunately, for those of us who are doing Seattle Startup Weekend 2 this weekend, that doesn't help. I still intend to submit my plan tonight. If I have time on Monday morning (and I'm not too exhausted), I can send an update, but I really need to be done tonight.

I still like the First Look Forum very much and problems like this aren't too surprising for the first time out with a new event. At least they've recognized it, even if their doing so doesn't happen to help me much.

And, now, I have to get back to my rewrite.

Thursday, February 5, 2009

Blunt Feedback, Payback

I received a lot of feedback on my 5-page plan for the First Look Forum yesterday and more has come in today. There's some irony -- a lot of the feedback says things that I've said to other people, reflected right back at me. It's so much easier to see flaws when you're reviewing someone else's work, rather than your own, and that's especially true when working under a deadline.

There were also plenty of comments that were completely new, reflecting greater knowledge on the part of my advisers about certain things, mainly business and marketing. The best part about the feedback was how blunt it was. I asked them to be direct and they were, and that lets me know the feedback is honest and useful.

Not all the feedback was negative. Even though I made it clear that I was looking for things that I needed to fix, there were still lots of kudos and positive comments mixed in. That was nice to see.

Overall, I feel pretty fortunate to have people who are willing to help me like this. I know that when I do things like the Startup Brainstorming Session today (which I scheduled before I knew about this deadline), I'm helping others with no direct benefit to myself. It's paying it forward, and I get paid back by other people at times like this. Thanks!

Wednesday, February 4, 2009

The 5-Page Business Plan

It's 4AM and I just sent out copies of my 5-page business plan for the Northwest Entrepreneurs' Network's First Look Forum to a bunch of advisors, plus a few extra people who I haven't previously solicited advice from. It's so easy to wait to finish something until right before the deadline, so I deliberately set my own deadline three days early so I'd be able to get some feedback before I have to submit it.

If you're still working on your own plan, here are some thoughts from my process:

  • I've been pitching my business concept and long-term vision to people for months now, but where does that go? Strictly speaking, it's not an answer to any of the five questions they're asking. I ended up putting parts of it in each of the first three sections (Market/Opportunity, Novelty/Concept, and Scalability of the Business Model).
  • Similarly, in discussions with people, a decent amount of technology has been discussed -- what I'm using, why, what's good about it, what were the alternatives, etc. Almost none of that made it into the document. Investors want confidence that you'll make the right technical decisions. They don't need details on those decisions.
  • The addressable market, funding needs, sales projections -- if I was a business person, these probably would have been trivial. I think I did a reasonable job and, in this document, a lot of detail isn't required.
  • Competitors -- there's an often discussed trap of saying you have no competitors. It's like a catch-22, though. If you have exact competitors, you probably don't have a viable business. I pointed out competitors and how none of them are doing exactly what Groupthink is. I did not have room for one of those market charts, but, when I do one, I'm thinking of putting Groupthink in the middle -- Papa Bear's on one side, Mama Bear's on the other side, and Groupthink is in the middle, just right.
  • Scalability -- don't confuse scalable technology with a scalable business. I wrote about both.
  • The Team -- gee, it's just me right now. I wrote about both my own skills and experience as well as my search for a CEO.
  • Even if you're not applying to the First Look Forum, this is a great exercise. I put a lot of stuff down on paper that I've been saying over and over again. Now I have the opportunity to really refine it.
All in all, I'm pretty happy with the version I sent out, but I also fully expect that I'll be making major surgery on it once I get some feedback. And, of course, when I wake up, I'll have at least half a dozen things I've realized on my own while I slept. I predict I'll be busy until Friday.