Tuesday, July 22, 2008

business plan or powerpoint?

Here's the transcript from an IM conversation I had with a friend today regarding business plans.

friend: hey, you have any business plan docs laying around?
friend: that you could share
TimothyJ: you want some sort of template?
friend: no, looking for a real one
friend: that people actually used
friend: and that doesn't suck
friend: i can find templates, but I'd like to see what a real one looks like
TimothyJ: ok. let me see if i can dredge an early copy up. i'm not a huge fan of business plans however. I think there's an internal document you create for brainstorming purposes and then you boil that down into slideware
TimothyJ: you can pretty much use Guy Kawasaki's art of the start as a template for that
friend: ah, interesting
friend: well most of the standard stuff that people put in there is BS
friend: projections of revenue, hiring, etc
friend: but seems like investors want it
friend: even though they know the #s are wrong
friend: way way wrong
friend: vision isn't BS of course
TimothyJ: state your problem, why you are uniquely positioned to solve it, IP, market size, how much it will cost to ramp, a good plan for doing that ramp on a milestone basis
friend: ya, sounds reasonable
TimothyJ: yeah, the investors want to see it's a big market to go after so that's the top down market analysis
TimothyJ: then you do a revenue swag based on percent of market with some sort of ramp the investors can swallow
TimothyJ: first year is to nail down early adopter accounts (and build out product)
TimothyJ: not big revenue expectations
TimothyJ: 2nd year (in your model) would be channel sales relationships and proving out the sales/delivery model are repeatable
TimothyJ: 3rd year is revenue growth, showing scalability
friend: that sounds like a reasonable model
TimothyJ: brainstorm all that, condense it into a deck, and then go practice pitch it to a friendly vc
As you can see, pretty straight forward stuff. I think people get too caught up in creating a comprehensive business plan. In a software startup you need a thesis (the problem), you need to figure out why you have a clear chance of building out what's needed (risk mitigation), and why this grand product will cause people to separate themselves from their money (high value). I think the business plan is a great exercise in force thinking through the business. It just changes so many times over the course of the first 18 months or so it's better to think in terms of slide decks or mind maps.

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