Category: start-ups

Wed: 20 Jan 2010

3 Reasons Why Business Plans Fail

I’ve helped several people put together business plans. The business plan I put together for my comedy club was used as a sample form in a book on business plans. Theoretically, I know something about business plans. I’ve seen some bad ones. The worst ones I’ve seen tend to be bad for one of these reasons.

3 Reasons Why Business Plans Fail

1. Filling in the Blank

There are plenty of software packages and business plan templates out there on the tubes of the Internet. While they can give you bit of structure when you’re completely lost and on your own – they can also have you focusing on issues which make little sense if any. A business plan that’s intended for venture capitalists or other serious investors needs to have an exit strategy – a plan for cashing out the investors. If you’re putting together a business plan for a small business or some business that you want to build and grow – you don’t need an exit strategy. Your exit strategy is filing for bankruptcy and moving back to your parent’s basement. Don’t fill in the blanks if you don’t understand the blanks.

2. Failure to you know, plan

Want to create a bad business plan – don’t use it to detail what you’ll actually do, use it to provide a 10,000 foot view of something you need to have microscopic insight into. This tends to be compounded by the fill-in-the-blank approach, where a business has a ‘marketing plan’ consisting of ‘generating great word of mouth, building the brand and engaging in social media.’ I’m reminded of a stand-up comic who asked an audience member what he did for a living. The guy in the audience said “Nothing” to which the comedian replied “Then how do you know when you’re done?” If your plan is that vague, how do you know when you’re doing it?

3. A Plan for World Domination

Not every business is going to be successful. And yet every bad business plan seems to not only promise success, but promises the kind of success that results in each investor ending up with enough money to buy their own island and flood it with enough filthy lucre to sink the damned thing. Project a reasonable growth arc and realize you’re not going to turn a web design company into the second coming of the Roman empire.

Avoid these common mistakes and keep your business plan alive.

Three Questions Entrepreneurs Need to Ask on Day One

Mark Kramer of Kramer Communications has a great article on Forbes, The 10 Questions You Should Never Stop Asking. In the article, Mark (we’re not really on a first name basis) details some of his experiences acting as an Interim CEO of a couple of magazines in Philadelphia. It’s a really great article, and all of his questions are dead on. The implicit assumption of his article is that people started asking these questions at some point, and then stopped. In my work with and study of small startups, it seems these questions don’t get asked initially. If they did the business may never have started, or certainly would have started smarter with a better chance of succeeding.

The questions he brings up cut to the core matters I address at Bizdom U, (as well as in my saucy presentation at TEDx).

The Three Questions You Should Start Asking

Kramer’s first three questions (I’m rephrasing slightly) are:

What is your purpose for existing?
Who is your target customer?
Why does anyone need what you’re selling?

I’m going to take these one at a time.

What is your purpose for existing?

First-time startup entrepreneurs often confuse their business’s purpose in existing with what the entrepreneur hopes to gain from the business. To use a technical term, this is a Big Ass Mistake. Your business’s purpose is most assuredly to help customers satisfy a need – not to bring you personal, spiritual, or emotional fulfillment. If you think that’s why YOUR BUSINESS exists, you’re mistaking your purpose in life (fulfillment) with your business’s purpose (satisfying customers). Confuse this at your own peril. If you keep this straight, you’ll keep your business focused on the customer and helping the customer.

Who is your target customer?

You can’t help people, or more appropriately satisfy customers, if you don’t know who they are and what their needs are. It’s a struggle, but you’ve got to disavow yourself of the notion that your business will appeal to everybody (or some equally ridiculously large subset of everybody). It can’t, it won’t, and it shouldn’t. It will appeal to certain people with common demographics or psychographics and those are the people you need to have in mind and help.

Why does anyone need what you’re selling?

Get out, talk to customers. In person. Face to face. It’s uncomfortable in the digital age, but it will give you deep insight into what clients really want and how to best give it to them. Mark nails it when he says “I have rarely seen a company fail if management literally spoke to customers and gave them what they want.”

A bonus word to educators, consultants, incubators, etc.

If you’re in the position where you’re advising someone on starting up a business, make sure you’re encouraging your advisees to ask these questions. Push them on these questions. Hard. Really hard. The kind of hard that leaves a bruise. That hard. We do no service to people if, in the interest of protecting their feelings, we are not blunt, direct and honest in questioning whether they’ve plumbed the depths of these questions and come up with honest answers. In my opinion, this is the great failing of entrepreneurial education, consultation, advising and incubation: the unwillingness to give honest feedback to someone and tell them their idea (as currently formulated and researched) is most assuredly crap. In the interest of being kind, and not ‘crushing someone’s dream’ we let them blindly soldier forward to their doom. If I see someone running headlong toward the edge of a building, I’m not going to encourage them. I’m not going to try and support them in their dream of flying. I’m going to yell “Hey, asshole, you can’t fly!” We all need to be willing to be that direct and blunt.

Three Questions Entrepreneurs Need to Ask on Day One

A clever idea to raise money for your startup

My friend, the incomparable Margaret Hicks, has started her own business giving tours of Chicago.

A Smart Idea for a Business

It’s really a great idea for a lifestyle business. It leverages her knowledge (she’s trained as a docent, and has done tours for other companies) and her skills (she’s funny, engaging, and smart without being smarmy). It also leverages the natural resources available in Chicago (interesting sites, stories, and an abundant tourist population) all of which she can access at basically zero cost. Zero cost natural resources? That’s the type of thing business dreams are made of.

A clever idea to raise money for your startup

Margaret’s really gone from being a smart cookie, to being a whole tray of steaming hot cookies made by your Nana with her fund raising strategy. She’s having a “Help Me Build My Business” party. For $20 her guests will get booze, beer and great food (her husband is a pro grade cook). I was so enamored of the business idea and the fund raising idea that I kicked in $50. And I can’t even make the party!

Why this is a clever idea

I’m a big fan of bootstrapping, but also calling in all your resources. By having this party, she’s calling in her resources in a fun way that won’t burn out those resources. It’s the Girl Scout Cookie Principle: ask people for small favors and give them something great in return and you can tap those people again and again. Girl Scout Cookies raise funds for the Girl Scouts without tapping out the resource (all those aunts, uncles and people at work). Why doesn’t it tap them out? Simple, they get a benefit above and beyond the ‘donative’ benefit and the incremental hit is so small they barely notice. Do you remember how much you spent on Girl Scout Cookies this year? I don’t, except when I tuck my gut into the car, and next year I’ll get hit up by the same tiny Trumps for cookies and willingly fork over my moolah. Brilliant.

It also taps into the Kid Rock Marketing Method: relentlessly promote your product to whoever will listen – particularly if those people express positive interest in the product. If you went up to Kid Rock after one of his early shows and told him you liked his music, he’d thank you and ask you if you were coming to the next show. If you were, he’d ask if you were bringing anyone. If you were, he’d ask if you wanted to sell T-shirts (giving you a T-shirt in return). Obnoxious – hell yeah. But that’s because we live in a world where self promotion is frowned on. Are you starting a business? Do you want it to survive, succeed and possibly grow? Are you telling people about your business? If you answered “yes” to the first two questions, why are you answering “no” to the third question? Networking is as much about getting the word out as it is about asking for stuff. Start getting the word out.

Margaret’s doing a great job of conceiving this business, funding it, and getting the word out to her potential supporters and evangelists in one swell foop. Check it out at ChicagoElevated.com.

Have any clever fund raising ideas? Ever been sucked up into someone else’s promotion efforts? Ever sold a Kid Rock T-Shirt? Chime in on the comments.

A clever idea to raise money for your startup