Startups: The napkin business plan

Today I had two different conversations with folks interested in doing startups. Both were in that pre-business plan phrase. A business plan is not just something that you write for Angel Funding, it is something to precipitate vague ideas into something concrete.

 

Often in the early days, people think in stream-of-consciousness.  The logic and thinking is fuzzy. The purpose of a napkin business plan is to get a framework, a skeleton to add muscle, flesh, circulation system and fat too. Without a framework, you cannot walk,  you can only slither. Changing the stream into snow (but not ice – you want to keep it pliable).

 

To me, the first question is simple – what class of business are you thinking of?

 

Businesses can be divided to the following general classes:

• Producer: You build or create a sellable commodity. Your are the factory, examples:
• Selling Word Templates
• Selling Control Libraries
• Selling Accounting Systems
• Selling content (Pictures, articles) that you own.
• You are a middle man: You acquire something and pass it along. This may be for a mockup (i.e. Amazon.com) or for advertising revenue, or both. Example:
• Social networking (advertising revenue)
• Online stores (pass thru sales)
• Content consolidation (advertising revenus)
• You are a service agency: You perform work for someone or provide a service. Examples:
• Designing web sites
• Consulting Services

The second question is often not considered at all, or only in a child-like manner.  If you are successful, and end up with a 1000 employee company --- what do you want your role to be?

• None – Sell it and have a villa on the ocean in Goa, India
• Board of Director – your hand is still in the firm, but you are not in day to day management. You may go on to other things…
• CEO – You are running the firm… often software types that state this are out to lunch…  do you really want to handle all of the day to day business details, HR issues, etc? If you were good in management, you would have done a commerce degree!!! Don’t be a case study for the Peter Principle!
• CTO or Architect – in other words, you hope to keep having fun coding and developing.
• OR….

Knowing where you want to end up means that you can staff up early with folks that compliment YOUR end game.

 

The third question is easier to answer: What is the benefit that your customer will receive? The intent is to move your thinking from ME to the customer, “People will buy  foobars and make me rich!” is transformed to “People will buy foobars for their friends to show them they care about the environment and have more money than their friends”.

You need to think about the benefits to your customers. This leads to the sub-question, “Why will their buy foobars from me and not Amazon.com (or other competitor)?”

 

The fourth question is what are my options for opening my business? Use a food outlet as an analogy:

• Can I start with a “push cart” (are you too proud to push it?)
• Do I need to rent 5000 sq ft of waterfront space and redecorate it in Inuit Modern?

The sub-question is what is needed to attractive the desired customers? Buying a new push cart may not be need, a second hand push cart decorated appropriately may do better. What about customer expectations ---

• if you are sloppy and the cart reflects it after 1 hr – you will not have repeat business.
• A clean cart with latex gloves being used for food handling and signs indicating non-GMO organic gluten free products only will not only get repeat business but may result in referrals.

The key is to understand your customer motivations --- which is why in an earlier post I cited the importance of a “domain expert”, someone that can state and advocate what your (theoretical) customer wants.

• How do you get word out (“advertise” is not an acceptable answer – details please!)?
• What do you do for customer service? (I know that as a developer you don’t want to deal with customers – but without them, you have no sales!)
• A pure advertising revenue site still have to deal with customers because they may refer to your site on social media – and you cannot afford to ignore that.

Last words..

You are thinking of creating a start-up. Startups are typically corporations (LLC, S Corp etc) which have an independent legal existence from you. They are very much like having a kid or significant other – they are not extensions of yourself, but separate. You need to get enough separation between the startup and yourself for both of you to grow and prosper.