Are Business Plans Really Dead?

Photo: Peshkova / shutterstock

Photo: Peshkova / shutterstock

Traveling the globe preaching the death of business plans, I was stopped for the umpteenth time by a very bright entrepreneur saying yet again, “but will investors give you money without a business plan?”  The two-part answer: (a) some money, sometimes; and (b) avoid investors as long as you can.In the euphoric bubble period that was the late 90’s, when investors were throwing money at startups like drunks at a casino, business plans were required and the smartest entrepreneurs were cranking them out in a few days and grabbing the cash.  That euphoric period was so crazy that poopinabag.com got funded (in fact I think I wrote a check).  Those days are absolutely GONE.

Today’s investors don’t want to hear this pitch any more:

  • we have a great team
  • we are chasing a $billion market
  • if we only get 2% of it, boy are we gonna be rich

Today, investors want to hear about customer traction, uptake, and non-vanity metrics all pointing steadily in the right direction.

The smartest startups do all this without a “serious” fundraising.  Maybe they self-fund the first $50-100k or find an angel quickly who believes much more in the team than the idea, and feels his or her seed capital will fund not the business, but the search for the repeatable, scalable, (ultimately) profitable business model.  Those searches are painful and exhausting, and sometimes take a while…but they are not costly.  The inputs are brains and sweat and blood and shoe leather as you to talk to customers, channel and marketing partners, and as you pivot and iterate toward a harmonious, sustainable business idea.  Small, agile staffs motivated by equity, not payroll, drive the Customer Development process.  Not blockbuster fundings.

I still remember a mid-90’s pitch for a content/commerce/community site I lost a pile supporting…”we need $8 million now…2 for hardware, 2 for software, 2 for staff and 2 for advertising.”  Bright investors wrote the checks (and a B round later) on a detailed plan full of numbers and fuller still with fantasy about how great this company was going to be, how fast customers would rush to purchase its goods, and what revenues would look like–to the penny, of course–in the second quarter two years down the road.

Use Alex Osterwalder’s fabulous, simple business model canvas to identify and write down your fantasies and guesses about what the repeatable, scalable, profitable business might look like. And use the two months you save by not writing a business plan to “get out of the building” and replace your guesses with real facts based on feedback from real customers.  At that point, you’re ready to raise some “serious” money to at least test your idea’s scalability. For that you often do need a business plan, but it’s no longer written in the fiction department, it actually contains some facts.  After that, at least some of the time, it’s onward and upward!

Bob Dorf speaks with, coaches and trains startups in lean customer development all over the world. He blogs at dorfonstartups.com and tweets @bobdorf.

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The Lust for Lean Europe

It was a wonderful week in France and Spain for lean startup and Customer Development.  And while I may have indeed been a catalyst of sorts for “showing up,” it was amazing to see the enthusiasm—call it lust—for lean startup in both nations. While neither nation is awash (or drowning) in startups the way the US, China, and other nations are, entrepreneurs are groping for a methodology to show them the way, and I was most happy to oblige.

For a guy who, shall we say, didn’t “excel” in college (I was too busy starting a variety of businesses), it’s an honor to interact with leading, highly-esteemed and credentialed academics all over the world.  And somehow the entrepreneurial scars on my back(and other body parts) are often treated as “academic” credentials in entrepreneurship, all because of Steve Blank’s invitation to join him and co-author The Startup Owner’s Manual, rolling out like thunder around the world.  (Now in English, Chinese, French, Italian, Japanese, Polish, Russian, Spanish, with more on the way!)

This led to two particularly extraordinary meals with leading business educators whose careers have been focused on entrepreneurship.  Interestingly, both groups were as curious about intrapreneurship as entre, no doubt because the economies of both nations are sagging at best and depressed at worst.  When this happens, two things happen: (a) major corporations desperately need growth catalysts, like those found in lean customer development; and (b) startups desperately need demonstrable customer traction to attract the fleeting number of risk-averse, early-stage investors.

Breakfast in Paris:  Three eminent French faculty from top French business schools, ipag (www.ipag.fr) and UPEC (www.en.u-pec.fr), deeply probed for the pedagogy and methodology of teaching Customer Development in the States, as they highlighted their own efforts to migrate their teaching from traditional business plan to experiential, iterative programming like those conceived, developed, and first taught by none other than my co-author Steve Blank.  Without writing the longest blog post in history, suffice it to say that entrepreneurs will be encountering increased “get out of the building” and “pivot” training in these and other schools soon.

France’s MIT, Polytechnique, is already far ahead of the curve.  Led by impassioned serial entrepreneur-turned-academic Bruno Martinaud, Polytechnique has embraced the methodology and is providing “hands on” entrepreneurial training inside and beyond the classroom. Bruno himself is deeply committed to Customer Development, having used it as an entrepreneur, adopted it early as a teacher, and diving in deep to serve as “technical editor” of the Startup Owner’s Manual French edition. French entrepreneurs owe Bruno a great debt of gratitude, as do Steve Blank and I and our publisher www.diateino.com.

Lunch in Madrid: 12 or 15 talks, workshops and interviews later I landed in Madrid for one of the most exciting lunches in decades, at EOI (www.eoi.es), one of Spain’s and Europe’s top business schools.  Director Ramon Fernandez and his team of passionate entrepreneurial and business educators were even more passionate about how corporations throughout the world are adapting lean startup and Customer Development principles to drive large, established business growth in Spain’s troubled economic climate.  They teach a mix of students headed to big companies and startups alike, and several of the professors also consult to the leading corporations in Spain on—what else—growth!  Fabulous, deep discussion of how and where to apply the method.  Perhaps most vocal of the group was an Italian Professor, a longtime resident of Spain, whose teaching and consulting engage him with the “how do we innovate faster” challenges in Spain’s largest corporations.  At my side, Spanish entrepreneur Alberto Peralta of Groupo Formatec, who devoted countless hours to translating the methodology—and the entire Startup Owner’s Manual—into Spanish!

Making the world safer for successful customer development, that’s the job of this 42 year veteran startup guy. Now it’s on to Moscow to greet 36 enthusiastic entrepreneurs trying to build their new companies in this exciting market with help from yours truly and from the powerful Startup Academy at Skolkovo, the Moscow School of Management.  Will Bob ever return to the good ol’ USA? Keep reading to find out…

Bob Dorf speaks with, coaches and trains startups in lean customer development all over the world. He blogs at dorfonstartups.com and tweets @bobdorf.

Ask yourselves the “billion dollar question”

Two of the brightest serial entrepreneurs I know pause at least twice a month to ask themselves the same question over and over again.  They’re getting good signs about their new stealth b-to-b startup, but always pause to ask themselves “are we heading toward a billion dollar business?”

The question refocuses them on the goals of any startup- even if less audacious entrepreneurs might have a smaller valuation target in mind.  “Are we on track to do something great, or are we just chugging along?”  Or, said another way, “Have we gotten caught up too much in the weeds? Have we accidentally slipped from ‘search’ mode to full ‘execute’ mode, accepting our business vision and moving forward to make it happen?”

I love the question and encourage every early stage startup team to adopt it. Whether you ask the “billion” question, the “$50 million” question, or the “multi-million” question is irrelevant. Just stop regularly…programmatically…to be sure you only move into “execute” mode deliberately, once you’re highly confident that a great business will emerge at the completion of “execute” activities. These two well-known entrepreneurs are deeply committed to make their next business a huge one (one of them has helped build one monster already).  Good for them, and they have the stamina and financial resources to have ambitions as huge as their appetites.

Over a decade ago, as he first wrote in Four Steps to the EpiphanySteve Blank identified the crucial difference between established businesses and startups- startups search for the repeatable, scalable business model, while established businesses execute their business based on many facts (customers, channels, competitors, etc.) that are known to them.  His and my book, The Startup Owner’s Manual, provides the road map for that search- which can be long, painful and, no matter what, is hard work.

Be sure you move into “execute” mode deliberately, once you’re sure the prize you’re seeking is at the other end of the rainbow.

Bob Dorf speaks with, coaches and trains startups in lean customer development all over the world. He blogs at dorfonstartups.com and tweets @bobdorf.

Give your customers some “phone sex” today.

Photo by klynslis / Flikr

Do it right now. Or before you start your weekend.

Call five customers. Then call five who abandoned your product or service, or failed to hit “buy” in the first place.

For the customers: Thank them for their business. Learn what they like, what they don’t, what features they use most often and which they haven’t and why. Ask them how they found you. Find out if they’ve ever referred you.

For abandoners: Thank them for taking a look at your product/service/site and assure them this is not a sales call. Ask how they found you in the first place, what do they now do instead, did they choose a competitor or choose not to act…and where does the problem you’re solving for them rank on their list of “top 5 things to do” and is there any way you can change it?

For both: Whether you reach the customer or not, think of the call as “phone sex:” Positive, warm, enthusiastic (yet totally asexual) upbeat commentary. Some things to say:

  • I am the (insert big shot title here) just calling to thank you
  • This is absolutely not a sales call, just calling to thank you for…
  • I’m eager to learn about your experience with our product, good or bad
  • Would welcome any ideas you have about how we can make you happier…or happy

Bonus: I’ll send a free autographed Startup Owner’s Manual to the person who hits “comment” below and posts the best experience triggered by this suggestion. We’ll all learn a lot…not just today…but every time you do this.

Bob Dorf speaks with, coaches and trains startups in lean customer development all over the world. He blogs at dorfonstartups.com and tweets @bobdorf.

Start Discovery With the “Give a Crap” Question

99% of the entrepreneurs I’ve met skip this step. But when it’s done conscientiously, giving your customers the “give a crap” test can save months of work and piles of dollars for a misdirected startup.

Two guys created a software tool to help HR people keep track of employee leaves of absence–sick, vacation, maternity, all that kind of stuff. The co-founders were excited about their technology, loved their colorful demo, and raced to show it to HR people in their target customer segment.

But they raced to cut the code, design the UI, and build the back end all before asking the vital “give a crap” question. Had they asked, they might have discovered that, while it isn’t perfect, good ol’ Microsoft Excel does a pretty good, or at least an adequate, job of monitoring this sort of information, and–worse–that tracking employees’ days off was somewhere about #25 on the typical HR exec’s “top 5” worry list. Oops.

The Startup Owner’s Manual strongly advocates two distinct, separate “get out of the building” steps in the customer discovery process. The first, of course, is to be sure that customers give a crap about the product or service you’re about to spend 20,000 hours of your life building, marketing, and trying to turn into a business (more on the second outing, product discovery, another time).

So the first trips out of the building should NOT talk product at all. Instead:

  • Find out how severe a problem you’re solving for your customers
  • Learn whether they have the problem once a week or once a year
  • And unearth “what happens” if the problem remains unsolved

The best companies are born when they solve a screaming, urgent, costly problem that happens once a week or once a day–and one that could cost your customer his or her house, spouse, money, or job!

Bob Dorf speaks with, coaches and trains startups in lean customer development all over the world. He blogs at dorfonstartups.com and tweets @bobdorf.

When to say “Uncle”:

How Many Customers = “Enough??”

The sad truth is that you’ll never know the answer to this question…and, to be honest, the answer to “how many customers do we need to talk to” is about the same as the Supreme Court definition of pornography…”you’ll know it when you see it.”

Two quick anecdotes tell the tale:

Tale One: Four customers are occasionally enough!  One startup team I worked with in the warehouse automation industry made a grand total of four customer discovery calls and called me saying, “Professor, what do we do now?  You told us to talk to 50 customers and we’ve heard exactly the same thing four times in a row…everybody just wants to give us an order!”

Life doesn’t get any better than that. And while four customer does not a trend make, it’s certainly time for entrepreneurship to take over and for customer discovery to take a back seat, at least for the moment…sign those customers up, get their money, make them ecstatically happy, and learn about your value proposition, product or service features, and customer segment in the process—all while earning actual revenue!  In this case, the first four customers provided conclusive evidence of product/market fit, and the company continues growing and prospering two years later.

Tale two: Fifty customers is nowhere near enough:  “We’ve talked to just about 50 customers, and about 8% of them say they’re very excited about our value proposition.  22% say this, and 37% say that… .  But what do we do…there’s no clear common theme to the feedback.”

Sounds like trouble to me. Why?

  •      Verbal enthusiasm is not the same as measurable enthusiasm. None of the 12 enthusiastic customers offered a purchase order or credit card, and the level of enthusiasm is hardly enough to build a business around.   So 50 interviews don’t seem to be enough in this case—there’s no clear learning so far.
  •      Early customer discovery should generate more enthusiasm, more passion about your value proposition than “8% very excited,” especially since the 8% is likely on the high side and it’ll certainly decrease when you ask those customers for money. Back to the drawing board…

So what’s a startup to do?

An entrepreneur will be old and gray before he or she sees 50% or even 30-40% rampant customer enthusiasm…it rarely happens.  But without a convincing level of enthusiasm, “back to the drawing board” usually means one of the following:

  1.  Talk to more customers, looking for that common thread of responses, whether its “I’d like it better if it did X,” or “Oracle already makes something just like this.”  You may just need to talk to more people to find repeatable, actionable themes.
  2. Talk to different customers.  If you got a hint that men or women or middle managers or sole proprietors seemed more interested than others you’ve talked to, focus in on that group and see if the enthusiasm level increases notably.  If it does, you’ve saved yourself tons of dough on marketing by better focusing your “get customers” spend.
  3. Rethink the value proposition:  More/less/different features/functions/ pricing? Maybe there’s something fundamentally wrong with your product, with other aspects of your value proposition, or perhaps with other key elements of your business model.  Dig in. This is hard work.
  4. Did you just explain it badly?  Very often, entrepreneurs are so close to their product and their startup that they don’t fully explain the business  model or product when doing discovery. Test your pitch on a few smart people and see if it makes sense.

 Next: the first step in customer discovery has nothing to do with your product!!

 

Bob Dorf speaks with, coaches and trains startups in lean customer development all over the world. He blogs at dorfonstartups.com and tweets @bobdorf.

Invite the Damn Customers to Your Monday Meeting

Photo: Ramesh NG / Flickr

Photo: Ramesh NG / Flickr

Since time began, companies kicked off the week with famed Monday morning meetings. The more agile among them called ’em “standing meetings,” conducted while standing to keep the meetings short and to the point. But few companies ever brought the most important voice to those meetings- the voice of their customers.

Whether the company’s in the earliest stages of discovery or celebrating its second successful decade, as Steve Blank and I say in The Startup Owner’s Manual,, “customer discovery never ends.” When it does, often so goes the company.

Imagine a Monday morning meeting at RIM, without customers: “no businessperson would ever want his music and email on the same device,” said one exec, while another chimed in “serious people will never give up the keyboards on their mobile devices.” Without a customer in the room to dispute these axiomatic customer pronouncements, the epitaph of RIM was writ large.

In its heyday, Time Inc. mandated that its sales execs report daily on at least one if not three face-to-face customer interactions. But that was more about selling and building sales relationships than it was about learning what the customer actually wanted from their Time Inc. publication. But for companies in general and startups in particular, the voice of the customer should always be the loudest at any management gathering.

Some simple ways to bring customers to your staff meeting without ordering more bagels or coffee:

  • Ask each person to report on their most important customer contact of the past week
  • Have everyone commit to talking to at least three, if not five customers a week in “discovery,” not “sales” mode…and ask try to find a theme among the prior weeks’ collective conversations. (It’ll often point to a new competitor’s emergence or a shift in the marketplace.)
  • Create a competition of some sort among the leadership based on volume of insights gathered, not volume of contacts made
  • Occasionally bring a piece of market research to the meeting, but never let that replace one-to-one, face-to-face customer conversations. As Steve Blank always says, “you have to see their pupils dilate!”

Most important of all: create a culture in the company that customer feedback is the company’s lifeline…and everyone should be contributing to it or strengthening it every week. Create the habit!

Next: how to process all that feedback to be sure it’s actionable

 

Bob Dorf speaks with, coaches and trains startups in lean customer development all over the world. He blogs at dorfonstartups.com and tweets @bobdorf.