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In 1987 when I started my first company (Feld Technologies), I wrote a business plan for a course at MIT that I was in called 15.375: New Enterprises. The textbook for the course was Jeffry A. Timmons’ classic book “New Venture Creation” and the course ended with the submission of a written business plan.
I went on to create a company, with my partner Dave Jilk, that bore very little resemblance to that business plan. When I reread the plan several years ago for amusement, it motivated me to go dig up plans for other successful companies that I was a co-founder of or early investor in, including NetGenesis and Harmonix. In each case, the business plans were big, long, serious documents that had only a minor semblance to actual business that got created.
In the 1990s, business plan competitions were all the rage. I was a judge early on at the MIT $10k Competition (now the $100k Competition) and read lots and lots of business plans. By 1997, when I started investing as a venture capital investor, I was no longer reading business plans. And I don’t think I have since then.
Today, it’s clear to me that business plans for startup companies are a historical artifact that represented the best approach at the time to define a business for potential investors. In the past decade, we’ve shifted from a “tell me about it” approach (the business plan) to a “show me” approach (the Lean Startup). Rather than write long exhaustive documents, entrepreneurs can rapidly prototype their product and get immediate user and market feedback. They can use Steve Blank’s Lean LaunchPad approach to get out of the building and actually incorporate customer development early into the definition of their business. And they can learn the lesson we teach over and over again in TechStars – “show don’t tell.”
While “business plan competitions” are still around, some are rapidly evolving into “business creation competitions.” CU Boulder is at the forefront of this with their New Venture Challenge, which is experimenting with new things each year. And activities like Startup Weekend are teaching a new generation of entrepreneurs how to envision, create, and launch a startup in a weekend, and then incorporating Blank’s Lean LaunchPad into a month-long process called SWNext.
As an entrepreneur, I encourage you to reject the notion of a classical business plan from the 1970′s. You should still thinking deeply about the business you are creating and communicate clearly what you are doing to investors – just use contemporary approaches that are much more deeply incorporated into the actual creation of your product and business.
It’s been a quiet day today as I sit in Amy’s office in downtown Boulder and get geared up for the year ahead. My inbox is empty, my todo list is mostly empty, and my brain is clear. There’s something really elegant about the first business day of the year which – apparently – wasn’t today but is tomorrow.
As I enjoy the sun going down over Boulder, I’ve been reflecting on my first company (Feld Technologies). I looked at the Business Plan series to see where I had left off and – voila – the next section to talk about is The Company. Since I’m in Boulder, land of hippies and crystals (and lots of Internet entrepreneurs, plenty of mountain bikers, and some amazing Olympic athletes) I thought this sychronicity warranted that I crank out another post on the Business Plan.
Once the setup to the business (e.g. what industry are we going to address) is out of the way, a business plan should cut to the chase and describe what the company is going to be doing in the context of the industry it is addressing. This was short and sweet for Feld Technologies:
As a company, Feld Technologies will focus on encompassing the entire semi-custom software concept; it will use this concept to solve problems for small businesses. Because of its generic nature, the capabilities of semi-custom software covers most of the needs for business software used in small companies.
It could have been a little simpler – e.g. “we write custom software for small business and we try to be smart about it, using the “semi-custom software” idea we described earlier.” One paragraph describing what the company is going to do doesn’t seem particularly ambitious, so we fleshed it out a little.
The Company will gain expertise in the use of various database packages. It will build up a library of reusable software, which will improve quality and efficiency in development. It will build a customer base of lead-users who will help steer the Company toward emerging trends and needs. In these ways, Feld Technologies will add a value to its products which no vendor of individual competitive products can match.
The founders will become authorities in the field of database application programming. We will use this status to develop and market numerous adjunct database products including software and literature. We will leverage our authority to become noted consultants who create computing solutions for small businesses. Finally, we will strive to make Feld Technologies a cornerstone upon which a new segment of the software industry is built – namely semi-custom software.
We were very specific and direct. When I look back on this, the only thing we never got around to trying to do was “develop and market numerous adjunct database products including software and literature.” We never really developed a product focus – something that is very hard for a self-funded consulting firm to do, especially one run by a 25 year old and a 21 year old.
So many of the business plans that I see (and often don’t read) have endless vague generalities and extremely optimistic assertions about what the company will accomplish. Keep it short, simple, and direct. Don’t be afraid to have a big vision, but make sure it’s a clear one.
In my last post in the Business Plan series, you discovered that my first company was a “software company.” What kind? Even in 1987, the software industry covered a wide variety of things. As I mentioned before, the Introduction section of a business plan should start with a general overview (“microcomputer software”) and then get specific (“database stuff”). By the end of this section, the market segment you are targeting (in this case – “semi-custom software”) should be defined.
The early days of microcomputing were plagued by a lack of software. The hardware component of the system evolved the quickest; software developers were always playing catch-up. Support tools for software companies were limited forcing the programmer to invest a significant amount of time in developing toolboxes for use on a particular machine. As a result, software developers often sacrifice the flexibility of the applications they were developing in order to simply get them to work. This changed with the advent of the IBM PC which prompted an epidemic of fourth-generation application development languages, more commonly known as database languages. For the first time, the microcomputer software developer could focus on the issues underlying his application instead of spending all his time trying to implement the application on a particular piece of hardware.
Today, database languages are beginning to replace conventional languages within the context of application development. The trend has reached a critical mass; new database languages are emerging weekly. This outbreak of products has served to legitimize a new approach to application development.
These database programming languages can serve as a basis for a new type of application development – semi-custom software. Semi-custom software is a divergence from existing software product offerings. In a semi-custom environment, the benefits of mass-produced systems and custom software are combined. A reusable “shell” is designed for a specific industry – this is the systems component. Instead of packaging and selling only the shell, a semi-custom company modifies it to fit the client’s specific needs. Some custom software is written and integrated with mass-produced software. As a result, the customer essentially gets a software product that fits his precise needs (emulating a custom product) at a systems software price.
In 1987, “semi-customer software” was a new concept. Database languages (or 4GLs) were becoming popular (remember dBase and .dbf files?) and were starting to incorporate mainstream programming capabilities (most notably procedural abstraction – a big deal at the time). The things we now call “packaged applications” were going by pre-ERP TLAs such as MRP, CAD, CAM, and POS (“point-of-sale”, although most were about as good as the other use of the acronym). We felt like there must be something in between a custom application and shrink wrapped software and decided to try to coin the phrase “semi-custom software.” While this phrase didn’t stick, the concept ended up being very relevant and foreshadowed the packaged software revolution.
In my last post in the Business Plan series, I promised to tell you about “The Industry”. This is an important early section of a business plan that frames the overall industry the company is part of. It’s important to keep this section short (if I want to learn the history of an industry, I’ll read a history book, not a business plan.) The first part (or first few paragraphs) should describe the industry generally and then become more specific about the segment of the industry that the company is going to address.
In 1987, people talked about “the microcomputer software industry.” The gorillas of this business were Microsoft and Lotus – gigantic software companies weighing in at $200 million in annual revenue. There were many smaller companies (Ashton-Tate, Aldus, T/Maker, MicroPro, WordPerfect anyone) – of which today’s generation of entrepreneurs has never heard. Following is how I described the microcomputer software industry in my business plan in 1987.
In the ten years since Microsoft introduced the world to personal computer software via Microsoft Basic, the microcomputer software industry has grown from nothing to a multi-billion dollar business. In the wake of this growth are thousands of software companies ranging from garage operations to $200 million giants such as Microsoft and Lotus. For a while, thousands of people became rich overnight using a simple formula – create a new piece of software and toss it out into the market via magazine ads and user groups. Software heroes were common – all one needed was something neat. Even the high school computer hacker got in on the action (much to the amazement of his parents who soon were making less money working full time) by spending his afternoons writing a game and selling it to an established company.
It was inevitable that an industry (this industry is narrowly defined as the microcomputer software industry - specifically companies writing software for IBM PC, PC compatible, and Apple computers) growing this rapidly would attract some hungry, experienced capitalists. These people took the form of senior engineers, venture capitalists, and MBAs. As the pool became more populated, the structure became increasingly chaotic. No longer was simply anyone able to succeed – competition began to play a significant factor. The rest of the business world took notice as software companies began going public, large companies started divisions that developed software, and Business Week ran feature articles on the software revolution.
As 1987 begins, the microcomputer software industry is entering adolescence. The organizational frenzy of the past is becoming less of a factor. Do not interpret this as a slowdown in activity – the software industry is busier than ever. It has merely taken on some structure. Methodologies for success are being established and are becoming the norm. The days of easy money for everyone are over.
If you substitute “Internet” or “Web 2.0” for “microcomputer software industry”, does is still work? (Entertainingly, whenever I try to type “microcomputer software” I end up typing microsoft first.)
Back when I was 21 years old I figured you had to start somewhere. Our business plan started with a “charter statement” which – in hindsight – was roughly equivalent to a vision statement.
Feld Technologies intends to become the industry leader in semi-custom software. It will do this by understanding and addressing all of the components of database application software for small businesses, thus defining the industry.
Feld Technologies is also a vehicle through which to tap the productive abilities of its founders, with the intent of creating a “world” for its employees.
The Company is established for their benefit. The Company will act as a mechanism to leverage the founders intellectual and implementational talents in an attempt to make them authorities in the software industry.
In 1987 the software industry was still pretty young (guess how big Microsoft was – if you don’t know, you’ll find out in the next post in the series. Hint – Lotus was about the same size.) So – it was probably conceivable to us that we could “define the semi-custom software” industry (since it didn’t exist). I remember spending a lot of time trying to figure out a unique label for what we were going to do (we hadn’t thought of Web 2.0 in 1987) and ultimately settled on “semi-custom software.”
We were young and idealistic so we were determined to “create a world for our employees.” While our world ended up being modest (we sold the business when we were 20 people), we did create something that was unique and impactful to the lives of most of our employees (including us). A little idealism never hurts. It’s not quite as pithy and elegant as “don’t be evil” but you get the point.