The Blue Print!
October 16, 2013
Would the Eiffel Tower or any other great work of architecture be as magnificent or remain standing if it didn’t begin with a solid blueprint? The answer of course is no. Businesses are similar to architectural structures in the sense that they too require significant planning efforts if they are to be successful. However it seems that founders are moving further and further away from writing business plans or as I like to call them “blueprints” for one’s business. Most startups today draft pitch decks for prospective investors and stop there. For several reasons I’ve long thought that this was a mistake. There is only so much a founder can put in a pitch deck and a pitch deck doesn’t force you to go very deep on any one topic. Recent pitch meetings with startups suggest that my view on this topic is correct as many startups don’t seem to truly understand what drives the business that they are building or how to properly compete in a given space.
To be clear, I am not suggesting that startups draft blueprints to share with investors. In fact, it is unlikely that I will read a full business plan. However, what I am saying is that blueprints can be very useful to the entrepreneur. Specifically, the process of creating a company blueprint forces founders to answer the difficult questions upfront as well as to truly understand what it will take to be successful. Here are some key questions that every founder should have fully baked and well researched answers to.
- What is the monetization strategy?
- How should the company go to market?
- Who are the competitors? How will the company position itself against those competitors?
- What should be the initial and longer term (18 – 24 month) milestones?
- What resources will be necessary to achieve these milestones (both people and capital)?
- How does the company capitalize on its advantage and how does it sustain that advantage?
- etc. etc.
I’ve met with a number of Series Seed and Series A companies with very promising technology that didn’t seem to have clear answers or fully thought out ideas related to the aforementioned questions. Below is an excerpt from one such conversation.
Me: how much are you raising, what are your goals for this round of funding, and how much runway do you anticipate?
Startup: what we’ll do with the capital depends on how much investors are willing to give us. We can develop a plan based on a number of raise amounts.
Me: so, specifically, what are your goals for the next 18 to 24 months?
Startup: that depends on the amount that we are able to raise
What this exchange highlighted for me is that this team doesn’t understand the drivers for its business and it hasn’t done the preliminary work to understand what it will take (capital, human resources, partnerships, user traction, etc.) to get from point A to point B. Further, I couldn’t be sure if they knew what point B was. Thus, even if I loved the technology and the space I couldn’t move forward with an investment because I couldn’t trust that the team would manage the capital effectively to grow the company quickly.
Had this particular team thought through what they needed to achieve as a company to move from Seed to Series A. Had they figured out the sub-achievements necessary to reach that milestone. Had they then thought through the types of resources necessary to accomplish each sub-achievement and finally allocated capital to each resource. They would have been able to answer the question sufficiently and we might have been able to move forward together.
In summary, I strongly recommend that every founder go through the process of developing a blueprint for her business because the process will force her to ask and answer tough questions about the venture. In turn she will likely experience a more efficient fund-raising process and more importantly the business will have a greater chance for success.
Oct 21, 2013 @ 21:39:26
Marlon, what are your thoughts on using Business Model Canvas or the Lean Start-up Canvas (a variation of BMC). Both have the elements that you allude to in this post. Do you find one preferable over the other?
Oct 25, 2013 @ 03:49:04
Just for clarity sake, this post is meant to urge start-ups to think deeply and gain a solid understanding of the businesses that they intend to pursue. My belief is that business plan writing or business model generation forces entrepreneurs to do that in a structured fashion. I am not advocating for any specific tool–use whatever you feel comfortable with. That said, I am very familiar with the business model canvas. I think it offers a method in which start-ups can dig into a business model then quickly iterate.
Oct 24, 2013 @ 00:53:27
I hear your thoughts. Let me push back a little on the “exchange conversation” topic. Even if staratups have the strategy together and understand drivers for their business, as time goes on with no investments, you have to adjust your levers…which may mean changing your strategy, go to market plan, revenue makers, etc. All the startups that I’ve seen make progress, are ones that raised a friends/family round in the $500K range, are connected through advisors and friends, or were backed by a “famous” accelerator that was able to help get them money (or connected).
Oct 25, 2013 @ 04:41:18
It was not my intention to imply that entrepreneurs shouldn’t revisit or adjust their business drivers or business model. To run a successful company one must constantly examine the changing world and make the necessary adjustments for the benefit of that company. I also believe that it is easier to evaluate potential changes to a business if the work to properly understand its initial business model was thoroughly completed upfront. Put another way, it’s difficult to change something or to determine whether to change something if you don’t truly understand it.