Saturday, July 17, 2010

Planning to Succeed

The other day, Faith and I sat talking about ideas for businesses that she wants to start. As we talked, it occurred to me that regardless of which business she ended up creating, the first and most important thing for her to do was to develop a business plan. We spent a couple of hours talking about what it means to develop a business plan and how to go about doing so. It was really fun.

As Iris and I talked later that evening, she pointed out that not everyone found the process of developing a business plan to be easy and intuitive and that it might be useful to write a blog about it. As I considered this, it occurred to me that the ability to develop a business plan can be useful to anyone from high-tech entrepreneur to parents establishing a non-profit school to would be restaurateur. So, I set out this morning to write down how to develop a business plan in several simple steps. Looks like this one is going to come in installments, the first of which is about one of my experiences developing a business plan.

Wayback Machine
In 1999, I decided to found a technology company that would provide secure private networks over the Internet. I'd been in the corporate world since 1981 and over the years had often thought about venturing out on my own. As I talked with colleagues in different companies, I found that many of them shared the same desire. We ended up forming and informal support group: institutionalized corporate executives who wanted to found a start-up.

The first step in founding a business is to write a business plan. A business plan helps you clarify what you want to do. You identify who your potential customers are and why they would purchase your product versus someone else's product. You identify potential obstacles and pitfalls, and then address how you'll over come them. Writing a business plan brings depth, specificity and clarity to your thinking. Importantly, a well-crafted, thoroughly considered business plan is essential to raising funds, especially if you're working with investment bankers or venture capitalists.

In the first few months of 1999, I thought a lot about the business I would start, but I made little progress on my plan. Like most people, I was trying to make the leap from the corporate world to the start-up world without requiring both feet to be the air at once. My current job was more than full time and left little room for me to research, create and write. So, I quit my job.

With three kids at home and my wife not working, I had enough savings to get us by for a few months: ample motivation to work quickly to get my new business funded. Every morning, I would get up early and begin writing. I would think about the product working through the technical details. I'd play with product names and logos. I'd even create brochures and press releases. I would research the competitive landscape seeing who was developing what and when they planned to launch it. I researched the market to see what businesses were purchasing and why. I built spreadsheets to analyze everything from product development costs to recruiting intervals and retention strategies to sales and marketing ramp-up time.

As I developed my plan, I became a walking, talking encyclopedia of virtual private networks. I could name all the manufacturers, all their products, their strengths and weaknesses, who their customers were and how my system was better. I could tell you how much revenue I planned to make in month ten and in month seventeen and in month forty-three. I could do the same for costs. I could tell you about potential customers and why they purchased what they purchased. I could tell you who my potential partners would be and how my company would complement them. I could tell you everything that might go wrong and how I would address it.

Staying in Touch
As I developed my plan, I would routinely check in with my support group, none of whom had left their current positions, but all of whom were still keen on leaving the institutions and starting their own businesses. In many conversations, we would detail the progress that we'd made over the past week. I would go on and on enthusiastically sharing what I'd learned and how I'd morphed my plan to accommodate it. Then I would ask my friends what they had learned and accomplished. Typically the response was something on the order of, "Well, I meant to dig into competitive analysis this week, but them something came up at work and I had to fly to Texas for an important customer meeting."

After a few months, I felt that I was ready. I began sending out my plan to be reviewed and critiqued by executives whom I'd come to know over the years. One day, Dave Dingott, a friend and one of my fellow support group members called to tell me that he'd lined up an investor meeting, that he was going to go raise some money, and that he wanted me to come work for him.

Allan Kline
Dave had met a man named Allan Kline. Allan, who was born in 1920, had studied physics with Enrico Fermi at the University of Chicago working in the hidden lab underneath the bleachers at Stagg Field where the world's first sustained chain reaction took place in December of 1942. He was then recruited to work on the Manhattan Project at Los Alamos, NM.

In 1946, Allan and several other physicists were accidentally exposed to what was then considered a lethal dose of neutron radiation. One of the physicists, Louis Slotin, died nine days later; the prognosis for Allan was not much better.

Not knowing how long he had to live, Allan left Los Alamos. He married, his bride being fully aware that Allan might survive only a few years. He went on to Yale law school and became a patent attorney. He then began applying his knowledge of law and science to the transformation of raw technology into refined products, becoming an entrepreneur and one of the first technology venture capitalists. One company he headed, Xicor Co. made both memory chips for computers and edible chips, 'WhenTwists.'

Fifty-three years after having been told that he had just days to live, Allan met Dave and they began talking about technology and starting companies. Allan told Dave, "I have someone I want you to meet. Someone who can fund your company."

Back to Dave
Although Dave was energetic, enthusiastic and smart, I knew that he had been thoroughly entrenched in his job at AT&T and had little if any time to work on his business plan. So I asked him, "What business exactly are you going to pitch?"

After Dave shared his idea (it was just that, not a plan), I said, "That'll never work. How about this? I'll go with you tomorrow night, pitch my plan, get the money, and then you can work for me."

Dave is one of the amazing people in my life with whom you don't need to sugar coat anything. Dave and I had been talking regularly over the past few months about my business plan. I didn't have to explain it at all. After a few moments, he said, "OK."

44 Wall Street
I've written before about our investment meeting in the offices of D.H Blair Investment Banking at 44 Wall Street in Manhattan. Dave, Jonathan and I walked in to meet with Mort Davis and Allan Kline. I had a briefcase loaded with spreadsheets, white papers and PowerPoint presentations and the like. I knew every product, every competitor, every detail of my plan. I was ready.

In the end, I didn't get to present any of it. Instead, Mort Davis talked to each of us, asking us about who we were, where we came from, and what we thought. As Mort went from person to person, it became clear to me that everyone in the room was Jewish and either from Brooklyn or Jersey: everyone but me. Finally, Mort turned to me and said, "So, what about you blondie? What's your story?"

I looked down at my bag full of charts and figures and then forgot about it. I started out, "I met my wife when we were both twelve-years old..."

As the time neared to end our meeting, I began saying to myself, "Ummm... Err..., the meeting's almost over and we haven't even begun to talk about the business yet."

As if hearing my thoughts, Mort turned to me and said, "OK, tell me about this business you want to start."

I could tell that Mort was not a man for superfluous detail. He wanted the essentials, the ones that he would consider to be important. Fortunately, a nice side effect of haven't thoroughly developed a business plan with huge volumes of information and detail is that you can call up the most salient points at a moments notice. In that moment, I distilled my entire plan down three sentences.

Mort looked at me and then at the others in the room and said, "So, what you're telling me is that you can do thus and such, better than so and so for about one tenth of the price and be really profitable?"

I nodded.

Mort then said, "So, how much do you need."

Without hesitating (at least in any externally viewable manner), I said, "Two-and-half million will get you twenty-percent of the company."

We left the meeting agreeing that Mort would fund us with two-and-a-half million dollars.

Business Plans are Like Seeds
A couple of months later, I was sitting in the Wakefield, MA offices of our new company and was told that someone was on the phone looking for me. It turned out to be one of the guys to whom I'd sent my plan for review. He'd been the head of one of the largest cellular equipment companies in the world, the CEO of an international telecommunications company, and then a venture capitalist. On the phone with him were several of his investment colleagues.

I'd sent my plan to him a few months earlier for feedback and critique. He'd decided to circulate it among his colleagues who had decided that they'd wanted to invest. We ended up raising another twenty-one million dollars in the first few months of operation and then another thirty million dollars a year or so later.

A Plan for You
From opening a restaurant to founding a high-tech company to establishing a non-profit school, developing a business plan will transform you into an expert on all aspects of your new endeavor. You'll be able to easily answer all the tough questions and navigate obstacles. You'll gain a breadth of understanding that will allow you to address any audience from its point of view and perspective.

Further, the written document will become a magnet for partners, investors, supporters and employees. People whom you've never met will clearly see what you're doing and why, how it addresses the problems faced by your customers, and how it's better than the alternatives currently available. They'll also see how they fit into your picture and where you fit into theirs.

Tomorrow, I'm going to take you through the step-by-step process of developing a business plan. It takes some work to do it well, but it's not hard.

Happy Saturday!

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