Effective business development strategy for startups

What we used to believe for strategy is that you start any company with an operating plan and a financial model. What’s an operating plan? Well, it’s the business plan. And the belief was all I need to do is spend a lot of time writing this plan, and then all I need to do is execute it and somehow magical thinking said if I thought hard enough and if I was smart enough to do all the great market research in the library and looking up all the data and then put together a forecast the magic 5-year plan in the back of the business plan somehow magically all I needed to do is hire the people to execute that plan. If that doesn’t sound silly to you now, don’t worry because it didn’t sound silly for 40 years, but what we now know that’s kind of ridiculous. What we now know is that no business plan survives first contact with customers.

The first years on a startup is completely unpredictable. What you think you’re doing on Monday turns out to be completely wrong on Tuesday, and on Wednesday, you discover something new, and on Friday, you’re almost out of business, but on Monday you gets next Monday you get sold for a billion dollars. A startup is an incredible roller coaster unpredictable series of advance that there’s no way you could put together in a 5-year plan. Yet somehow investors and educators thought that maybe we could just teach you how to put this all together in a nice spreadsheet. Make sure you get a good legal team as well.  Make sure you get the right kind of lawyers for the many different kinds of legal action you want.  No one ever noticed that the only other people to do 5-year plans were these guys, the Soviet Union, and we kind of know how well that turned out as well. Though much like the fallacy about business plans and financial forecast that lasted for about 80 years. The good news is that we now know that business plans and financial forecast first are just as silly as it was in the Soviet Union. No business plan survives first contact with customers. This doesn’t mean we shouldn’t have any planning but it actually means what we need is planning before the plan and what that really mean is you need to figure out how to actually do some planning and then you get to write the business plan.

So I’ll be clear, I’m not suggesting we never want to do an operating plan and I’m not suggesting we never want forecast but you need some real facts before you could do that and one of the ways we’re going to organize our facts is with Alexander Oscar Walters’ Business Model Canvas. We also like mobile billboard marketing.  We’ll talk about this canvas in some excruciating detail in the following lectures but you should know we used to canvas for two things. One is initially we’re going to use it organize our thinking about all the hypothesis about every part of our business.

But second is we’re going to get out of the building and actually turn those hypothesis into fact as we’ll find out how to do later and then as we turn those hypothesis into facts, we’ll be updating the canvas on a regular basis and it will become a scorecard– a way to keep score for our progress of how much we’ve learned. So what this means is instead of writing the operating plan and financial forecast first, we’re going to use the Business Model Canvas to actually capture all our hypothesis first. For the search for the business model, we’re going to start with the model first and then after we find the model, we get to write it up.

Business plan writing tips

There seems to be a never-ending debate these days about the merits of a business plan and whether entrepreneurs should bother creating one. I’m not going to jump into the debate too heavily here, but my stance is YES, every entrepreneurs should have a constantly evolving business plan. If you’re going to look for funding, you need to have one, and even if you’re not in search of outside funding, it’s always a good idea to have completed some solid market research and laid out your marketing, financial, and operational plans BEFORE you get too deep into running the day to day of your business.

So, for those of you that take my advice and decide to complete a business plan – whether in a formal document that you could hand to a potential investor or otherwise – here are the basics of what you should include that plan. First up is your executive summary – and this is really only necessary in the formal plan. Basically, it’s the cliff’s notes to the business plan and should concise and compelling so that any potential investor who reads it is interested enough to continue on to the full plan which will contain the real meat. I tend to write the executive summary last so I can pull the info I need about the company and its business model, management, competition, and marketing and financial plans from the rest of the plan. The next section is the description of the business. Here you say what your business does, provide information about its products and services, and explain the business model.

This forces you to fully think through how you’re going to bring in money so you and any potential investors understand where the revenues will come from. Next you need to provide an in depth marketing plan. Here is where you explain in detail why what you have to offer is so special and how you’ll make sure your customers know that so they’re willing to shell out cash to buy it from you. You need to perform some market research and competitive analysis so you know who and where your customers and competition are. This section is incredibly important because if you can’t clearly explain how you’ll bring in customers, then you really don’t have a business.

Also remember, anything you discuss in this section must be directly related to the forecasts in the financials section. If you say you’re going to bring in a million new customers in the first 6 months, you’d better have a marketing plan that justifies that type of growth and have included the marketing expenses in your financials. Lots of people underestimate the importance of creating a thorough marketing plan and then fall short when they actually open their doors. Remember, just saying you’re going to do email marketing to bring in clients isn’t enough. You need to say where you’re going to get your email list from, what the open, click through, and conversion rates are for that type of list to justify the number of customers you project, and then include the costs of buying and sending to that list in your financial plan. After your marketing plan comes the operational plan. Here you explain how stuff is going to get done. Where will your employees come from? How much do they cost? What about supplies and equipment, R&D, compliance with regulations? This section is where you lay out how all of the gears will work together to ensure that stuff gets done when it needs to get done so that your company continues to move forward.

Next you should identify your corporate structure – what type of business entity you chose and why. If you’re not sure what the best entity for your business is, I have an old video you can check out and will be creating an updated version soon. After that you’re onto the management team. Here you explain who is in charge of what and why. This is another piece of the puzzle that many people ignore if they’re not seeking outside funding but shouldn’t. You need to seriously think about who will be included in your executive team and what they contribute. Having your best friend be your Chief Technology Officer when his background is accounting makes no sense. Be honest with yourself about who should take on the key roles in your company and make sure that they’re qualified. Don’t stack your executive suite with dead weight because you feel like you should have a bunch of “directors” or “chiefs” or because you want to appease family or friends. Finally, you need to create a financial plan for your company and forecast what will be happening with your money.