THE STARTUP PHASE IS ALL about launching your business, something you may have been itching to do since the first glimmer of your great idea began to take shape. Before your launch can occur, however, you have to work through the critical step of planning. Planning represents the first gate that both you and your business will move through in the Startup phase of your entrepreneurial journey.
In the last chapter, we talked about the variety of planning and preparation tasks you need to perform in this stage, including beefing up your training, education, and management skills, preparing yourself for the personal and professional sacrifices you’ll be making, and getting the buy-in and support of those closest to you. At the top of your list of essential planning activities, however, is writing a business plan.
Your business plan is your blueprint for building a successful business. In pulling that plan together, you create a clear and comprehensive picture of what your business will be, how it will operate, what markets it will play in, what early, midterm, and exit goals will drive it, and how it will be funded. Focusing on planning, when the only thing you want to do is get your business up and running, takes a lot of patience. That makes the planning stage one of the most difficult stretches of your entrepreneurial journey; it’s also one of the most critical. As you saw in the last chapter, without proper planning, you can expect your venture to run up against a number of obstacles, including failure. I’m not going to walk you through the detailed steps of writing a formal business plan; there are hundreds—no, thousands—of sources out there to guide you through that process. Instead, in this chapter, we’re going to look closely at the details of the entire planning process and the activities you’ll need to accomplish in order to create and execute your business plan.
You can make the planning process easier and more successful by using your best organizational skills and a few basic planning tools. For example, I began with a simple software package that led me through the process of writing a formal business plan. Although I was impatient to hang an OPEN sign on the door, I also was smart enough to know that I had to go through this exercise if I wanted to have a fighting chance of turning my idea into a successful operation. The software package I used helped make the process more bearable—and effective. Writing the business plan forced me to think about all aspects of the business before I invested a dime. It gave me a road map, along with every critical milestone I would have to meet in order to make this thing happen. The plan helped convert my idea into fully functional business processes so I could see, for example, how lead-generation efforts would turn into sales. Later in this chapter, you’ll learn about other planning tools and techniques that can help you get more benefit from your work during the planning stage. Find an online resource, software package, or other tool to help you write your business plan, but don’t neglect this important element of your planning and preparation activities.
Another critical part of your planning process is the search for funding, and your business plan will play a major role in that task. You’ll need a business plan in order to obtain funding, whether it is as simple as a bank loan or as elaborate as venture capital or private equity. Most entrepreneurs start their businesses with borrowed money, and just about any reputable source that loans you money will require that you have a complete and thorough business plan. The type of funding you seek will dictate the format of your business plan, as each funding source uses its own template for determining eligibility. Even if your “bank” of choice is family and friends, have your business plan together before you broach the subject of a loan. Think about it: you don’t want to ask your family and friends to sink money into your entrepreneurial effort if you can’t show them a strong, well-thought-out business plan charting the way toward your venture’s success.
Your business plan will communicate your understanding of the business to any investor or lender, and it will help establish the mental buy-in and commitment of these partners. The more your key partners believe in your vision and idea, the more committed they will be, and the less you will have to answer to them through every step of your progress through Startup. Further, should the venture not succeed, there is less chance of hard feelings, broken relationships, or future credit problems if everyone who invests in your startup is equally committed to and supportive of the concept. We talk in detail about funding your startup in the next chapter of this book, but for now, just be aware that the strength of your business plan will play a major role in securing the funding you need during the Startup phase.
THE PLAIN TRUTH ABOUT SHARED SACRIFICES
You have to assume the worst when starting a business, and part of that assumption must be that your business startup might fail. You’ll need to consider the ramifications for family and friends, whether they are involved in the business through money, through labor, or simply as a support line. When you go through the process of starting a business, all those around you—particularly your spouse and children—go through it as well, whether they want to or not. Your time will represent your largest contribution to the Startup phase. Your planning needs to take that into consideration, along with everything else you can expect to sacrifice in the process of getting your business on its feet.
In my planning process, I committed myself to at least a solid year of 14- to 16-hour days, six or seven days a week, and no vacations. I didn’t expect my hours to return to normal until year three, because I was going to bootstrap my business myself, with no outside funding. I had to carefully weigh what this would cost my relationships. It meant I would spend less time with my wife and my brand-new daughter. Further, it would cut into time with my parents, brother, friends, neighbors, and in-laws. I deeply treasure all of these relationships, so this sacrifice didn’t sit lightly with me.
I understood that everything had to come second to the business—but only for a while. You need to understand that as well. Your all-in, second-to-none commitment to your business cannot stretch on indefinitely. At some point, the demands of your business have to level off so you can balance your work and personal commitments. If your plan doesn’t accommodate this eventual reduction in your professional commitments, both your personal relationships and the success of your business are in jeopardy. Running a business is difficult under the best of circumstances, but it’s nearly impossible while having personal relationships crumble around you. Shared sacrifice can help strengthen relationships, but not when it cuts too deeply. Make sure you plan for easing the pain of that sacrifice, before it does permanent damage.
Launches always require extra effort. When you watch a goose take off in flight, notice that all of the hard work is at the beginning as the bird tries to gain momentum. Its long neck is strained forward, and its wings and legs pump to lift the bird’s large torso into the air. Once the goose is in flight, its progress looks effortless. Much is the same for the entrepreneur starting a business. All of the hard work and effort is needed in the beginning just to get the enterprise off the ground. Once the processes of the business are working, the entrepreneur can begin to ease up and focus on guiding the company toward its destination.
While “winging it” might be a great way to get around Europe with a backpack, it’s not so great an approach to creating a business plan. The temptation to just walk away from the planning table and open for business is tremendous, but resist—resist! I don’t know the statistics on the percentage of businesses that succeed without a strong business plan, but I’m pretty sure it’s right up there with the Chicago Cubs’ percentage of World Series wins. The important thing for you to remember as you prepare the formal planning process is that you can’t get bogged down in an ongoing search for perfection in every stage of the Startup phase. Actively seek out the help you need, do the best you can, and keep moving.
Bear in mind that your business plan does not have to be a static document. You can begin by just throwing all of your thoughts and research into the main categories of the plan (Marketing, Sales, Finance, and so on). Don’t worry about editing or fine-tuning the grammar; just get your information and ideas collected and categorized. This will help you immediately identify the areas where you need more preparation. When you reach this point, the Entrepreneurial Exercises you learned about in chapter 4 become really valuable.
Entrepreneurs are a bit like men not pulling over to ask for directions when lost; they always like to feel that they can work through their problems on their own. Don’t waste time with that kind of DIY stubbornness. In any phase of a business, and especially during the planning stage, you should actively seek advice from everyone who will listen. It is ideal if you can establish mentors and other people who will take an active role in your development and provide guidance and direction. People who have been through a startup themselves can be great sources of relevant advice, knowledge, and experience. Even if you don’t find the perfect mentor, you should be able to find people with whom you can bounce around questions and ideas.
As you study your business plan, you will find areas that require expert knowledge. You may have legal, banking, real estate, or lease questions, for example. If your circle of friends and advisors doesn’t include people that you can tap into for advice on these topics, go out and find them. Use your networking skills to find people who know people that you can reach out to. Make sure everyone in your circle knows that you need help with XYZ; inevitably, someone will know someone to refer you to for information. And thanks to the advent of social networking tools, your six degrees of separation will be a lot easier to navigate than they would have been a few years ago.
Get to know your local banker early on. You may be asking for money one day! Plus, bankers know every business person in their region. Odds are if you are seeking a specific talent, your banker can introduce the right match—and will be happy to do so. Most bankers are in the relationship business. Since you’re starting a business, you are now in the relationship business too. Just remember to pay it back and help the next budding entrepreneur when you get on your feet.
Finally, remember that the business-planning stage isn’t about polishing every facet of your idea to perfection. In fact, that’s probably not possible. In the Startup phase, you can expect to be understaffed, underfunded, and short on time. When you’re wearing all of the hats, you can’t expect them all to fit perfectly, and that’s okay. I’m not encouraging you to produce a shoddy product or service—very much the opposite. Your product or service is the reflection of the company you’re founding, and so it should be your best work. But some of the ancillary tasks and processes and equipment that you need to get your company completely up to speed can wait. You almost have to adopt a “get by” mentality in the beginning, just to keep moving forward.
I’m speaking to the perfectionist in you, because I’m one myself. When it comes to my business, I want every facet of it to be rock solid. However, I’m also a realist. If I spent too much of my time in the Startup phase on the minor details and nuances of the business, I would never have gotten my product on the shelves. You can expect to walk a fine line, at times, in choosing what must be taken care of now versus what can wait until later. As your Startup phase progresses, however, making those choices becomes easier, simply because time in the day runs out or important deadlines approach, and something has to be dropped, sidelined, or put on hold. Your goal is to eventually circle back, clean things up, and improve on items that have been neglected or patched over with a Band-Aid solution. That’s prioritization and continual improvement at the Startup level.
Recognizing up-front this need for balance within the business planning process is critical, especially for the perfectionist. The guy who won’t raise the curtain until every piece of the set is perfectly positioned is likely to never see opening night.
There are seven components in planning and preparation that directly support your idea, and they are absolutely critical in every aspect of your business’s future success. You can consider each of these elements as a planning tool that can make your startup activities more efficient and effective. They include:
Although each of these components represents an age-old principle of business planning, they can be easily overlooked by anxious entrepreneurs in the Startup phase. Many sources have written about these planning elements, but I want to take a moment here to look at their most critical aspects, in order to give you a useful road map for your own planning activities. Let’s step through them in the order in which you should address them.
1. Mission Statement
Although a mission statement may not seem necessary for launching your business, it is a basic starting point. An effective mission statement must objectively describe your business’s purpose and guide its actions. Your mission statement doesn’t have to be set in stone; you can refine it as your company grows. It must, however, address how your organization will be responsible to its primary stakeholders, customers, and stockholders. The statement may include products and services your company will offer. It also must define what the company aspires to become, and how it differs from its competition.
A well-crafted mission statement will act as a guiding force as it reminds you, your employees, and your customers why your company exists. The mission statement will be your answer to strategic questions when crafting marketing material, deciding on new markets, and determining where and how to allocate resources. My company’s original mission statement was “to become the largest supplier of technology to the higher education market.” As the marketplace and other environmental factors shift, your mission statement may need to evolve as well. As my business matured and its organizational focus changed to meet an evolving marketplace, we adapted our mission statement, which then became “to be the most recognized provider of enterprise software to the education market.”
Simple questions you must answer when creating your mission statement include:
If your mission statement answers these questions, it will provide you with the kind of guidance you need as you formulate your organization’s strategies and tactics.
2. SWOT (Strengths, Weaknesses, Opportunities, and Threats)
A SWOT analysis is a strategic planning method attributed to the work of Albert Humphrey of Stanford University. You can use this technique to evaluate the strengths and weaknesses of your new venture, as well as the opportunities and threats it faces. Conducting a SWOT analysis is a vital part of your Startup planning cycle, but you also should repeat the analysis throughout the life of your business (at least once a year). A SWOT analysis can evaluate the entire company, or it can focus on a single department, product, or marketing initiative. The goal of the analysis is to get on the table the internal and external factors that are favorable and unfavorable to achieving the business’s expected objectives. You will roll the results of your initial SWOT analysis into your business plan.
When conducting this analysis, you’ll evaluate the strengths of your management team and experience, technology, intellectual property, brand, niche capabilities, location, funding, relationships, knowledge, and so on. Your evaluation may show that your weaknesses fall within some of those same categories, and you also may uncover talent gaps, lack of supply channel relationships, inadequate credit capacity, geographic limitations, or other organizational shortcomings. Your organization’s opportunities will, most likely, include those that first encouraged you to move forward with your entrepreneurial idea, while its threats may result from changes in the marketplace or competitor responses to your organization’s successes. An initial and ongoing analysis of these factors will help you in planning and executing every facet of your operation.
The core of your planning efforts is the formal business plan, which encompasses all facets of the business or operation you are about to create. The plan forces you to dissect your dream and lay out its every aspect on paper. Many entrepreneurs, especially those not seeking capital outside of their own self-funding sources, feel they don’t need to put the time and effort into a formal plan. Many are too anxious to get started, and claim they’re too creative to deal with such a rigorous process, but these would-be entrepreneurs often simply lack the discipline necessary to think through all necessary Startup phase details. You can’t afford to be one of those people.
As I noted earlier, the plan is mandatory for investors; the more detailed your plan, the better your chances for securing funding. Some will say a business plan can be a “build as you go” exercise, and I agree that your plan can be tweaked and changed once the business is launched. But you need to build a plan to get the Startup phase rolling.
Every business plan is unique, but any plan should include these elements:
There are dozens of resources for business plan templates, and many are on the Internet. If you are seeking external funding (from an angel investor, a venture capitalist, a bank, or another source), look for a plan template most likely to trigger the positive response of your funding source. For example, venture capitalists and angel networks have preferred business plan formats for technology, consumer products, and medical device and other niche startups that they may supply to entrepreneurs who seek their funding. If you intend to self-fund your startup, you still need a business plan. In that situation, however, the plan is strictly for you, and it should include the components most applicable to your entrepreneurial venture.
Most business plan templates are thorough, but be sure that your business plan includes information that answers these critical questions:
4. Goal Setting
Too many business owners put all their startup efforts into establishing the physical attributes of their business to meet their “opening” date and don’t make time to establish basic goals. Goals provide a completion target for all the strategic initiatives you are about to undertake. The goals aren’t exclusive to sales activities; they should represent all major milestones for moving the company forward. Make sure, therefore, that your goals cover every operational aspect of the business you are planning to launch. During the Startup phase, your goals must include creating demand for your product or service and branding. To meet those goals, your sales and marketing strategies must create a sustainable and reliable funnel of customer demand. Your goals will eventually shift to demand fulfillment, once your business reaches the Running phase.
5. Key Performance Indicators
Key performance indicators (KPIs) are financial and nonfinancial measures to help evaluate how well your company is progressing toward its long-term organizational goals. KPIs serve as a dashboard to the company’s current health and performance. KPIs are predetermined metrics that, as part of your overall business plan, you will monitor throughout the Startup and Running phases of your business. Consider establishing internal KPIs that provide information on profit, customer satisfaction, customer acquisition and retention, human and systematic productivity, equipment utilization, and waste, as well as external KPIs that measure market share and related competitive efforts. E-commerce KPI metrics might measure average order value/quantity and revenue generated versus dollars spent to acquire the lead, or customer service metrics such as those used to measure visitor duration or website ability to deflect inbound service calls. Finally, regardless of site purpose, most will measure percent of unique visitors, number of page views, form completion, and quantity of lead generation.
In order to establish KPIs, you need to develop business processes and define their required outcomes. You can then periodically use your KPIs to assess the progress of your business toward the performance goals you have set for it. Your KPI measurements will help you determine when you need to adjust your processes and where you may need to apply more or fewer resources to keep your business’s performance on track.
6. GAP Analysis
After your startup has been operational for a period of time, you will need to conduct a GAP analysis to determine whether or not your company is following its plan. Be sure to include a timetable and plan for this analysis as part of your initial preparation and business plan. The GAP analysis can be a very simple or elaborate procedure, depending on your style and needs. At the heart of the GAP analysis are two questions that you must answer: “Where are we?” and “Where do we want to be?”
The acronym GAP stands for good, average, poor. Using data generated from KPIs, financial reports, and other resources, your management team will give one of these ratings within each metric to rate your organization’s current performance and to identify areas where its performance must change in order to meet the standards you’ve set for it. By reviewing the outcomes of the GAP analysis, you also can tweak existing goals and objectives, or create new ones.
You and your management team will determine how frequently you need to conduct GAP analyses based on your organization’s ability to adjust the metrics, your available resources, and the impact of the GAP analysis results on the overall health of your company. This analysis can take place daily, weekly, monthly, quarterly, or even yearly, depending upon the relevance of GAP findings to your organization. But for every organization, the GAP analysis is a strong tool for comparing actual performance to the potential or planned performance of the business.
7. Exit Strategy
Every successful beginning includes a plan for the end. Before taking off on a flight, for example, you always want to know where the plane will be landing. Every savvy entrepreneur who is contemplating a new business needs to create a sound exit strategy as part of the overall business plan. Your exit strategy—a firm vision of how, why, and maybe even when you will leave, sell, or close your business—is for you, not just your company; it’s part of the “endgame” for your vision, and it will be very personal to you. When you have a vision and goals for how you want to end your active involvement with the company you’re launching, every subsequent decision you make will be determined by those outcomes. Your job will be to guide your journey toward the exit plan you’ve envisioned. The specific time frame for your exit may be unpredictable or even irrelevant. In general, your exit strategy reflects both your ultimate goals and objectives for the company and your own personal ambitions.
We talk more about planning your exit strategy later in this chapter, and about executing your Exit phase later in this book; but for now, be aware that your exit strategy should be incorporated in your overall business plan. The strategy may change during the course of the business, and that is perfectly acceptable. After all, conditions change. It’s important to understand, however, that you must formulate, right up-front, how you intend to exit the business you’re starting so you can manage your efforts to achieve that goal.
Proper and detailed planning is the greatest insurance policy for success. Businesses that fail are often those that have founders who are ill prepared. Entrepreneurs who leap into activation armed only with their interest and passion are likely to have insufficient understanding of their industry, channels, competitors, or customers. Careful assessment of the business planning components listed previously will help you identify holes in your overall business plan early on.
You’ll use your business plan to get started, but as you’ve seen, you’ll also use it to help monitor the progress of your venture when it’s up and running. As an entrepreneur, you will need to be constantly on the lookout for planning gaps and very thorough in your efforts to close them. Whenever you find that you are lacking or growing deficient in any of these main planning areas, immediately take corrective action or get outside assistance.
The entrepreneurial journey is daunting, and many won’t make it to a successful exit. My exit was relatively unusual; less than 1 percent of businesses end up being acquired (profitably) by a Fortune 100 company, as was mine. That’s not to say that my outcome represents the ideal for every entrepreneur and business, but I think it’s worth exploring why so many entrepreneurs are unable to successfully orchestrate their (or their organization’s) endgame. Sadly, I’ve come to believe a failure in planning is the cause of many less-than-successful endings to the entrepreneurial journey.
You may not have given much thought to how you’ll leave the business you’re so totally involved in at the moment, but you should. You’re a human being, not an entity, and you won’t physically be able to manage forever the business you have founded. An exit plan is forced upon all of us whether we like it or not. Too often entrepreneurs fail to consider their exit from the business until they start thinking of retirement, and that’s too late.
An exit strategy and retirement aren’t the same thing, and, in fact, you should view them as being irrelevant to one another. Establishing retirement as a reason to leave your business can greatly diminish the valuation of your business. In many cases, the founder is the business. All of the “tribal knowledge” that both grounds your business and propels it forward may be stored in your head. Potential buyers who recognize this fact will want you to stay on after the acquisition, in order to ensure a successful transition. If your plan is to sell the business and run out the door with a check in your hand, you may lower the value of your company or even sink the deal.
Even if you do plan to retire from your business, you should manage your venture with an eye toward the succession planning or sale of the company. If retirement is your ultimate entrepreneurial goal, your business will never be positioned to succeed, and you will never be able to maximize the personal wealth you achieve from your entrepreneurial efforts. Starting a business with the idea of riding it to retirement can be as damaging as starting a business with the sole goal of making a fortune by selling your company to the highest bidder. You can’t start a business whose primary purpose is to make money for you or give you a job for life. For your business or operation to succeed, it must address your customers’ needs, and doing so should be part of the reward you’re planning for from the beginning.
So much of starting a business is about attitude and developing a positive mindset. I know you’ve heard this before and more than a fair share of “motivational” speakers have preached this message, but having the desire to complete your vision is undeniably a prerequisite for starting a business. You have to believe in and visualize yourself moving successfully from the Idea phase through the Startup and Running phases of your business, and meeting your goals along the way. And those goals should include your final stage of involvement with the business.
The “New Thought Principle” (with eighteenth-century roots) produced the phrase “energy flows where the focus goes,” meaning things will happen and results will materialize where you focus your energy. As we saw in chapter 3, you can’t afford to focus your energy and thoughts on the negative predictions of doomsayers. If you do, the fear of those negative outcomes, rather than your determination to achieve the positive outcomes you’ve imagined for your entrepreneurial venture, will drive your decision making. This is one of the critical reasons that you must create a positive and clear vision of how you want your involvement with the business you are launching to end. That final vision will guide every step you take during the remainder of your entrepreneurial journey.
Not only do I think it’s essential to include an exit strategy in your Startup plans, I also think it’s important to let others know about that strategy. By definition, a self-fulfilling prophecy can only be realized when the public prediction is made true. The power of this strategy lies in the mindset that it engages in you. I had spent two years writing “around” this book, and then completed it in just six months. What happened to spur me on? It was only in those last six months that I began publicly telling people that I was going to write a book. With that public affirmation of my intentions, I had to put forth the effort and time commitment to make it true. I could have stopped at any time—and believe me, there were times I wanted to. But my public statement to family and friends kept me going. The same will be true of all of the goals and strategies you create for your organization, including your exit strategy. By clearly expressing your vision of how you will finish the work you are beginning here in the Startup phase, you can build a self-fulfilling prophecy that will go beyond a personal goal to become a public commitment that you will feel driven to make a reality.
You may remember that I outlined the major components of any successful entrepreneurial I.D.E.A.: innovation, desire, effort, and ability. At no stage in your entrepreneurial journey will you be more dependent upon those qualities than during the Startup phase.
You’ll draw upon all of your abilities as you work to create all of the necessary preparations, or battle plans as I like to call them. You will build your plans around the innovative niche that you have identified in your market, and that is central to your entrepreneurial idea. But ability alone won’t convert these planning documents into the physical reality of a business. There may be many times during the Startup phase that you will want to give up. Meeting the demands this phase places on your time and your consciousness will possibly be one of the greatest professional challenges you will ever face. You will need to draw upon your overwhelming desire to be an entrepreneur and your unstinting effort to move successfully through the planning stage of the Startup phase. In fact, desire and effort will help you achieve what those with greater talent, intelligence, and money could not.
When I talk about entrepreneurial desire, I am referring to passion. Desire unleashes passion, an emotion that creates a sense of longing or hope focused squarely on a specific area of interest. Desire also funnels that passion into motivation, which, in turn, leads to action. Your desire and passion will spur your efforts to act and create. Desire provides that extra effort that pushes you to work a 70-plus-hour workweek. Desire triggers your decision to skip your weekend plans or turn off the television to work on fulfilling your passion. I didn’t know what prime-time television was while I was getting my company off the ground. My priorities—and my passions—were my family and our business. I didn’t have much desire to focus on anything else.
As you use the tools you’ve learned about in this chapter to pull together your business plans, remember that your relationships also require careful planning and preparation. In fact, I encourage you to consider writing a mission statement, a SWOT analysis, a GAP analysis, and established goals for your relationships as you work through the Startup phase of your business—and beyond. Think about it. If you don’t take time to plan how you want your relationships to grow, then how will they evolve along with you and your business? If you’re planning to keep your key relationships and your business separate, well . . . good luck with that. In my experience, you can’t have two passions fighting equally for your time and attention without introducing them to each other.
The key to channeling your desire and effort to successfully attend to all of your passions is to establish a balance—a balance measured not in time but in focus. I’m returning to this subject here to reiterate what I said earlier: you need to incorporate the time and effort necessary to maintain your personal relationships into your business plan—seriously. If you don’t take into consideration your primary relationships and how they will be impacted by your decision to work on this business, you will be putting at risk the most valuable aspects of your life. And these risks, like many of the others we’ve discussed in this chapter, will be the direct result of your lack of planning.
In my case, I involved my wife, Lisa, directly in the first stages of my planning process. My Startup phase was going to be particularly challenging, because I planned to remain working at Educational Resources until I got my own business off to a strong start. Yep, that was me: fully committed to taking off, yet still keeping one foot on home base. My planning process, therefore, had to take into account three overriding desires: to get my new business off the ground; to maintain strong and reliable performance with my current employer; and to remain engaged and involved with my wife and children.
Complicating my process even further, I had determined that I would self-fund my business. That decision made my wife and family even more active “partners” in my entrepreneurial journey. As I mentioned earlier, the search for funding goes hand in hand with the process of crafting a business plan. As you can imagine, the tools and techniques I’ve outlined in this chapter played a critical role in pulling together this complex battle plan for my future.
In the next chapter, we’ll take a closer look at the steps involved in securing any type of funding source for launching your entrepreneurial idea. But remember: launching a new business or organization demands that you step outside the walls of your Risk Box to realize the possibilities of your idea. In the process of taking that step, however, you may well be pulling others outside their Risk Box, too. There are no guarantees for success in any entrepreneurial journey. But it’s your responsibility to do everything in your power to avoid putting yourself, your colleagues, and those you love in harm’s way by making sure that you adequately plan each step along the path you’ve chosen.