One of the biggest failings I’ve seen in startup CEOs is a failure to fully think through their business plan. I’ve talked to technologists with cool technologies who have identified huge addressable markets, but who have not fully thought about how to collect the dots. Big market opportunities and/or amazing technologies don’t always mean good businesses. Just because you can make something cool and the fact that there might be a large number of potential users does not lead to a fundable business idea. It is of the utmost importance to fully think through all the steps in the business plan as you are preparing to create your startup. I am sometimes surprisingly reminded of a great South Park episode with the underpants gnomes…
One of the characters is convinced that tiny people sneak into his house and steal his underpants. Of course, no one believes him until late one evening the gang actually witnesses one of these underpants gnomes running off with one of their underwear. They follow gnome back to his lair and discover a huge operation processing stolen underpants.
Stan asks one of the gnomes why they are stealing underpants, and the gnome tells him that this is merely phase one, with phase three being profits. Unfortunately, there is no phase two…
This kind of startup thinking almost always results in a quick rejection by venture capitalists. Getting from step 1 to step 3 is often pretty hard. It’s not just about “hey I can prototype this cool thing,” it’s also about making it cheaply and convincing customers to part with their cash. Think through all the steps, and collect data points on everything. This usually means talking to suppliers, customers, experienced sales people in your market, etc. To keep track of it all, write it down in a business plan. Is this a pain in the ass? Yes, but it’s worth it. In particular, you need to know where the most difficult parts of your plan will be so you can prepare for them. If you’re finding that you’ve got holes in your plan where you can’t collect the information/market knowledge that you need you should think about adding someone to your team who can help (as an employee, board or advisory board member or investor). Don’t let some punk VC like me be the one to poke apart the obvious holes in your startup - I don’t like looking like a jerk.
More importantly, your business plan isn’t for venture capitalists. It’s for you - use it to plan ahead and to get a realistic impression of how the heck you are going to get to “Profits.”
