How To Start The Business

I still receive emails from the Small Business Administration.  I should have unsubscribed a long time ago, but I never have.  I recently noticed they’re still touting business plans as a very important step in starting a company.  I think this is bad advice.

VC’s Don’t Read Business Plans

Even the VCs admit this now.  They would much rather see a 10 slide pitch deck than a business plan.  When business plans were the norm, most VCs wouldn’t read much past the Executive Summary.  If you’re trying to raise money from a venture capitalist or an angel investor, don’t waste your time writing a business plan.

The Structure is Unnecessary

I love brainstorming and writing down my thoughts, but why force it in a rigid 30+ page format?  It’s much more efficient to open a word document and jot down some thoughts and assumptions.  Creating a list of assumptions and thoughts could take as little as 15 minutes – why would you force yourself to write a rigid 30+ page document when you can organize your thoughts in a much easier and simpler way?

It’s all a Guessing game

When you write a business plan, you’re writing down your thoughts and expectations for the business.  You probably aren’t considering the possibility that most of your thoughts are wrong – they are.   You’ll quickly realize the financial projections and it’s impressive graph won’t be anywhere you assumed they would be in month 6.

It Prevents  You From Doing More Important Things

When write your business plan, you could be talking to potential customers.  You need to learn about the market and your potential customers.  The only way you’ll do this is if you’re out in the field, not if you’re behind a desk writing a business plan.

To Learn More About Why You Don’t Need a Business Plan

I highly recommend reading Steve Blank’s blog.  Specifically, you should take a look at this post, “No Plan Survives First Contact with Customers”. You should also take a look at Venture Hack’s What To Send Investors – Parts 1 & 2.

After you have brainstormed a large number of businesses that you are interested in starting, you need to put them through The Business Idea Funnel.

The business idea funnel is a process of getting to your best business idea from a large number of business ideas.  It’s the process of finding the gems in a bed of coal.

1.)  Ideas that fit your skills

Ideally, you’re starting with a list of twenty business ideas.  From that initial twenty ideas, you need to find ideas that fit your skills.  You can have the best idea in the world that will eliminate poverty and make you millions; however, if you don’t have the skills necessary to execute this idea, you’ll never complete it successfully.  If your idea is about building software to help financial advisors manage their clients, you better either have experience with software or finance, or you’re not the ideal person to start that company.

2.)  Ideas that Fit Your Interests

In every business, there is a point in time when you reach roadblocks and need to persevere.  If you don’t have a passion for what you’re doing, you probably won’t get through these tough times.

You’re going to be spending more time working on your business than you’ll be sleeping or spending time with your family.  Make sure it’s something that you have a passion for.

3.)  Users are searching for this problem

Make sure you confirm users are searching for the problem you are solving.  You can do this by using google’s keyword tool.  This is a web based page where you insert search terms and it tells you how often people search for them each month.  This way, you’ll get a chance to see how many times people are searching for a solution to a specific problem.  Don’t forget, users will be searching for solutions to a problem, not features.  There’s no right and wrong number of searches to validate demand.  Make sure you keep searches specific.  Don’t type in “watches” to validate demand when you’ll be a watch repair shop.  Also, don’t type “watch repair shop” if you’re a watch repair shop in South Florida.  Make sure the searches are specific to your business.  You will get an idea of which business have better search traffic than others.  I’ll post more information on this in coming posts.

4.)  Ideas users will pay for

This is where everything starts to get a little tricky.  You need to find if a user is likely to pay for what you build.  There’s a few ways to do this.

1. Find if users are already paying for other solutions to this problem
2. Use fake landing pages to see if users would be willing to pay for your product
3. Ask users to sign a letter of intent
4. Ask users to pay early before the product is finished and they’re receive a substantial discount.

5.)  Ideas That Can Scale

This isn’t a must have, but it can make life really easy once you start achieving success.  If you’re running a local car detailing company, you’re business won’t scale easily.  With each new job, you’ll still need two workers to work for three hours.  If you’re running an internet software company, each new customer will not require any additional amount of work.  This means if you have 1 customer or 1,000 customers in any particular day, the workload will be exactly the same.  This is the type of business actors, singers, and authors have been cashing in on for years.

In Closing

These five steps aren’t the only ways of deciding on business ideas to pursue, but it’s a good start.  The two biggest things to make sure of is that you will have fun and be able to execute your idea.  It doesn’t matter how much self discipline and hard work you put towards starting your business if you’re starting the wrong business.