Tag Archives: Business Plan

Getting to plan B (or to a Better Business Model)

It’s the second book I read from Randy Komisar (after the Monk and the Riddle) and I have to admit I preferred his first book even if Getting to Plan B is quite good too. I might have been slightly misled by the title even though the subtitle was quite clear, Breaking Through to a Better Business Model. But it might be I never read seriously subtitles. I thought the book was about what you do when you were wrong first. But it is more subtle. It is not so much about what happens if your idea was not good vs. what about finding a better or valid business model. If it says better, you plan A might have been good enough! The other reason I was not totally convinced comes from my feeling the case studies were chosen to illustrate a theory, a process, a framework, but did not prove it. I had the feeling the same case studies might have been used to illustrate opposite views, but again, who am I to say such things!

Mullins and Komisar’s book remains a very good book thanks to a rich variety of cases and lessons. In their preface, the authors say important things. “Entrepreneurship is not easy. [..] they are countless tales of companies that quickly went down in flames. Ultimately [many of them] failed because the economics of their business model didn’t work” [Page viii]. I was a little puzzled because I am not so sure; many companies failed because customers did not buy. But it might be the same! The authors claim “they developed a process and a framework to discover the best business model” [page ix]. Again I am puzzled, I am not sure this exists. But still, they certainly provide interesting tools.

One of the most interesting one is the use of analog and antilogs, that I had already mentioned when reviewing Ries’ Lean Start-up. Again For the iPod, the Sony Walkman was an Analog (“people listen to music in a public place using earphones”) and Napster was an Antilog (“although people were willing to download music, they were not willing to pay for it”). Analogs are successful predecessors worth mimicking in some way whereas antilogs are predecessors (whether successful or not) in light of which one explicitely decides to do things differently [Page 14]. But when they claim Apple’s plan B was to transform itself from a struggling PC maker to a consumer electronics powerhouse [page 21] , I find the broadness of the plan B concept really too broad!

Then their methodical dashboard is about validating leaps of faith by testing hypotheses. And what is new compared to other important references such as Steve Blank’s customer development is the focus on the business model through 5 elements: revenue, gross margin, operating expenses, working capital and investments.

Business model element Relevant analogs and the numbers they give you Relevant antilogs Leaps of faith around which you will build your current dashboard Hypotheses that will prove or refute your leaps of faith
Revenue model
Gross margin model
Operating model
Working capital model
Investment model

Why plan A won’t work? The authors answer, page 3, by quoting Albert Page: “it takes 58 new product ideas to deliver a single successful new product”. And a few lines below, “figuring out what the customer wants is not easy.” PayPal worked on its plan G! Google’s plan C works. Plan A had no revenue model, plan B was licensing, plan C was advertising. (But remember Google was always a search engine. In terms of product, it was still plan A! That is why I said before I was misled by the title Getting to Plan B)

They begin chapter 1 with the following: “Mediocre success – finding a passable business but missing the real potential – is equally problematic. Arguably, it’s worse than missing the target completely because it will tie down your considerable talent in a venture with no real future. You and other entrepreneurs and innovators like you are the lifeblood of today’s economy. And to waste your talent on something mediocre would be a real shame.”

Now the book shows that success does not have only one way. The Silverglide case [pages 74-78] shows that an entrepreneur can succeed with $80k for friends and family money whereas I am not even sure how many hundreds of millions Jeff Bezos needed before reaching profitability for Amazon.com [pages 186-192]. Many case studies illustrate how to optimize each of the 5 business models elements [chapters 3-7], whereas chapter 8 shows that you will need to find a balanced solution trying to get the best of these 5 key financial objectives. Amazon.com needed to reach a very large size to make its automated process worthwhile but “great lessons are born from leaps of faith” [page 192].

I fully agree with their final chapter’s early sentence: “As you know by now, this is not a book about business planning. It’s about, in a sense, business discovering. Quoting Eisenhower, “plans are useless, but planning is indispensable” or McArthur: “No plan ever survives its first encounter with the enemy”. So again, the building blocks of the process are:
– an identified customer pain and a solution or an opportunity to offer delight,
– some relevant analogs and antilogs,
– which lead to some as-yet-untested leaps of faith,
– which lead to a set of hypotheses to test them,
– a dashboard to focus your attention on what’s most important right now and to provide some mid-course corrections,
– all comprehensively organized, in just the right sequence, to inform and create the five elements of your business model.

[page 208]

Does this mean you need a plan B right from the start? The answer [page 212] is nice: “There’s a temptation to think that, since plan A probably won’t work, you should have plan B in your hip pocket. Don’t do it. A contingency plan would probably be just as flawed.”

There is clearly in the eraly 21st century a new trend in that business plans may not be a sufficient tool, not to say even necessary. From Randy Komisar, through Eric Ries, to Steve Blank (including my recent account of Cohen’s Winning opportunities), the important element is the discovering process of your business, of your customers in an iterative and flexible manner. This is clearly an important lesson to remember.

Proven Tools for Converting Your Projects into Success (without a Business Plan)

Winning Opportunities is not just another book about business planning. Indeed Raphael Cohen’s new book is subtitled Proven Tools for Converting Your Projects into Success (without a Business Plan).

This 200-page, 18-(short)-chapter book is a very interesting way to analyze your project opportunity (maybe more in a corporate than in a start-up set-up). “Designed for doers, it provides a structured model of the entrepreneurial/intrapreneurial process. […], it is about discipline and process. […]. In other words, creativity is not enough. Framework and discipline are essential companions.” [Page 3] Cohen is therefore a disciple of Peter Drucker who believes entrepreneurs can be tought. But he adds on page 15, that “Observation is a state of mind. To understand your customers, you need to spend time observing them in their own environment. […]. There is no way engineers ensconced in their cubicle offices could observe (and so identify) such a “Pain”. Many real opportunities can only be identified outside of your office.” He is also close to Steve Blank and his customer development framework and here I should remind the reader with Blank’s comment on creativity.” But it’s more likely that until we truly understand how to teach creativity, [entrepreneurs] numbers are limited. Not everyone is an artist, after all.” And we should be all aware that though tools and states of mind are critical, success can not be guaranteed, its odds can increased however.

Cohen has a great framework that is summarized in the next figure but you should read his book and see how he builds the full IpOp (Innovation by Opportunity) model, step by step.

Again he is close to Blank when he explains that assumptions will be checked via practice, not via theory: “Selecting a Business Model usually requires making a number of assumptions. In many cases, it is impossible to verify these assumptions before implementing the Business Model in real time or at least in a pilot study. You should test a Business Model whenever possible, and must always be prepared to revise it or explore alternatives.” [Page 73]

One critical factor that may not be enough emphasized in business planning is the energy required to sell. “To be successful, it is not enough to have written up the perfect Business Model, you still need to persuade customers to buy. And for this, you must convince them that what you offer has an outstanding superior perceived value”. [Page 80]. You need to desire and be able to sell!

Cohen mentions metrics as a way to measure success. His KISS are Key Indicators of Success and these may be subjective. He is right. But once you decide about how you define success, measure it. “The Definition of Success determines a project’s sex appeal. […] While other factors such as preventing the competition from entering the market, testing new markets or distracting stakeholders from other issues may play a role in the decision process, it is the Definition of Success that is the bottom line. Whatever is measurable will always be very much at the heart of the decision process, because it is an output that can be monitored.” [Page 91] “Defining failure will provide stop/no stop criteria” [Page 92]. My personal experience is that it is one of the toughest decisions to admit one’s own failure. “If the opportunity is worth it, you will find the necessary resources when the time comes.” [Page 99].

Cohen introduces the concept of Unknowns as a separate chapter, showing again that entrepreneurship is not easy. They should be catalogued, characterized, prioritized. “Be humble enough to recognize what you do not know” [page 109] and “testing assumptions is often the key to reducing the level of uncertainty” [page 110]. One of the best examples of reducing unknowns is Arnaud Bertrand’s amazing testing with Housetrip.

Again entrepreneurship is about selling, making money, it is about action. “The fun part is in the action. This is why people excel at thinking of Tactical Moves. In fact, most people jump straight from identification of the Opportunity into planning Tactical Moves. Some even jump into the action without any planning at all. Because most creative people are action-oriented, their natural inclination is to skip the strategic analysis presented in the previous chapters. […] And these people like action” [Page 113] and again: “Finding Tactical Moves is a highly creative process” [Page 115].

At the same time, action can be scary, because of the possible collateral effects: “damaging the company’s reputation; altering the essence or image of an existing brand; upsetting distributors or other partners; reducing the market share of other company products (this is known as cannibalization); irritating management; disclosing critical information; making colleagues jealous” [Page 118]. I remember an entrepreneur from my Index days telling me, “each day, you take 10 decisions, 5 might be good, 5 might be bad; just hope the bad ones will not be deadly”. Action, Action!

“Contrary to common belief, entrepreneurs do not like to take risks” [Page 126] “What they like is success and they are willing to take risks to achieve it.” {…] “Managing risks means not only identifying them and anticipating their impact but also preparing contingency plans.” (cf Plan B by Mullins and Komisar, next blog paper or the famous Pivot by Blank / Ries). “The contingency plan sometimes turns out to be the main plan”. And it may mean rethink the Definition of Success and revisit the stop / no stop criteria. Once again uncertainty is highly present and decisions never black and white.

Lack of money is often presented as the main obstacle to start-ups and intraprises. While this may sometimes be the case, the truth generally is that really attractive projects get the necessary funding. Of course, some people are more skilled than others in obtaining the Resources they need. Necessary qualities of an attractive entrepreneurial or intrapreneurial project are:
• The ability to deliver a convincing Definition of Success (plus possible additional Benefits) as against the Resources required (Return on Investment)
• A reasonable chance of success, given the team behind the project and other critical success Factors and Unknowns.
Many entrepreneurs are not lucid enough to make a realistic assessment of the attractiveness of their project, having a tendency to believe that what is attractive to them is automatically attractive to others. It is important that entrepreneurs seek resources from the right people. To do so, they will need a sufficiently large network to turn to.” [Pages 135-136]
“Fund-raising exacts an enormous collateral cost. The whole time spent on looking for money and convincing fund providers is unavailable to promoting delivery of the Definition of Success. The milestone-based is much healthier than putting a lot of energy into multiple rounds of financing, but is only possible with a very well-thought-out pre-project.” [Page 138]

Business plans are in fact more trouble than they are worth [page 151], because:
• They do not increase the probability of success of a new venture, […]
• Less than 10% of business plans actually get read. […]
• Production of the plan delays presentation of the project to Decision-makers
• Apart from people who make a living producing, teaching or selling business plans, almost everybody else in the business community agrees that they are useless for start-ups and new initiatives. The business plan does however remain relevant as the output of a strategic analysis for coordinating the functions of an existing organization (marketing, production, HR, finance, etc.)
• So … writing them is a waste of time and energy

Cohen finishes his book by explaining how important is an ecosystem friendly to entrepreneurs. “The simple Five P’s formula for emPowerment is a recipe that works wonders to promote innovation within organizations:
+ A Passionate leader
+ Permission (to do)
+ Protection (in the event of failure)
+ a Process
= Powerful Performance (by emPowered People)” [Page 185]

The book is extremely well-written and this is not so common in the business litterature. Another original feature is that Cohen does not use quotes (mea culpa!) at the beginning of each chapter but jokes. And because he authorizes the use of them, here is one I liked:

Making a compelling proposition pays
A guy with a severe stutter applied for a job selling Bibles. The interviewer believed he’d never make it as a salesman, and was about to tell the guy to look elsewhere for work. The stutterer begged for the job, “P-p-p-p-p-le-ease g-gg-g-ive m-m-m-mee a ch-ch-cha-a-ance. I-i-ic-c-can d-d-d-o i-i-tt.”
The manager said, “Okay”, and gave him a few Bibles and the rest of the day to see if he could sell one or two. By lunchtime, the stutterer was back, having sold all the Bibles. The manager was impressed, and asked if he could accompany the stutterer after lunch. “S-s-sure,” said the guy, and later they went out to the streets.
They approached a house, and the stutterer went up and knocked on the door. When the homeowner answered, he said, “G-g-g-g-good a-a-a-ftern-n-n-noon, M-m-ma’am. I-i-i’m s-s-s-selling B-b-b-bibles. W-w-w-w-would y-y-y-you l-l-l-l-l-like to b-b-b-buy a B-b-b-b-bible, or sh-sh-sh-ould I j-j-j-j-ust r-r-read it t-t-t-to you?”

A non-negligeable advantage of Cohen’s book is that it is freely downloadable and the author is just aksing you to pay what you think is fair once you’ve read it. I have not paid anything yet but my contribution has been to write this blog article and I would certainly recommend interested people to read and pay! Is this enough Raphael? 🙂

No Business Plan? No Worry?

A study dated December 2008 shows that submitting a business plan to venture capitalists would be at best a symbolic act, at worst of no interest or at least with no relation to the investment decision.

The paper entitled “Form or Substance: The Role of Business Plans in Venture Capital Decision Making” was written by David Kirsch, Brent Goldfarb and Azi Gera of the University of Maryland and published in the Strategic Management Journal.

Based on the analysis of more than 1000 documents, les authors have tested 7 hypotheses relative to business plans:

1- the impact of a standard document,

2- statements of prior non-VC external private equity funding

3- the articulation of financing requests

4- reference to management team members

5- reference to prior educational human capital

6- reference to the prior entrepreneurial experience of founding team members

7- reference to the prior professional business experience of founding team members.

The results are quite striking: hypotheses 1, 2, 3, 5 and 7 are not validated et only hypotheses 4 and 6 would received a limited validation.

Their conclusions are quite clear: “business planning artifacts are not important sources of information for venture decision makers. The submission of planning documents is, at best, a ceremonial act.” and they add “neither the presence of business planning documents nor their content serve a communicative role for venture capitalists… Critical information is learned through alternative channels.”.

But I need to add, and this is now a personal point of view, that all this does not mean that a business plan is not necessary for any entrepreneur who wishes to raise capital…