No
Simple Plan
June 03, 2002
In
the aftermath of so many across-the-board tech-based failures,
the challenge of creating an executable business plan has
assumed greater importance. Company strategies should be
designed not onlyfor profitability and growth, but to weather
increasing economic uncertainties.
The false promises of the "new economy," which
facilitated a vast field of startups, stratospheric valuations,
careless corporate adventurism and an unsustainable frenzy
of speculation, has been flogged to death. Recently, however,
established technology corporations, and their practicing
CEOs, have also endured the brunt of a backlash leading
to a decline of employee and shareholder faith in their
decisions. Even though 20/20 hindsight and unhelpful cynicism
is now widespread, the sting of disillusionment still smarts.
Investors are (understandably) seized with cold feet, and
startup companies will have to prove a stronger alignment
with traditional business fundamentals than ever not only
to attract investors, but to build long-lasting businesses.
Business plan and business vision are two terms which often
become blurred. Vision is more akin to inspiration. In the
context of the current marketplace this can be vaporous
if not supported by robust market research. This is not
to say that the business visions are not necessary - far
from it. But it does mean that vision must be tempered by
sober assessments of core capabilities, resources and market
realities.
"The vision should be broader than just looking at
marketplace (and) competition. It should be a vision of
the company's place in the world and it should be big. But,
it should also be realistic and attainable," says Dave
Lavinsky of Growthink, a speaker at the upcoming Larta University
workshop, The
Business Plan, Balancing Business with Vision. "A
vision has to have some milestones that can be attributed
to it. Creating a vision is part of the entrepreneurial
spirit. But creating a vision is the easiest part; the hard
part is convincing customers and investors. In general,
people don't want to change for the sake of changing, particularly
for someone that's been burned before, which is the reason
it's so hard to raise capital right now …the investors
have gotten a lot more shrewder, as have customers."
Yet
obtaining customers is only the first part of the difficulty.
It is keeping the clients and creating loyalty that eluded
many of the heavily-funded e-commerce businesses, such as
eToys. That dot com pulled in a considerable amount of new
customers, yet failed to hold interest. A mechanism must
be in place in a business plan not only to assure customer
acquisition, but to build on, to sustain those relationships.
Because of the difficulty in raising capital, startup companies
are too often finding themselves in agreements that are
giving investors a disproportionate amount of leverage.
With less checks being written, entrepreneurs with brilliant
ideas (but no revenue) have had to forsake a large percentage
of their company's equity to attract that crucial first
round of investor capital. This puts entrepreneurs too frequently
at the mercy of investors. Business plans should therefore
have dual objectives--one with a strategy based upon attracting
capital, and one without.
"Entrepreneurs without a track record almost always
underestimate their challenges," says Eli Eisenberg
of Straight Line Management, also a speaker at the Larta
U business plan workshop.
"What happens when planning is a lot of companies will
say we need this and that, and get into a mindset of 'I
can conquer anything, I can grow anything that I want.'
The result? They get into a structure that is unmanageable.
Companies need to say, 'we're going to be under-managed
and understaffed, and sell as much as we can' and put the
infrastructure in place that way. Now maybe they won't grow
as fast as they could, but their cash flow hasn't had to
evaporate, and more importantly, they're still in control
of their own destiny instead of depending on VCs."
After matching innovation and vision with market research
which supports that vision, entrepreneurs can focus on creating
an execution strategy. Yet no matter how strong the market
is (or appears to be), that is not the fixed point from
which a business plan should be designed. There are two
parallel influences that must be consistently considered--the
internal (the company, production, employees, management,
growth), as well as the external (fluctuating marketplace,
customer demand and lack thereof, competition, economic
conditions). Often when a business is growing, external
and internal forces don't synchronize (a 'left hand vs.
right hand' situation), and companies can suffer unforeseen
damage.
"A startup could sell everything it can possibly make,
and the market could turn out to be there, but these external
factors do not provide a limitation (in its planning),"
says Eisenberg. "Internally, you have to put an organization
in place, and have processes to guarantee stability during
growth. Growth in and of itself is difficult, and there
are practical limitations to how a company can grow and
maintain a semblance of profitability."
by
Wendy Hall
Larta Staff Writer
Rohit
Shukla
Larta CEO
Larta
University Session
#2 on June 19 and 20: The Business Plan, Balancing Business
with Vision
This session covers all phases of business plan development
including: identifying the objectives for a plan, understanding
what investors look for in a plan, tailoring strategies
for a specific market and economic context, the value proposition,
and addressing the various elements of the business plan.
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