Monthly Archives: October 2011

Are Business Plans Dead?

I recently participated in a global entrepreneurship conference attended by entrepreneurship academicians, entrepreneur “wannabees”, and a few “real” entrepreneurs. A vigorous discussion emerged about the value of business plans at the university versus the usage of business plans in the “real” world.

The general consensus was that angel investors (i.e. angel networks), private equity investors, and venture capitalists seldom, if ever, read business plans. Most investors are buried in unsolicited business plans and most never get read. End of story.

It is true that executive summaries (one to two page overviews) may get read, but only if genuine interest is expressed by the investor. Rather, PowerPoint presentations (ten pages with 30 point font including photos and video) are the most common tool in the fund raising process. This plays to the funder’s “Twitter-like” preference for brevity and the need for compliance with the typical investor’s review process.

In a soft market like today, this review process entails a seemingly endless review by the investors resulting in endless action items for the entrepreneur. These homework assignments result in even more presentations and, ultimately, no funding. Sorry, this is the current sad state of affairs in the start-up financing community. The only deals getting funding today have rock solid proof of concepts, strong cash flow, and a back log of orders. Risk is just not in the equation for the new ultra conservative investor.

Yet, at the university, lengthy business plans thrive as a teaching tool. The typical business plan with 30 or more pages challenges the students to define the business from concept to funding to exit strategy. The academic typically challenges the student answer questions like:

1. Does the plan describe the offering and how it solves the customer problem?
2. Does the plan describe the target market and the unique value proposition?
3. Does the plan describe a sustainable competitive advantage and the offering’s intellectual property?
4. Does the plan describe the pricing strategy and the competitive environment?
5. Does the plan describe the channel of distribution and sales strategy?
6. Does the plan include operational plans detailing business operations with logical milestones and actions steps?
7. Does the plan describe the management team and their fit with the business?
8. Does the plan provide for reasonable use of resources (staffing, facilities, and equipment)?
9. Does the plan include how technology will be manufactured (with process flow charts)?
10. Does the plan describe the technology development, testing, trial, and approval process?
11. Does the plan include pro-forma profit and loss statements for the first three years?
12. Do the pro-forma statements tie to the plans for operations and marketing?
13. Does the plan specify the assumptions made in the financial statements and are the assumptions reasonable?
14. Does the plan include a capitalization table?
15. Does the plan identify a road-map of the capital needs, timing, ROI and exit?

In my opinion, these are very reasonable and very important questions. If an entrepreneur (student or otherwise) cannot answer them, they don’t deserve to get funding. If the investor is uninterested in the answers to these questions, I wouldn’t want their advice or their money.

Long live the business plan. Make them lengthy, detailed, and complete.

John Bradley Jackson
Director, Center for Entrepreneurship
jjackson@fulleton.edu

What Kind of Life Do You Want to Lead?

One of the best entrepreneurship classes I ever took ended with the professor asking each of us to write our obituary. The assignment instructions are below:

Write your own obituary. Assume you die of natural causes on your 70th birthday and a close friend is asked to summarize your life in 300 words or less. When your life is complete, what will be the “bullet points” people remember about you? What do you want to have accomplished and what are you willing to sacrifice for it? How will you balance all the competing demands for your time and energy? All of these decisions are usually subtlety imbedded in an obituary.

Many of us have spent very little time figuring out what kind of life we want to lead. The options are limitless. Some people – such as Steve Jobs – make work their life’s calling and put their heart and soul into their company. Others see work as something they do to allow them the financial flexibility to do what they truly love – such as play music, go boating, travel the world, etc. And many of us fall somewhere in the middle of these two extremes.

Of course, if you can have it all that’s the best

There is no single answer to this question. The right answer is the one that makes you happiest and the one that makes you feel as if you lived your life well. This is why the obituary assignment was such a crucial one – it forces people to think about the kind of life they would like to have and to figure out the challenges involved in achieving it. It is not possible to have it all. Everything that is worth accomplishing involves trade-offs. The question is what you are willing to sacrifice to achieve what you really want.

I highly recommend you write your own obituary and that you share it with your significant other. I also recommend you go back and view your obituary every so often to see if you are staying true to your vision of what you want your life to be. The specifics may change, but the underlying vision should not. For example, when I wrote my obituary, I anticipated that I would leave business school and work in the non-profit sector. Instead, I went on to get my doctorate and ended up in the education sector. However, my underlying vision was to be in a career that allowed me to make a difference in the lives of others and help them achieve their dreams. Being an entrepreneurship professor has allowed me to do just that.

If you find that your underlying vision has changed significantly, it is time to take a step back and evaluate things. Has what you wanted in life changed? Or have you forgotten what is really important and lost your focus? The self-reflection required to answer these questions is crucial to making sure you don’t lose your way.

As Steve Jobs (of Apple fame) said in his famous speech at the 2005 Stanford graduation:

“Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by dogma — which is living with the results of other people’s thinking. Don’t let the noise of others’ opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition.”

The process of writing your obituary and revisiting it periodically is designed to help you do just that.

Dr. Atul Teckchandani
CSUF Entrepreneurship Professor

[Picture: Karma Decay]