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05.18.18

Burn the Business Plan

Burn the Business Plan

I
F YOU ARE THINKING of starting a business—and apparently nine million Americans are currently thinking about it and only about 500,000 actually do each year—you will want to read Burn the Business Plan by Carl Schramm.

The highly-romanticized, high-tech startups that we read about and want to emulate are less than seven percent of all start-ups and they experience the highest failure rate of all business startups. Eighty percent disappear within five years.
Most entrepreneurs never went to college, and most did not start their companies until they were well along in their careers. The average entrepreneur is nearly forty years old when he launches, and more than eighty percent of all new companies are stated by people over thirty-five. More entrepreneurs are between forty-five and fifty-five than any other cohort, and entrepreneurs over fifty-five now create more companies than those under thirty-five. And—another surprise—the chances of a new company surviving rises with the age of the entrepreneur.

What these high-tech startups have in common with all other entrepreneurs is that they don’t follow a business plan. The detailed and rigid planning of your typical formal business plan is of little value once the business gets underway.

Just as German Field Marshal Helmuth Karl Bernhard Graf von Moltke once observed, “No plan survives first contact with the enemy,” “it is rare,” writes Schramm, “to find an entrepreneur who reports that his business plan was of much use…. Entrepreneurs must learn to dance to the market’s ever-changing tempo and rhythm. Planning doesn’t help and is mostly a waste of time.” Microsoft, Apple, Facebook, Amex, Disney, GE, Walmart, and Google are just a few examples of companies that began without writing a formal business plan.

To build a successful company, one has to be able to change direction as shifting facts and circumstances dictate. In my experience running a manufacturing company for over 30 years, Schramm is right on.

While I believe that the basics of running a business and the type of mindset that is required can be taught or presented, I would agree that you can only learn by doing. “There is no time-tested body of knowledge that will improve the probability that a startup will be successful.”

As Steve Wozniak, Marc Randolph, and many others have suggested, a great way to learn entrepreneurship is by working in a big company. “The average entrepreneur works for someone else for nearly fifteen years before starting his own business.”
Many entrepreneurs who started their own careers in large corporations regarded them as critical to their subsequent success. Most important, they learned the culture of business, how big companies did or did not do a good job of serving their customers, and their customers’ continuously changing needs.

Building a company takes time. Rather than flipping their companies, most successful founders work at it for the rest of their lives. When you begin everything changes. “While many aspiring entrepreneurs think that starting a company is all about one good idea, in fact, successful entrepreneurs know that their first idea was seldom what made their company successful.” And here’s something to think about: “Failure rates are considerably higher for companies that are started with the intention of a short-term sale.

Every startup has one CEO. The myth that two entrepreneurs coming together makes for a better company is just that, a myth. A realistic “look at the history of startups shows that every company, even those claiming multiple founders, had just one person who functioned as the ‘entrepreneur-in chief.’ She is the person who sparked the idea, first articulated the vision for the company and brought others together; the person who functions as the company’s driving force, without whom the startup never would have happened.”

Another reason success as an entrepreneur favors age is that “creating a new product or service is an organic process, one that is shaped by background, experience, and acuity of the innovator.” “The average age of an inventor awarded a patent is forty-seven. The reason? Innovation involves a synthesis of accumulated knowledge, much of it subconscious, that the inventor has absorbed and compiled over his life.”

If you are aspiring to be an entrepreneur, you would be wise to read widely across many fields and disciplines. Innovators are curious and have a voracious appetite for learning.

Schramm tells the stories of Dyson, Head, Kasbar, Stebbins and others who “weren’t even sure that what they were toiling to achieve was a ‘company,’ they were just sure that they had really good ideas.

Other interesting ideas Schramm covers:
  • Franchising is often overlooked as a real entrepreneurial business and is generally not taught in colleges.
  • “You should operate with sufficient flexibility so that you are open to considering other ideas as you work on your original concept.”
  • Business plans are for investors. Most businesses become successful without venture capital and venture capital is no guarantee of success. “The average startup needs $50,000 in capital.” And this comes mostly from savings, credit cards, family, second mortgages and reinvesting revenues.
  • “An entrepreneur’s planning is fundamentally different from how managers in large companies follow well-researched and formalized business strategies. The planning process in a startup can be described more accurately as situational decision making, an imperfectly informed, just-in-time, default strategy.
  • “Entrepreneurial planning involves learning how to make critical decisions quickly, mostly about matters never anticipated, likely while relying on incomplete information.”
  • It takes time. “Of the thirty percent of startups that survive past five years, most are not profitable until they reach their seventh anniversary.”

Burn the Business Plan is a fascinating and accurate look at what it means to be an entrepreneur. It should be required reading in business schools and by anyone contemplating a startup. Schramm tells interesting stories of entrepreneurial successes and failures all of which add to the value of this book.

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Posted by Michael McKinney at 04:13 PM
| Comments (0) | Entrepreneurship

01.26.18

A Dozen Lessons for Entrepreneurs

Entrepreneurs

T
REN GRIFFIN, who writes the well-read 25iq blog, has assembled a collection of insights for entrepreneurs from some of the most successful venture capitalists and coaches of business founders in the world.

For A Dozen Lessons for Entrepreneurs, Griffin has interviewed 35 people who have “seen more highly successful business launched than any other single group on the planet.” He offers 12 quotes from each followed by short explanations to provide clarity and context. The book is a real education that is worth taking the time to reflect on and absorb.

You will get an experiential education from investors like Steve Blank, Marc Andreessen, Mary Meeker, Paul Graham, John Doerr, and Ben Horowitz.

What follows are some of the thoughts that resonated with me:

Eric Ries: “The mistake isn’t releasing something bad. The mistake is to launch it and get PR people involved. You don’t want people to start amping up expectations for an early version of your product. The best entrepreneurship happens in low-stakes environments where no one is paying attention, like Mark Zuckerberg’s dorm room at Harvard.” (p. 36)

Sam Altman: “In general, it’s best if you’re building something that you need. You’ll understand it better than if you have to understand it by talking to a customer. Passion and a mission are more likely to exist if a business is providing solutions to problems that cause the founders personal pain. In other words, a deep understanding of a valuable customer problem and potential solutions to that problem is enhanced if the founders are themselves potential customers for the solution.” (p. 44)

Sam Altman: “Eliminate distractions. The hard part of running a business is that there are a hundred things that you could be doing, and only five of those matter, and only one of them matters more than all of the rest of them combined.” (p. 48)

Steve Anderson: “Ten years ago, you needed $5 million to start a business. Today, you need $70 and some coding skills.” (p. 53)

Rich Barton: “Ideas are cheap. Execution is dear. Great leaders need three key attributes to successfully execute: brains, courage, and heart.” (p. 73)

Rich Barton: “It’s much more powerful long-term to make up a new word than it is to use a literal word. I also like to high-point Scrabble letters in my brands if I can work them in. They are high point because they are rarely used. A letter that’s is rarely used is very memorable. Z and Q are all worth ten points in Scrabble. X is 8. They jump off the page when you read them, and they stick in your memory as interesting.” (p. 73)

Chris Dixon: “You’ve either started a company or you haven’t. “Started” means starting with no money, no help, no one who believes in you (except perhaps your closest friends and family), and building an organization from a borrowed cubicle with credit card debt and nowhere to seep except the office. It means lying awake at night worrying about running out of cash and having a constant know in your stomach during the day fearing you’ll disappoint the few people who believed in you and validate your smug doubters.” (p. 99)

John Doerr: “Believe me; selling is honorable work—particularly in a startup, where it’s the difference between life and death.” (p. 102)

Jim Goetz: Many of the entrepreneurs that we back are attacking a personal pain.” (p. 116)

Paul Graham: “If you want to start a startup, you’re probably going to have to think of something fairly novel. A startup has to make something it can deliver to a large market, and ideas of that type are so valuable that all the obvious ones are taken. Usually, successful startups happen because the founders are sufficiently different from other people—ideas few others can see seem obvious to them.” (pp. 126-127)

Reid Hoffman: “So many entrepreneurs are worried about protecting their precious ideas, but the truly valuable thing is that you’re in motion, you have momentum, and you are gathering all the necessary resources to make it happen.” (p. 158)

Reid Hoffman: “The network of people around you I what extends your ability to be effective regarding expertise and reaching your goals. Put yourself out there and get feedback. Don’t be afraid to take a risk. Another huge thing to emphasize is the importance of your network. Get to know smart people. Talk to them. Stay current on what’s happening. People see things that other people don’t. If you try to analyze it all yourself, you miss things. Talk with people about what’s going on.” (pp. 160-161)

Ben Horowitz: “Sometimes an organization doesn’t need a solution; it just needs clarity.” (p. 168)

Vinod Khosla: “The single most important thing an entrepreneur needs to learn is whom to take advice from and on what topic. Ask different questions of different people, both those who have been successful and those who haven’t.” (p. 179)

Keith Rabois: “As you get into the unchartered territory where you don’t actually have any intellectual background, you need perspectives from people who are very different from you. At that point, it’s actually quite valuable to have people who are diverse.” (p. 255)

Keith Rabois: “First Principle: The team you build is the company you build.” (p. 254)

Fred Wilson: “Reputation is the magnet that brings opportunities to you time and time again. I have found that being nice builds your reputation.” (p.302)

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Posted by Michael McKinney at 06:11 AM
| Comments (0) | Entrepreneurship



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