Common Startup Misconceptions And Mistakes - Forgetting The Original Business Plan

Entrepreneurs typically spend a lot of time developing an original business plan in preparation for the launch of their business. Some excellent thinking, analysis, research and collaboration goes into this plan. Unfortunately, after the business is launched the plan is usually forgotten. Entrepreneurs get caught up in the day to day operational aspects of their business and rarely stick to the discipline and self assessment associated with the preparation of the original business plan. This is unfortunate for a variety of reasons.

Structure And Discipline - It is extremely easy to become distracted and pulled in many directions during the startup phase of a business. Investors begin to suggest alternative business plans, adding contractors and employees requires personal attention, financial challenges require changes to original planning, day to day operations require time and energy, etc. This plethora of distractions can result in a loss of focus on the overall goals and basic premise of the business. Digging back into the original plan from time to time can bring a business and business owners back into focus and in some cases back on track. The simple discipline of periodically reviewing and possibly changing the business plan is a reminder that the business is based on certain fundamental principles and assumptions. Periodic business plan review will force the entrepreneur to take a step back from operational management and engage in critical business assessment.

The Business Is Not Going According To Plan - A startup very rarely goes as planned. Ironically, entrepreneurs understand this. However, they typically fall into react mode without gauging how the company has diverged from the original plan. Without a baseline it is very difficult to understand where the business is going and what success really means. A review of the business plan and a critical assessment of what has changed will reorient the business owner and the company providing an organizational, marketing and financial assessment of the current business environment and how it impacts the future success of the business.

Setting Goals And Objectives - Without a baseline it is hard to set and measure success goals and objectives. The original plan implicitly or explicitly contains very clear goals, objectives dates and milestones for the business. It is important for a business to maintain this focus. If the business has changed since inception (and it always will) reset the goals and update the business plan with those goals expressed in concrete financial, marketing and operational terms.

Communication Tool - The business plan is a good communication tool to unite the company around common goals and to communicate to employees and to investors how the company is doing. The original plan is the starting point for this process. It is not that difficult to periodically update the plan and use the plan as a tool in regular employee and business meetings. Using the plan as a communication tool will provide continuity and a regular baseline for an audience to assess and contribute to discussions about the state of the business.

Conclusion - In the initial stages of a business a company spends time and energy on developing a plan for a business. When a business gets started this investment can be lost if the business plan is not continually assessed. Leveraging this investment continuously throughout the life cycle of the business will keep the company on track, identify areas that need attention and provide the company with a communication tool to keep employees and investors on the same page.

Venture Capital Outlook For 09

Last week I had the opportunity to sit in on an open forum with a combination of VC's, entrepreneurs and various business people interested in learning more about expected VC behavior and investment strategies for 09. I thought it would be a good idea to share some of the commentary with you.

BlueRun, Norwest, Hummer Winblad and VantagePoint were openly represented. Other VC's were also there but not officially.

1.) Are you currently investing? They unanimously indicated that they are investing and mentioned some deals they had recently done. It has slowed down a bit but will most likely pick up in the first quarter of 09.

2.) What are you advising your portfolio companies to do during this period? Batten down the hatches and preserve cash. Venture funded firms do not want to be in the market looking for another round of capital in 09. Unless of course they are phenomenally successful and warrant a strong valuation.

3.) What is going on with valuations? They are getting a haircut. The valuation you had in 08 no longer applies. Everyone is getting another look.

4.) Are you investing seed round funding? Sort of not really. Some said yes some said no. The no category do not usually provide seed funding no matter what the economic conditions. There was a VC in the audience that specialized in seed rounds and they were active. However, the big guys generally were not interested in this stage of investing.

5.) Does the climate impact how you select companies to invest in? Not really. The formula for each VC partner is different. It is a personal thing based on prior experience as an entrepreneur and VC.

6.) What are you looking to invest in? It depends on the VC's specialty. Categories mentioned were enterprise software and consumer Internet. Hardware oriented companies were not favorites due to the large capital outlay and long gestation period.

7.) Are you investing in the team, idea, individual, upside of valuation, market size or market category. They are looking for a game changing idea, enthusiastic individuals that will pursue their idea despite the funding outcome. The VC's are looking for home runs that are on the scale of Amazon, Cisco, Facebook, Google, etc. Others need not apply.

8.) What about VC funding sources? This question spawned a mixed response. Some said no problem. Other said that there is a risk that some large government oriented institutions may not be able to cover their obligations.

9.) How should an entrepreneur approach a VC in 09? Don't be scared they want to hear ideas no matter how off base the may be. Perhaps the more far out the better. Me too ideas are not generally interesting.

10.) How should an entrepreneur gauge a VC's interest in their proposal? No response is the new "not interested" vocabulary. The first meeting either gets them hooked or turns them off. The first meeting "es muy importante". If they do not love you right away not likely you will get a second look.

11.) Show me the money? This is even more important in the current economic environment. The VC's want to know right away how you are going to make money. You better have an answer with big numbers in it. And you better know what you are talking about.

12.) The advertising revenue model? The VC's were actually mixed on this. Some say no way others have no problem. The formula is pretty clear for this model. Lot's of unique visitors. Sure the value of each impression is less. That means even more impressions are required to make an ad revenue model viable.

13.) What categories will you invest in? Categories do not matter. In fact, forcing a business into a category could hurt an entrepreneurs prospects. Having the idea and business stand on its own is refreshing and more likely to get funded. However be aware that VC's only invest in certain categories. Pick your VC wisely. Check out their portfolio before you approach them.

14.) If a company does get the node how long will it take to close? Well, longer then you would like. The VC usually has to vet the company with the partners even though they may be super enthusiastic. Then you have the hand wringing, lawyers and valuation issues. Build-in a couple of months from first blush to closing the deal.

The big take away is investment will continue. Companies that are running on venture funds should hold on in 09 and preserve cash even at the expense of growing top line revenue. Good ideas, that have a potential to change the world will get funded. Watch out for the health of the VC investors. This could be a curve ball for 09.