Why Write a Business Plan? Look At This Data

I am spending a lot of time currently reading research on new firm formation — the process that occurs as  opportunity, entrepreneur, team, and outside partners interact to create a new venture.

Much of the research shows that successful firms (across various metrics) make use of business plans and business planning.

Tim Berry’s firm has surveyed over 3000 of its users and have found some impressive statistics. Clearly this is not a random sample of ‘entrepreneurs’ and Berry has a link to answer statistical design and methodology. But the bottom line is, even if this sample is biased, its biased towards strong, growing firms and that is a great group to learn from.

From the entry:

Simply put, those who finished their business plans were about twice as likely to successfully grow their business, get investment, or land a loan than those who didn’t. You can see the numbers on the chart.

For the record, we sent the results to the University of Oregon Department of Economics for validation. I posted more details about that study and the statistical validation yesterday on our Business in General blog.

Why Plan Your Business? Look At This Data.

Moot Corp Lesson: Even the Best Plans Change

Tim Berry has a great post, Moot Corp Lesson: Even the Best Plans Change. It highlights the level of competence in some of the top business plan competitions and also makes clear the value in these exercises.

Tim writes,

One of the judges commented that what was on the slide was different from what he saw in the business plan. The entrepreneur immediately answered “no, of course not, that was an earlier iteration.”

That favorite moment wasn’t part of the flawless finals session of the winner. It was in the finals, though, as a Carnegie Mellon team presented a technology to monitor glucose levels using contact lenses. What I liked about that quick answer was the underlying assumption that plans change. New information matters. There was no reason to keep the numbers from last week after new information this week suggested they should change.

If the projections today don’t match those from two weeks ago, no apology is necessary.

The winner, BiologicsMD, also won the Rice University competition a few weeks ago. If you get a chance to see the video of their performance, both with their pitch and their business and their answers to judges’ question, take it. That’s the best I’ve ever seen. The company, one of two finalists from the University of Arkansas, has developed a new medicine to treat osteoporosis. It included a PhD researcher, an MD researcher, and two business executives. The panel of judges, three of the four of them with backgrounds related to medical technology and FDA approval and such, asked an amazing array of detailed industry-specific questions. And they were presented with an even more amazing array of straight-on answers. That was as good as it gets.

I recently read an article decrying business plans, their static nature, and business plan competitions. (Steve Blank is new to me, but I am reading some of his stuff). I will share some of his thoughts in a separate post later this week. Tim and others clearly articulate the importance of change in the business plan process.

But Tim’s example highlights that importance of the act of writing plans and defending them to those with critical lenses.  That even holds true for in-class  competitions where part-time undergrads are subjected to questions about their “used jean retailers” by judges of adjunct faculty members and local bankers.

Berry’s Moot Corp example and my undergrad retailer example exist at different points on the business plan and competition spectrum, but provide important value to society and the economy — from viable, potentially high-impact firms to a generation of college grads who understand the importance and role of small businesses and entrepreneurs.

Great Advice for Entrepreneurs from Tim Berry

Some much of our time educating entrepreneurs and thinking about business opportunities is spent on trying to develop the next big thing. Trying to find a revolutionary concept to sell.

In his post Startups: Unique and Revolutionary, Or Forget it?, Tim answers a readers email on this topic and writes the following:

You don’t have to be first to be a success. You don’t have to be unique. You don’t have to be revolutionary.

What you do have to do, however, is give people value. Give them a reason to buy from you instead of from somebody else. You have to show up, open the doors, answer the phone calls, solve the problems and do whatever marketing you need so that people know it. How’s that for unique and revolutionary?

What I love here is Tim’s direct statement that you have to ‘give people value.’ This is a basic key to any successful venture. You must provide value.

While my business, Family Fantasy Sports, is the first to offer fantasy sports games designed for family play, we still work every day to provide value directly to our customers, knowing that simply just being here is not enough. It is why we host a radio show for our listeners online each week, why we give kids an opportunity to write about sports for our blogs, provide motivational quotes with our fantasy football results each week, and why we discuss and award college savings prizes each week.

We continue to try to add value through new services and products knowing that each time we do, the bar has been raised. I believe all great entrepreneurs are looking to add more value to their offerings that will have meaning to current and future customers.

Is Teaching Entrepreneurship Just a Fantasy?

Yesterday at the Mason Entrepreneurship Research Conference we had some great sidebar conversations with various presenters and speakers including Tim Berry, Tyler Watts (from GMU Econ), and others.

During one discussion, I was reminded of a scene from the movie “Back to School” with Rodney Dangerfield (1 of my top 5 comedies of all time) where Dangerfield, playing self-made millionaire/owner of Thornton Mellon’s Tall and Fat Mans Stores, is not happy when his Professor begins a ‘business planning’ exercise in class. The scenario is unrealistic in his opinion.

I think this video should be required viewing for all entrepreneurship professors, students, administrators, and policy makers. Enjoy! Warning — this movie was made in 1986 so there is some politically incorrect humor in this and other scenes.

Live at Mason Entrepreneurship Research Conference #2

Just listened to Tim Berry give the keynote address during lunch. Tim was great and it is obvious why Palo Alto Software has been so successful and why his writing is so insightful. His presentation was full of great stories, but more importantly, there were lots of great questions that entrepreneurs, policy makers, and others have to ask. Most importantly, are we measuring our costs properly when we look at our biz and how do we bring the long-term into our decision making — btw, both questions are about sustainability.

Presenting @ Mason Entrepreneurship Research Conference 3/27

This Friday, March 27, 2009, is the Mason Entrepreneurship Research Conference. I presented a few years back on Social Capital and Business Plan Contests and will be presenting this week on The Frontier in US History, The Modern Campus, and Entrepreneurship. Last year I posted from the event a few times. Our friend Tim Berry is the key note speaker.

Here is some background on the conference and its mission. Interestingly, it is a joint venture between the School of Public Policy and the School of Management.

Angels Flee Tech Startups?

Just catching up on some posts over at Up and Running by Tim Berry and came across this headline: Angels Flee Tech Start-Ups. The post referred to a NY Times article. The bad news is obvious: less angel funding.

The good news is that the more a startup can do before eventually finding money, the less the founders will have to give away. Founders will have to be super creative in order to get through this period, but that leads to a second dose of good news: those who make it through will have real strength from their experiences.

One potential solution is to go back to school and use the resources and time universities afford in order to launch your firm. 3% money in ‘student’ loans from the Fed? Any takers?

My startup, Family Fantasy Sports, which has just achieved some crucial milestones, has briefly spoken with some ‘angels’ and many are super cautious, though some of the older, wealthier ones are pretty even keeled. We are trying to hold off going there.

MBAs: Time to Look in the Entrepreneurial Mirror

While its normal for people to run to MBA programs (WSJ) during downturns (take cover for two years, increase knowledge, network, then get to interview with lots of companies in diverse positions and industries), what about the folks who are graduating this winter and next spring? Recruiting is bound to be tough as the dynamics for Wall Street and Corporate America have changed dramatically.

CBS Marketwatch has a piece by Whitney Jackson. From the article:

Turmoil in the stock market and decreased opportunities at big banks directly affect a lot of classic M.B.A. career paths, according to Steven Goodwin, an independent Washington-based education and career-strategy specialist.
He said he’s received a surge of phone calls from nervous workers who obtained degrees over the past few years. Many of these former students are forced to broaden their job search and lower their standards, a move labor economists say trickles down and strikes people at the lowest rung of the ladder.
In general, students who settle for a lower position during an economic downturn rarely make up the financial differences in the long term, according to Lisa Kahn, a Yale University economist who studies the intersection of employer practices and external labor market factors. M.B.A.s are a unique subset of these students because most of them worked for several years before going back to school.
While it’s too soon to tell how many people’s career hopes have been dampened by the Wall Street crisis, it’s likely that many M.B.A.s who wanted to work in the financial sector took jobs elsewhere — or don’t have a job at all. These individuals will have a lower financial trajectory over the course of their lifetimes, Kahn said.
I find the above comments scary and makes it clear to me that entrepreneurial actions are a necessity. If the state of the economy around the time of graduation is the main determinant of career earnings for those who enter the labor market upon graduation — then DO NOT enter the labor market. BECOME AN ENTREPRENEUR. Take control of your own financial trajectory. You won’t show up on the payroll data that Kahn uses when she does her research.
The path may seem more difficult — creating something out of nothing vs. taking a second choice job that pays the bills in the short term, but it will pay off in the long term.
So stop worrying about making your resume ‘standout’ to land those interviews you never would have considered 2 years ago and go start something. Check out Tim Berry’s new Plan-As-You-Go Business Planning Book. Good luck!

More Cool (and free) Marketing Stuff

Found this via Tim Berry; Small Business Trends blogger Anita Campbell has compiled a list of 100 Marketing Secrets. I appears she called for submissions and this is the output. Its available in a 33 page pdf. Yes, its free. From her site,

A big THANK YOU, dear readers, for the outstanding marketing tips you contributed to the Best Kept Marketing Secrets roundup.

As promised, we took 100 submissions and turned them into a downloadable PDF document.

It’s 33 pages of tips for marketing, including relationship marketing, marketing strategy, selling, messaging, online marketing and social media. 

It’s all been packaged up tidily into a document for you to save, give to clients, print, post on your website — use it however you wish.  It is free of charge, of course.

Looking forward to seeing whats in there, but I am excited by the use of Campbell’s site to aggregate knowledge, edit/clean it a bit, and then distribute it back out. (not to mention picking up sponsorship by HP)

Tim Berry on Which Business to Start

Tim Berry has an interesting post on deciding what business to start. There is even a nice, short video (worth watching) on SBTV.com in which he is interviewed on this question of choosing a business. Below is a snippet from the post on how to decide on a business:

Look in the mirror. A good business to start is the one that matches who you are, what you know how to do, what you like to do and the resources you have.

It’s not like there are good businesses or bad business. There are businesses that….

1) You can do;

2) You want to do; and

3) Where somebody wants what you’re selling.

Those things come together in what’s the good business for you.

As far as the new business I am in the process of launching, I can answer Yes emphatically to the first two points (can do and want to do); the third is unclear because I am going into an industry open to innovation (consumer internet) and won’t really know until I get out there. I believe my products and services will fill needs and will likely have to tweak and change things as feed back comes in.

It is that challenge; that I have to go out and sell it and prove that this consumer business that I want to build (point two above) At the end of the day, is the core job of a majority of entrepreneurs. Going out and getting sales. And more sales. And then repeat sales.