Very nice post the other day by Stu Phillips of Ridgelift Ventures, called Look before you leap, which he posted on his Soaring on Ridgelift blog.
He’s a venture capitalist, so he is in a position to know what he’s talking about when he writes that one of the most common problems he sees, with new ventures, is “failure to think things through.”
He offers a good list of common issues:
- How does the product fit into the customer’s environment?
- What is the sales strategy – how do you make more on the sale than it costs you to get?
- What is the likely response of your competitors (especially if they are large and profitable – read well armed!)?
- How is value built for the investors (M&A or IPO)?
- What is your contingency plan when things (inevitably) go wrong?
- What do you need to do to raise the NEXT round of investment at a better price than the current round?
And, happily, he finishes that with a good summary of why you want planning, not just a plan:
Building a business plan is a lot like planning a long cross-country flight as a pilot. You have data that you know for certain such as where you are going, the route to be flown and the basic performance of the aircraft. You are also faced with a set of data that is less certain – the forecast weather, potential equipment failures, your own fatigue level etc. A good pilot examines the uncertain data and builds a contingency plan before committing to the flight. For example, if there is uncertainty in the weather the contingency plan may be take a different route, turn back, land or simply ‘don’t go’. The point is that this thought process takes place BEFORE you leave the ground.
That’s a very good piece of advice, from somebody who’s in the business of investing in startups.