The Startup Guy

Experience would tell you – especially if you are/have been on the board of companies or have invested in companies, that Plan A just about rarely works. From Microsoft, to Google*, to Yahoo, to just about any successful company that you would come across, if you dig deeper you realize that these are not companies that executed their plans flawlessly, but companies that are perhaps in their Plan B and are constantly reinventing themselves in terms of their focus, strategy, positioning and even products.If all of these are meant to change, and it is said that just about “no business plan ever survives the first customer”, then what is the point and dogma about business plans? Thats the crux of a heated debate and discussion going on in venture circles these days.

The philosophy partly comes from Software Engineering. There were days when we had a rather lab-based model of building products. You come up with an idea, you come up with the specifications, you build it and then try to sell it. Customers didn’t not have a say it in. Its essentially the basis of the water-fall based development model – all requirements are collected and decided upfront and no change or modification happens anywhere in-between. Time, energy and a lot of wastage of both happened with that process, and companies died when they built something and nobody wanted it. Then came the Agile Methodology where the bare minimum – also called Minimum viable product – is built, and then released, and then customers define what is important and features are built on top. Products are released every week, or every six months iterating – which is where the concept of products always being in Beta stage comes in – because every product is undergoing testing and improvements continuously.

Does it apply for products which are non-web based? Absolutely. Even hardwares have firmwares, and Apple – even with their ipods – do this with new features being added to the firmware, and being upgraded rather than throw away the entire product and buy the next version. The base stations of the future will do this seamlessly with Software radio technologies maturing and going live; Cisco and Juniper are on a race to build a platform layer on which they can build all their router and network based products of the future which you can upgrade remotely. The key is to build the hardware with the flexibility to accept these new features. – The future, if not already is heading that way.

Coming back to the topic however, this same phenomenon is spilling over to business models. If you are a product company, its a no-brainer to say that the success of the company depends on the success of the product. We all realize that markets are fragile and change happens almost instantaneously killing companies and new products. If we are to survive that turmoil, it is inevitable for companies to be able to adapt – rather quickly, not only their products but their business models as well. This also helps from the perspective of effective management of cash – because rather than building a strategy and throwing money towards something that might never work, you now have the flexibility to be able to adapt, quickly iterate and to find your business model.The first question a lot of people are going to have is as to how one would know the difference between a “Lean Startup” and a “Confused Startup**“. If they are both being on their feet, and radically changing plans every other month, and experimenting, it almost looks like there is no difference between the two. One of the distinguishing feature will be the documentation process. Use an argument map at the very least to map the context and results. Its not a crime to fail, but it is a crime to fail and not learn anything from it. If you think about it, this way of building a business is rather quite scientific and experimental than you think. if we go back to our days of Chemistry experiments in high school, the process was more or less the same. Keep dripping the acid solution from the pipette till the solution turns colour or becomes transparent. We do this a few times and we can do the calculations backwards and figure out the patterns and have insights that we never did before. We are all just looking for patterns in markets and to evolve business models around it.

The Future of businesses and products are going to be not in terms of how cheap of a solution you can provide, but also in the clarity of the solution and how great of an experience you can provide the customer/end user. If that is going to happen in a consistent and sustainable manner, customer insights are crucial – almost to the point of being one of the most valuable assets of the company. You cannot continue to read macro trends from the likes of McKensize and Gartner and build solutions, but need to have our own understanding of how customers and markets will react, behave and adapt technologies and products. Iterative product development processes and consequently Business models will have to be put in place.This also means that this will be the death of business plans – apart for the excercise that we all need to have in terms of thinking through everything. A business plan is just a checklist to ensure that verbally and with numbers you have to justify your stance, but it has a track record of not surviving the test of time – not more than a few weeks in startups. The fun of working with startups is how you can never relax; the company that was on the high last month is in dire conditions this month. Hence milestone based funding scenarios will not work – and has been the reason for a lot of friction with early stage investors and founders because as plans change, the investors are not ready to adapt along with this change in strategy. and the way we track the growth of companies has to be beyond just the bottomline and turnovers. If you read more on Agile Methodologies, it offers ways to track a project to be on time and on budget even with changing requirements as part of the process – We would have to port those methodologies over to the business world soon enough for stakeholders to have their peace of mind.

We realized this at RTBI quite sometime back. We dont do quarterly reviews for startups, but we meet every month and for companies still in the ideation/market research phase we do it much more often. We also realized that measuring just cashflow can be detrimental – you push a child to start working before it has the time to grow up and become a valuable asset in the community, and he/she is going to end up as a drug dealer or worse. That said, growth has to be tracked. So for each of the companies we have defined metrics beyond just cash flow and numbers. We urge companies to track everything measurable, from the number of people who visit their site, the number of people they approach to become franchisees, the amount the franchisees earn, the satisfaction of their customers, the repeatability of customers, the adoption of new products, the growth of markets, new ideas launched, the success of ideas, why certain initiatives failed, what really are the dreams and aspirations of customers not just for today but for the future – everything you can lay your hands on, and most of all the lessons we learn through each of the experiments. Those things matter, and if a company does not show growth in revenue but can show growth in adoption, and other aspects, its a great sign that the company is indeed growing, making progress and learning a thing or two from the market – Yet our process is not complete. We are also learning and adapting quickly. But the results so far have been good – at-least for the entrepreneurs who are willing to go through this without looking at it as a tedious exercise.

The key is to accept that business models evolve – and when we are still in that process, the key is to experiment a lot and in as cheap a manner as possible. For one of our companies we believed that the future would be a voice portal where people will call in and ask for information. The cheapest way to experiment it – rather than building the entire solution and then know, was to advertise the solution (cost of less than 1000 Rs), and put a live person on the other side of the call to take the queries and respond. We got a rather abysmal response. We tweaked the marketing a bit more to ensure that we were not doing anything less on the advertising front. The results did not improve by much. It was time to drop that idea and move on. The total cost for the entire experiment: two weeks of man power and 2K in advertising. And it probably saved us a lot of time and money in the process. The one thing that we are blest with today is in the sheer amount of tools and means to rapid prototype something without infusing or committing an entire business to it.

The concept of plans still has its place – as a tool to stability and as the guidebook for executive MBAs to follow in cases where there is a need to manage chaos within a flood of a workforce in a service organisation like setting. But almost never do business plans seem to hold in organizations that are constantly building high impact products – But need a rather iterative business model approach. Its my strong belief that asking a startup to write a business plan and follow it to the word is detrimental – it can be rather restrictive**. Keep your eye on the problem you are trying to solve. How you get there – I hope you are capable of making some changes in route to get there. This might not be a luxury, but a requirement to build companies as capital becomes scarce as well. The writing is on the wall “Evolve, or become extinct as the dodo did.”

*[Just as an example and not to quote them as the only company. That company has its own flaws as well]

**[In some cases rigid Execution Plans have its place when the founders do have serious focus/clarity issues. In such cases and to know the difference, define experiments with certain time period and resources so that they get it over with and get back on track]

If you are interested to read more on this:
1. [Book] Business Model Generation
2. [Book] Four Steps to Epiphany
3. [Book] Getting to Plan B
4. Agile Software Development
5. Lean Startup
6. Minimum Viable Product
7. Argument Map
8. Plan HQ – Came across this web based tool that allows for dynamic evolution of a Plan and still keep everyone up-to-date.