Posts tagged ‘Business planning’
Don’t write a business plan. Business plans are designed to force you to think through every obstacle and potential event. But, if you write a business plan, the only thing you’ll learn is you can convince yourself of anything.
We need to avoid the business plan.
They take too long
You will waste more time fussing with Excel’s chart formatting on a financial break-even analysis than answering real questions about your business. You will make wild predictions about revenue, which may not be grounded in any type of reality.
Take a look at any business plan, and you’ll see revenue predicted to grow exponentially. For most startups, revenue growth is not exponential or even consistent.
You’ll quickly realize business plans are fiction.
Your business will need to change the moment you launch
Within weeks of launching your business, you’ll will find yourself needing to change something about your business. It may be your overzealous revenue prediction, or something else. Either way, whatever you wrote in your business plan will need to adjust significantly.
Unplanned events cause every business to evaluate how they operate, produce or market. Every business will experience them. A 30-page business plan will not necessarily make you any more prepared for those situations.
Investors invest in people, not business plans
Business plans are not for investors. If you’re seeking support from a venture capitalist, you’re not going to spend a meeting reviewing your business plan. Instead, you will give a brief pitch, share your revenue and margins to date, and then answer their questions.
They wouldn’t believe your revenue estimates anyway.
What to do instead
There’s a clear distinction between writing a business plan and the process of business planning. A business plan is a Microsoft Word document with charts and pages of your ideas. Business planning, however, can happen anywhere. Open up TextEdit on your Mac, or grab the back of a bill, and jot down answers to these five questions:
- What will you sell and for how much?
- How will you attract your first customers?
- How much will it cost to acquire each customer?
- What will your expenses be?
- How many customers do you need to be profitable?
If you narrow your business planning down to those few questions, you’ll be able to focus on launching, adjusting and becoming profitable — no executive summary needed.
Then, share your idea. Tell your friends about your idea. Sure, they could try to steal it, but trust me, they won’t be your most serious competition once you launch. You need support from friends, and you need their opinion about your business.
Are your prices too high? Are you pitching your product to the wrong audience? Have you underestimated your expenses? You may arrive at a few of these realizations after spending a lot of time writing a business plan, or your friends may be able to tell you upfront and directly.
It’s your choice.
Entrepreneurs love their new business ideas. But it’s not worth poring the effort into launching a business that may not have a customer.
Many startups may be so invested in their idea that they cannot see flaws, like a smaller audience than would be able to support their business. Wouldn’t it be great if you could determine whether or not a business will succeed prior to launch?
A better way: Google Consumer Surveys
Last month, Google announced Google Consumer Surveys, allowing anyone to set up a brief, affordable market research survey. Create your survey with a few clicks, and Google will collect responses and compile results into beautiful charts.
Survey owners pay between $0.10 and $0.50 per response. Sample sizes can be as small as 500 and still provide statistically significant results. That said, Google Consumer Surveys isn’t designed to compete with full-service market research firms.
Entrepreneurs can use Google Consumer Surveys to spend a few hundred dollars upfront to see if their business will attract a customer. If the survey returns unfavorable results, adjust your idea and try again. It will save more money than relaunching a business.
Google Consumer Surveys in practice
Let’s say you are an entrepreneur with a business idea. You want to launch a business that sends subscribers a pair of new socks every month.
First, we’ll begin our survey by giving it a name.
Next, we’ll specify the audience. Google Consumer Surveys lets us choose between a nationally-representative sample, an audience based on particular demographics, or a custom screening question. Businesses aimed at the general market can stick with the default choice, “an audience representing the US internet population.” If you want to target a specific audience, such as parents or small business owners, you can create a screening question. Any type of filtering pushes the cost-per-response from $0.10 to $0.50.
For us, let’s say our business will target males, so we’ll set the survey to target males. Google Consumer Surveys does not actually verify whether only males answered my question, but they use a cookie pool to infer demographic segments.
Then, we’ll create our question. Let’s simply ask, “Would you pay for a service that delivers a new pair of socks to your home every month?” We’ll let respondents choose Yes or No, and we’ll give a third option of “Not sure” to prevent undecided respondents from skewing the results.
Take a look at how we phrased the question. We asked, “would you pay…” and not something like, “would you be interested in…” We want to craft the survey to determine if people both like our idea and would be willing to pay for it.
Finally, we can review our survey, select the sample size, and purchase. Google Consumer Surveys will recommend a package based on statistical significance. In this case, our survey will cost $250 for 500 responses.
Once your survey is ready, which can take anywhere from a half hour to a week depending on the audience, Google Consumer Surveys builds a report with decent data slicing tools. See your responses overall, or drill down by demographic target.
At the bottom of the data page, Google Consumer Surveys will show the sampling bias according to the current US Census population survey. It’s rare for research firms to show sample bias, and people may forget about bias when evaluating results. Consider it one of the benefits through using the tool. Even if you work with a full-service market research firm, they may not provide details about their sample’s bias.
If the Data tab shows the response totals, then the Insights answers the question, “So what?” Google Consumer Surveys will scrub the data and pull out the most interesting points, based on their indexes. It’s a great way to review unique findings in the data.
Just be careful
Running a market research survey can be a best practice before launching a business. As you saw in our example, paying $250 for a survey is significantly cheaper than launching a full business.
Tread carefully, though. Respondents are answering your question to the best of their ability, but it’s not a guarantee they will purchase from you, or like your execution of the product, or like your price point. Survey results are only one indicator whether or not your business will succeed.
Often, consumers will struggle to tell you if they would be interested in purchasing, especially in evolving verticals like technology.
Use surveys as a gut check whether you believe too strongly in an idea, and then follow the guidance from Steve Jobs — “It’s not the consumer’s job to know what they want.”
Photo by static416