Friday, October 3, 2008

Business Plans and The Business of Software

I recently had the opportunity to attend the Business of Software conference. I heartily recommend future versions of this conference if you have a small software application – particularly web based – that your company is selling.

Jason Fried of 37 Signals  was the most provocative speaker. He spoke on how to get your small software company up and running without going to venture capital – in essence preaching a ‘small, profitable and sustainable’ model for business.

  • Momentum is key
  • Use very short projects, this keeps up enthusiasm
  • Planning is overrated: no projections, specifications, roadmaps (Planning gives the ‘illusion of agreement’ – that people all understand the specification in the same correct way – when they don’t). Or as Steve Johnson from Pragmatic Marketing says: “Friends build products, enemies build documents”
  • Get rid of abstractions
  • Optimize for now – decisions are temporary
  • Danger of Red flag words: need, can’t, easy, everyone, nobody. These words represent abstractions of underlying beliefs – get to what is really behind them.
  • To create requires uninterrupted time = productivity. Make that happen
  • Focus on what does not change – what is a problem today and 10 years from today?
  • Under doing
  • Target non-consumption – people who want to buy a solution to a problem, but don’t because of cost or usefulness
  • Find simple solutions to basic problems
  • Follow the example of Chefs: out teach, out share, out contribute
  • What do you share?
  • Imagine if your software was a physical product. What would it look like?
  • Give up on hard problems – there is an abundance of easy problems out there
  • Compress your days into doing only what matters – that increases productivity and gets you out of the office (not about working all the time)
  • Build it while you use it

I’m still digesting all of his points – kind of like listening to Tom Peters. But since we at the incubator place a great deal of emphasis on planning your business, I wonder about the application of point 3 not to software development, but to business planning. Am I sending new entrepreneurs down the wrong path when I ask for a business plan? Do they just need to go on and do it?

Certainly the standard VC oriented business plan is not going to be of much use for most entrepreneurs: they don’t need to be messing with EBITA outcomes on spreadsheets, or locating influential board members. But you still must answer fundamental questions such as: “is there a market?” “What problem does it solve?” “Do I have enough money to keep going?”

Jason makes the same point really when saying “focus on what does not change” and “build it while you use it”. The easiest market to understand is you – as long as you are representative of other members of the same group. In fact Jason was adamant to not work on a product in a sector you don’t already know – you don’t really understand it, and if you aren’t an accountant (or interested in accounting), writing accounting software is going to be a real grind.

I think there is a realization that people have been stressing too much over the BUSINESS PLAN (ominous music playing). Tim Berry of Business Plan Pro software has recently come out with a book entitled “The Plan-as-you-go Business Plan” – a seeming paean to not writing a traditional business plan, by someone whose software helps you write a business plan.

In response to Jason, I might say when I ask someone to develop a business plan I am trying to judge the fortitude or tenacity of a new entrepreneur sitting across from my desk. It gives me some means to tell if a person has thought at all about this business idea he has – and how he reacts to the request. If he says “who can I pay to write my business plan?” that tells me something about the person. If he says “I am too busy to write a business plan – I just need someone to give me money!” then again, that tells me something about the person. (Maybe Jason would say I am just abstracting away from the real issue.)

In my role as an incubator manager, I have to figure out, with very little information, whether someone would be a good candidate for admission, or at the minimum, how I can help them. I need something more than them coming in and talking breathlessly about their new idea. And requesting a business plan is a nice way to let someone know they need to think through a bit more their idea. Perhaps to make it more obvious, I should ask a prospective entrepreneur to answer a set of questions: “tell me about the product?”, “Who will buy it? Why?” “What is wrong with competing products?”

If they can answer the questions clearly, then I can learn how I can help them be more successful with their business.

As Dwight Eisenhower said, “Plans are nothing, planning is everything.”

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