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How to Start a Business

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Don’t follow MBA, SBA or SCORE advice.

The SBA’s SCORE site had a “how to start a business” blog recently, but the traditional MBA-style advice is too “ivory tower” to work. It’s both much simpler and a little harder than they make it sound.

The SCORE blog post says figure out 1)what you’ll do 2)who your competition is 3)your overhead 4)how much money you can make 5)your potential profits, and 6)your funding. If you follow these six steps, you’re almost certainly going to fail.

It’s well-meaning advice, but doesn’t reflect how it really works. I’ve started and grown seven businesses, two that are international and made enough mistakes to figure out some basics. Here’s how I would start a business:

1) Take your product or service to market, put a high price on it (it’s always easier to come down than go up) and see if someone will buy it. If this doesn’t work, don’t do any of the other steps above – they are a waste of time if you aren’t already selling something. And if it does work, most of the other steps above will force themselves on you at the appropriate time.

Finding someone to buy your product or service is the first and only thing you should do before you do anything else. It should have been #1 on the SCORE list.

2) DON’T do a business plan (steps 1-6 in the SCORE blog) – they are nonsense and fortune-telling, and they keep you from going out and trying to sell your product to see if you have something viable. They also make you think you know what you’re doing, which keeps you from seeing great opportunities and obstacles. And they uncover 127 things that COULD go wrong (not WILL go wrong), which causes you to spend precious time and resources mitigating things that will never happen, and paralyzing you with all the bad things that might happen if you go into business.

The second worst thing you can do starting a business is to do a business plan. The absolute worst thing you can do is follow it. Check out the story of Webvan – a $2billion startup that is the classic case of a company that built an incredibly elegant business plan with brilliant management, then followed it right off the end of the earth (and they didn’t do #1 above until they were $1 billion in debt). Do a 2-Page Strategic Plan instead.

3) Figure out your profit margins. How? See #1 above – sell something at as high a price as you can – well above your minimum margin. Again, you can always come down. I worked with one client whose product cost $.35 all in (including marketing). They made a few of them, put it on the market for $8.50 and it didn’t sell. Over a period of a couple months they got the price down to two for $6.50 and they sold like hotcakes. Once they knew that their margins were huge, they had real data to determine their profitability. Do not determine your profitability in the ivory tower of a business plan – it’s voodoo.

4) Never take outside money unless there is no other way. 84% of the Fortune 500 companies never took VC or other early stage funding. It’s a myth that you need money to grow your business. VCs want you to believe it’s a must because they want to grow your business REALLY FAST so they can sell it out from under you and run off with cash. They’re building cash cows, not businesses.

5) Do NOT figure out your competition. You don’t have any competition except your own head. Do NOT look at what other people are doing to find out how to be successful. If you don’t have enough creativity and uniqueness to enter the market without looking at what others are doing, you shouldn’t be in business. See my blog titled Your Competition, Isn’t.

Doing it Wrong and Fixing the Process
I worked with a business owner recently who made the mistake of consulting with SCORE and doing everything they recommended. He had 80+ products defined and produced, a warehouse, financing, a great retail location, and $250,000 in inventory. When he finally started taking his products to market, the market wanted them packaged in entirely different ways and amounts and at different price points, and about 70 of his products were not selling.

We recommended he dump the warehouse, the retail shop and 75 of his products, and get on an airplane to major retailers, get their feedback, and learn his “business plan” in the trenches. With this approach his overhead is nearly gone, and he is now making money and profit. He would have been out of business in six months the other way. He can build all that other stuff after he makes some money.

How to Start a Business – redux; Sell Something.
Real businesses do not start with thinking, planning, researching, compiling, statistical analysis, building a “great” product in a lab, marketing, vetting your competition, estimating your overhead or finding a possible funding source.

Real businesses don’t start that way – not HP, Apple, Honest Tea, Google, 37Signals, Facebook, a plumber, or just about any other real business you can name. Read Bill Hewlett’s quote under HP’s Early Days here – he went and sold something (a few really stupid things) – this is how you start a business.

Go sell something. If it doesn’t sell, do what Hewlett and Packard did, sell something else. Don’t do anything else first. Once you have something that sells, your “business plan” will unfold in front of you in real time, in the real world. It’s counter-intuitive and doesn’t follow the mantra of the MBAs or the SBA/SCORE who think you should get it all figured out ahead of time, but it’s the way real businesses are successful.

Stop planning – get selling (quickly and inexpensively, on a very small scale).

If you haven’t been arrested in Tanzania…

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…you haven’t lived.

Building a business is a lot like my trip to Tanzania. I was supposed to be there for seven hours just to meet a Congolese Chief. Five days later I was still trying to get across the finish line and get home.

The trip seemed to be over at least 20 times.

At the outset, my visa and passport didn’t come back to Denver from the visa processor in NY. The day before I left I set up two one-way flights to NY and DC to get it, and then canceled them as the passport ended up in DC. I got it 30 minutes before they closed the doors for my flight to Africa. I raced through security and walked on as they closed the doors.

I needed to be in Tanzania to honor two chiefs, who were going to do business with us for years to come. Even though we had competent employees there, it would be an insult to not meet an owner for their first export shipment. Two days both directions on an airplane for a few hours with them was well worth it.

The visa snafu was only a warm up. They were supposed to meet me at the airport in Dar es Salaam, Tanzania. When I got there Wednesday I learned they hadn’t been able to get across the border into Uganda from the Congo yet, but would arrive the next day, Thursday. I lost my non-refundable ticket home and bought a one way for the next night.

I had no hotel, no contacts, no knowledge of Tanzania. English is the written language but I was having trouble finding anyone who spoke anything but Swahili. I got a cab, a hotel, dinner, and went to sleep.

The next three days were spent trying to figure out how to get the Chiefs from the DR Congo through Uganda to Tanzania. It was excruciating, and at least twice I had to have the airline call the gate to release my seat with just 90 minutes or so before the flight, so I could get my money back and schedule one the next day. The third day I took a long walk. That was a mistake.

On that walk I took a picture of a street with nice trees and a tall wall down one side, and was quickly faced with three policeman in fancy uniforms who let me know it was the President’s house behind the wall, and I has just taken an illegal picture. As they confiscated my iPhone and were walking me back to the guardhouse I realized my passport was back at the hotel, a big no-no, and my one-day visa had expired three days ago, a bigger no-no.

I was in the country illegally.

I decided to employ the adage “He who makes the rules wins”. So I grabbed my iPhone back from the guard, showed him how I could delete pictures, made small talk with a few simple phrases I’d learned in Swahili, then made a bold move. After asking his name, “Jina lako ni nani?”, I told him mine and said, “Nafurahi kukufahamu” (pleased to meet you). Then with my iPhone in my hand, I turned around and started to walk away.

He let me go and I didn’t turn around to ask why. It could have cost me my iPhone, my computer (which I had in my bag) and a few thousand shillings in my wallet. I slept real good that night.

On Saturday, four days after I was supposed to leave, only one of the Chiefs arrived with our employee. The other one was still stuck in Kampala, Uganda. I changed my flight again at the last minute to leave Sunday. By this time I had frozen up two credit cards with what looked like suspicious activity in Tanzania (the card companies didn’t know I was there). The third and last card worked.

We spent the next 24 hours doing everything we could to get the Chief there. He needed money via Western Union. My third card was now locked up and so was my ATM debit card because I had hit the limit getting cash to buy them hotel rooms, dinner, etc. We had someone wire us money from the states, but when it came two hours before the Chief’s flight, they spelled Marian (our employee), as Marien, and Western Union wouldn’t give us the money. After all this it looked like an ‘e’ was going to wreck the whole five day ordeal. We headed back to the hotel wondering if it was all for nothing.

At the hotel, exhausted and out of options, I tried my ATM card one more time. It had come out of its 24 hour max, and the machine spit just enough money to buy the airline ticket. We raced back to Western Union but learned on the way there that the Chief was 10 kilometers from the airport and needed $6 to get a cab to get there. With only 45 minutes left before his flight, it wasn’t going to happen.

We went back to the hotel and Marian talked to the Chief. He decided we had been honorable in trying to get the other Chief here, so he would sign the papers for both of them. We signed, took pictures, and with 10 minutes before they closed the gate for my flight to the U.S., I walked on the plane. Had I missed it, I wouldn’t have had enough money to even get a hotel.

I got back in Denver at 1pm on Monday, changed in a hotel bathroom and facilitated a workshop from 4pm-6pm. That evening I took my first hot shower since the Monday before and had a great night’s sleep.

The point?
Honestly, this is how you grow a successful business. You have a clear goal in mind, you get moving, and then the world begins to interact with your plan. And from that point on it’s nothing like your fancy business plan said it would be.

It’s like a stream running downhill, winding all over the place to get where it needs to go. Those that get tired of hitting and overcoming beaver dams will quit. Those that are able to clearly keep the goal in mind will keep going, pay the price and push their business over the top to profitability. Those seven days were like a compressed microcosm of what it was like to build the seven businesses I’ve started over the last 25 years.

Want to be successful? It won’t happen because you have a great idea, big financing or slick marketing. It will happen because you know exactly what the goal is, you never lose sight of it, and you become a bulldog, doing whatever you have to in order get across the finish line, even if it means making your own rules.

Building a Business is Really Simple

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Get out of the garage.

My friend Alan Wyngarden has done some adventure travel and says: “The hardest thing about climbing a mountain is just getting out of the garage.” Huh? Actually, it’s pure genius.

A year ago I shared a business concept with Alan around building intimate assisted living homes that I had heard about.

I didn’t have the inclination to do anything with it but wanted to see if others I knew might benefit from running with it. I shared it with a number of people who loved the idea, but only Alan gave birth to it.

Yesterday I attended the open house for his first home. It is gorgeous and Alan has the best people in the industry working for him, creating a unique, honoring and beautiful environment for those who need a little assistance at an advanced age. It even has raiaed gardens for them to plant without bending over – great stuff.

I chatted with Alan about this last summer and within a week he was moving on the idea, with the full dream realized yesterday, only a few months later. The others who thought it was a great idea never moved on it. Alan is thinking he’ll have five of these homes up and serving the elderly in the next year or so.

Building a business is really very simple. You just need to get out of the garage. As with climbing a mountain, the training isn’t the problem. It’s leaving the garage to DO the training that hangs us up. GETTING STARTED stops us more than any other thing in business. If we would just get started the rest of it would fall together for us.

But we wait. We research, we talk, we think, we plan, we collect data. We believe we need to get it all figured out before we move. But neither life nor business works that way.

Planning never creates movement, but movement can create a great plan.

Alan had no experience in the industry when he started moving. He just got out of the garage and started looking for a property, then started sniffing around to find those who might be able to help him build an expert team.

By the accounts of others who have been in the industry for years and who own many of these types of homes, he’s hit a home run with both his facility and his team. He didn’t get there by reading. He got out of his garage. And that movement created a marvelous plan.

Building a business is really quite simple. We just need to get out of the garage.

Speed of Execution is so important to success. What great idea are you sitting on that you just need to get out of your garage and get started?

Business is Full of Beaver Dams

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Struggle is Good. Embrace The Dams.

Traditional business plan thinking tells you that if you plan well enough, you’ll avoid all the “problems”. But usually it’s those “problems” that lead you to the best plan.

I’m not saying don’t plan, but I am saying don’t do very much of it in a vacuum, and don’t expect that it will keep you from hitting beaver dams on your way down the stream.

In fact, it’s the beaver dams that are much more likely to lead you to the things that will produce time and money for you than any amount of planning you do.

The average business goes through five to 15 iterations of lame products or services before they land on the thing that puts them on cruise control. And the only good way to find that groove is to go through all those bad attempts, not by planning.

One of Hewlett Packard’s first products in the late 1930’s was an automated bowling lane aisle violator. That lame product led them to a harmonic tuner, and after that beaver dam they decided to do an automated toilet flusher. Traditional business planners would have applied all of their collective “wisdom” to kindly putting HP out of its misery. But it’s those dumb products, and an unwavering commitment to finding good ones, that led HP to make such great contributions to modern technology.

Bill Hewlett understood that it wasn’t about how good their plan was, but how committed they were to the bad plan they had. Business is full of beaver dams and it’s those beaver dams that will cause us to turn right or left and find the best way downhill. Don’t create a highly detailed plan and slavishly follow it – you might miss the beaver dams that could take you to the promised land.

Instead figure out what your end goal is as a company (Hewlett said that for them it was “to make a contribution to society”), then be fundamentally committed to getting there. And use the beaver dams of business to help you figure it out.

We’re taught to avoid struggle of any kind, which is a really bad idea. Struggle helps us run a four minute mile, write a symphony, build a road and learn our ABCs. People who expend all their energy planning to avoid struggle miss all the opportunities to grow personally or build a great business.

Don’t go looking for beaver dams but don’t avoid them when you run into them. Embrace them, learn from them, figure out whether you have to go left, right, over, under or through them and use them to get to your ocean.

Expend all your energy avoiding them and you’ll hate them because they stood in the way of your great plan. Learn from them and they’ll be fond memories in the rear view mirror that pushed you in the right direction.

Embrace the beaver dams. Struggle is good if you use it to get where you want to go. It’s your choice.

A Business Plan Will Not Make You More Successful

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Palo Alto Software, which makes business planning software, just did a survey to their own users to show that those who completed business plans that they started with Palo Alto were nearly twice as likely to successfully grow their businesses or obtain capital as those who didn’t finish.

This research is a classic example of “there are lies, damnable lies, and statistics” (stolen from Twain who got it from someone else). An even more reasonable conclusion – people who DO SOMETHING and follow through on it are twice as likely to successfully grow their business.

My second book (to be published in December 2010) is titled “Bad Plans Carried Out Violently” and promotes the idea that DOING SOMETHING trumps pre-planning almost without exception. I’ve talked with hundreds of successful business owners and asked them two questions:

  1. Did you do a business plan before you started your business?
  2. If you did, how well did it project what actually happened over 1 yr, 3 yrs and 5 yrs?

The number of successful business owners who do a business plan before starting their business is statistically insignificant – well less than 1%. The only reason the small minority gave for doing one is because they had to in order to get money from a bank or investor (almost no one does one just for themselves). That should tell you something about the classic “pre-planning” Business Plan we’re all taught is so important.

Of those very few that did do a Business Plan before starting, virtually none of them say their Business Plan projected accurately what actually happened in the next 12 months, or 3yrs or 5 yrs. To the contrary most said their Business Plan was wildly off from what actually happened in the real world.

The conclusion is that successful business owners don’t do a classic Business Plan unless banks or investors are involved, and that they never look at it after that. So it has real value for getting a loan, but not for running a business.

Stop planning and get moving! Do a simple 2-page Strategic Plan and revise it every month with the input your business gives you – you’ll be better off.

“Committed Movement in a Purposeful Direction” and “Implement Now. Perfect as You Go.” – two concepts from my next book – are much more instructive to success than pre-planning. Knowing the end goal is extremely important – knowing beforehand the path for how you will get there is fortune-telling.

See the new book from 37Signals called Rework for others affirming this as well.

Planning won’t even get you a good plan, let alone success.

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Stop thinking. Get moving.

Planning does not create success or even the best plan. It also doesn’t create action. Most planning just creates paper, spreadsheets, complexity, doubt, paralysis, and dream-dampening. There are two things that create a far better plan than planning itself.

If you believe that meticulous and detailed planning of every possible contingency is the best way to create success you won’t like this post. To make matters worse, I’m probably going to accuse you of living in a dream world.

How many SUCCESSFUL businesses were started from a highly developed business plan? Next to none. And of the very, very few I’ve found that were started from a business plan, when asked how that worked out for them, most laughed but none said that reality had followed their excel spreadsheet plan.

Yet we keep slavishly promoting an antique practice that has almost never done anything for anyone except get someone an “A” in an MBA class on how to build a business plan. Oh, and it will get you into debt, because banks are still requiring business plans so they have a teddy bear to hold while they give you money. None of those work out either, but most banks haven’t figured out there is a much better way to see if someone is going to be successful.

This isn’t a blog on the attributes of success (maybe I’ll do that one next week), but creating a 30-page business plan isn’t one of them. To the contrary, the simpler the initial plan, the better, because it’s going to change anyway.

I advocate a 2-Page Strategic Plan (never do another classic Business Plan unless you have an antique bank asking for one). A simple 2-page Strategic Plan is set up to change, adapt, and be clarified every one to three months – you know, sort of like life.

It shouldn’t take more than a few hours to do it because, again, like life, it’s going to change very quickly. The only part that is likely to not change is the objective – what do we want to see as a result? The rest of it is up for grabs – anything that gets us to that result will be added and anything that isn’t will be removed.

Once you’ve got a simple plan, the two keys to making it into a great plan are:

  1. Commitment (to the objective, not a plan)
  2. Movement (in a purposeful directions toward the objective, not “activity” based on a plan)

It is NEVER how good your plan is that creates success, but how committed you are to the bad plan you’ve got and how willing you are to get moving on it NOW. As you move with absolute commitment in a clear direction toward the objective – that commitment and that movement will work together to make your so-so plan into a world class one.

Commitment and movement create success, not a tortured 30-page document. And a simple 2-page plan will become brilliant over time if there is enough commitment to the objective and enough movement to inform you what to keep doing and what to keep changing.

Stop thinking, get a clear objective and get moving with abandoned commitment toward that goal. Use the movement to make the plan better all the time. You’ll make more money in less time by committed movement than you will by sitting around trying to figure out what might go wrong.

Why Bad Plans Will Make You More Money Than Good Plans

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Good plans, aren’t.

The Marine Motto.

When I was on the Marine soccer team many years ago, our team action plan was:
“Bad plans carried out violently many times yield good results. Do something.”

We weren’t the most talented team. We played a Brazilian team that was like watching a Monet get painted, or poetry in motion. The ball stuck to their feet like velcro and they passed and controlled beautifully. When we were lucky enough to get in the way, we would kick the ball as far down the field as we could, run under it and hope we got there first.

It was a bad plan, but we carried it out with commitment, and more often than not, our bad plan worked better than their good plan, because we were more committed to our plan than they were to their good one. We didn’t win the league, but we went far beyond our collective skill set, and made it to the finals. Not bad for a bad plan.

Good business works just like our Marine soccer team. Somebody did a study of sales people who make over $250,000 and found out that the #1 reason for their success was SPEED OF EXECUTION. It wasn’t how smart they were, or how much better their product was than they next guy, and it certainly wasn’t that their plan was better then somebody elses. When something came along that would help their business, they moved on it faster and made more money.

Did you ever really come up with a good plan anyway? How many business plans have held up for more than a few weeks before they begin to change because they came in contact with the real world? What you thought was a good plan was just a bad plan that you spent way too much time on before you implemented it. If you would have exposed it to the light earlier, you could have perfected it much more quickly.

Really. Speed of Execution is the #1 indicator of success in business. Get there before the next guy. There was a book written a while back that sums it up in the title “It’s not the big who eat the small, it’s the quick who eat the slow.” I never read it because the title gave it all away.

Execute Now. Perfect As You Go. I’m not advocating you run your business on bad plans. I’m advocating that you perfect every plan by getting it into practice as quickly as possible, so that the real world will inform you as to what has to change to perfect it. The key to success in planning:

  1. Get the plan into production at the very earliest opportunity.
  2. Carry it out violently. (or in business terms, with complete commitment). It’s better than the plan you didn’t have before. If you just fool around with it, don’t expect to win.
  3. Perfect as you go. The problem is that we either a) think about the plan forever and don’t do it, or b) implement it immediately and then never learn and improve. The whole point of contact with the real world is to give you a better chance of turning your bad plan into a great one. Entrepreneurs love to role out bad plans quickly – it’s a great strength. They also get bored easily and rarely perfect the plan they’ve rolled out. It’s a great weakness.

Bad plans carried out violently sometimes yield good results. The number one indicator of success is SPEED OF EXECUTION. Time kills deals, and it kills businesses. Figure out the essentials and get moving. Then focus intently on constantly improving the bad plan until it runs itself.

Most businesses are stuck in Survival. The idea is to move through profitable Success to Significance. We don’t get there largely because we want to get it right before we do anything that would actually help us get it right. Get a bad plan and carry it out with commitment and watch your business grow. This will also help get you off the treadmill and back to the passion that brought you into business in the first place.

Carpe diem and all that stuff. Like the Chinese proverb says: “The best time to plant a tree is 20 years ago. The next best time is today.” Stop thinking about it, go dig a hole, and plant something that will help you grow your business. What bad plan have you been thinking about too long? Get moving on it.

TODAY