Burn the Business Plan

by Carl J Schramm

  4. Build Your Company as Your Life

  Remember how Susan Walvius, the co-founder of Sheex, described the differences between starting a company and coaching basketball? She said that basketball was easy by comparison: “You practiced, played, and either won or lost.” In business, she observed, the game just keeps going with no ending buzzer. “There’s no just getting through forty minutes.”

  Walvius told me this seven years after she and co-founder Michelle Brooke-Marciniak started their company. While they had no idea what the future might hold when they began, they knew that if they were giving up coaching, a profession they loved, they wanted to start a company that would be around for a long time. What lay ahead was just as tumultuous as they had expected it to be. They had to learn quickly how to contract for fabric production in China, and then how to move manufacturing from one company to another to maximize quality. For two people who had never been abroad except as tourists, they were suddenly faced with figuring out who could be trusted, how much things really cost to make, and how to move raw materials and finished goods from one country to another. Many crises tested them: suppliers broke contracts, shippers didn’t deliver on time, and a major distributor went bankrupt. At times they weren’t sure if sufficient product demand would ever exist to keep Sheex alive.

  How did they keep going? There is something in the success of a new venture that correlates with the motivations of the entrepreneurs. From the outset, most successful entrepreneurs know they are creating businesses that will define their lives—and not just by how much money they might make. Without this intense personal connection to the idea behind the company, a startup founder will have a hard time summoning the persistence necessary to plow through the inevitable rough patches. And persistence, we know, is one of the hallmarks of successful entrepreneurs.

  Throughout my years of meeting entrepreneurs, I always have been impressed by how many successful founders see their companies as living extensions of themselves. This is not surprising; many of us take our principal identity from our work. We know ourselves, and others know us, as bankers, sales reps, chefs, or mechanics. As an entrepreneur, your company will begin to define your identity, and your life will be all about building a company to make better helmets for bike riders or collapsible travel cages for dogs. Making your company survive and become successful will be part and parcel of your personal growth and will shape your character. This is why many entrepreneurs appear to have been born to the task. They are doing something that seems authentic to their lives.

  Eighty percent of firms fail before getting to the magic ten-year mark when, on average, they become self-sustaining and begin to experience scale growth. Those that survive are seldom sold. Over ninety percent of twenty-year-old firms are still owned by their founders. Think about James Dyson and Fred Valerino and their now decades-long relationships with their companies. They are like Jeff Bezos and Mark Zuckerberg, who go to work every day in the companies they started. It can’t be to make more money; Bezos and Zuckerberg are among the richest people on earth. Instead, they are testing and pushing their ideas to shape and discover the future of their companies—and their own destinies. Successful entrepreneurs often have a hard time envisioning a future in which the company they founded doesn’t play a central and exhilarating role in their lives. Great entrepreneurs start companies to grow companies, not to sell companies.

  5. Be All In

  Certainly, starting a company is not for the faint of heart. Because of the high likelihood of failure, as many as seventy percent of all new entrepreneurs attempt to mitigate the risk of starting a new business by continuing to hold down a full-time job. Being a part-time entrepreneur, however, is highly correlated to a lower probability of success. The obvious reason is that becoming economically dependent on their startups makes entrepreneurs work harder to achieve success. So certain is he that an entrepreneur must be entirely committed to his startup that Paul Graham, the founder of Y-Combinator, once observed, “If startup failure were a disease, the federal Centers for Disease Control would be issuing bulletins warning entrepreneurs to avoid day jobs.”

  6. Learn To Manage Chaos

  While all management is difficult, trying to steer a startup, which has no established product, no place in the market, and is perennially under-resourced, is particularly daunting. With little or no management experience, an entrepreneur suddenly must make decisions in one of the most chaotic situations ever.

  When I asked Susan Walvius how she and Michelle Brooke-Marciniak had managed Sheex through the company’s turbulent first years, when they had no clear signal from the market that the company could be successful, she drew parallels with the way coaches deal with tense moments of a game when the outcome could go either way. While every coach and every startup manager has to make decisions on the fly, there are tricks that can help you in managing through the chaos.

  The first is to make brutally efficient use of your time, and figure out a way to get as much of it as you can. In the last minutes of a tied championship game, with thousands of fans yelling and all your players desperately looking to you for the right play, managing the clock is critical. Every coach caught up in a tight game knows that the best weapon can be a “time out,” where she can change the flow of the game, disrupt the other team’s momentum, and re-establish her own strategy.

  Entrepreneurs have to believe that, with enough time, they can solve any problem. How to get more time? While time can’t actually be slowed in real life, most successful entrepreneurs seem to figure out how to manipulate events and conditions so that they play out at a more manageable pace. Many entrepreneurs have told me they retreat to a quiet mental space where they can work through a problem away from the hubbub. Once there, they can reconstruct facts and decide which problems are so critical that they must take priority. They might reshuffle who they consider to be as their most important customers, which suppliers might agree to wait for payment, or, among their investors, who is the most likely to write the next check. In the midst of tumult, all decisions come down to figuring out what you must do right now and what can wait.

  Second, be decisive. Managing mayhem requires the entrepreneur to abandon what might seem like normal causal logic, getting caught up in what seems to be the correct or ideal sequence of events. Crisis requires action. The if-then order that our brains tend to impose on decision-making has to be interrupted. Chaos is often best dealt with by getting to the “then”—the outcome of the action—rather than waiting for the ideal preconditions to present themselves. There are times in a basketball game, for example, that the right advice to players is not to wait for the other team to set up their expected defense, but just to play to the basket.

  Finally, do more of the things that you know, from experience, will make a difference. They are the same three things in every business: Step up your interaction with the market, that is, your sales; strengthen the team you have working with you, your people; and, improve how the world regards your business, your reputation.

  7. Help Your Customers Like Your Product

  In my first company, I stumbled upon one of the greatest lessons any entrepreneur can learn—test the value of your product to potential customers as early as you can. I had invented a way to analyze any hospital’s performance compared to similar institutions. Never having worked in a hospital, however, I was not sure how my target customers might want to “see” such information. I began to visit hospital administrators and asked them to help me design reports that they might use to convince doctors and nurses that other institutions were operating more efficiently, really caring for patients in better ways. I went through dozens of designs for reports with twelve hospitals before I took my product to market. In retrospect, it should have been no surprise that ten of my “trial” hospitals became customers—my product was their product.

  Howard Head knew that his potential customers didn’t know that they needed his new skis. He was perpetually frustrated that he couldn�
�t produce enough skis fast enough to get people to see how much more fun they could have if their equipment was better. Even when he did, customers continued to prefer their traditional wooden skis. Why? “It was just the way things were supposed to be.”

  If cracking the skiing market was hard, tennis was yet more difficult. The sport had been the preserve of country-club players who embraced its traditions, including its equipment. Tennis was steeped in formal rules. Players, by convention, wore white shorts, white shirts, white socks, and white shoes, and played with wooden racquets with catgut strings.

  Head knew that everyone would ski and play tennis better with his products, but he came to understand the world needed help to figure this out. He decided that old-fashioned product endorsements were still important and that the best way to accelerate demand was to identify his products with promising and attractive young players.

  Another entrepreneur who discovered promotional endorsements is Kevin Plank, the founder of Under Armour. Like Head, Plank first sold his line of sports apparel to football players from the back of his car. Through a lucky circumstance, a friend convinced Jeff George, then the Oakland Raiders’ quarterback, to try one of Plank’s shirts. After George was pictured in USA Today wearing Under Armour, demand shot up. Plank learned that branding, showing his innovative product being used by others, was the key to winning customer loyalty.

  Head once told me that he was always torn between “good enough” and perfection. Both he and James Dyson had made technical breakthroughs, but they wanted to deliver more than just better functionality to their customers. They wanted to make their products beautiful.

  Steve Jobs was similarly committed to the pursuit of beauty in his products. He wanted every Apple customer to feel that they had acquired a piece of art—sleek, subtle, and suggestive of the power of the unlimited intelligence to which it helped to connect users. Jobs knew that, like computer makers, car manufacturers compete on technology, but that great design explained market share more than horsepower or fuel efficiency.

  Jobs, like Head, Dyson, and Plank, understood that the more he knew about his customers, the better his business decisions would be. Anyone who has ever visited a Whole Foods Market has encountered a budding entrepreneur handing out free samples. More than ready to talk with you, he is testing market reaction to his new gluten-free cookies, or the fruit and nut bars that he formulated for runners, or his faux-chicken soup made with tofu. Every year, about eighteen thousand new products are introduced to grocery stores, but only eight hundred will make it into inventory. The entrepreneur wanting to chat you up, to provide you with something to eat, is attempting to see if his imagined “target demographic” includes the customers actually taking his new product home. If not, his dream may be going up in smoke right there in the cracker aisle.

  8. Guard Your Reputation

  Once your company is up and running, you must manage its reputation. How it becomes known comes down to whether or not you can deliver what you promise. Is your product all that you say it is? Do you deliver on time? Do you deal with defects quickly? Do your customers say great things about you? Do you have repeat purchasers?

  You know the old saying: “You don’t get a second chance to make a first impression.” It’s true. Once you have a reputation for selling a flawed product or for being unable to fulfill customer demand, it’s almost impossible to dislodge a negative image from people’s minds, much less from social media and other online sources. I once was an investor in a company that developed problems keeping up with product demand. Years later, wholesalers continued to think of the company as slow to fill orders, even though the supply problem had long since been remedied.

  9. Practice Before You Start

  Many entrepreneurs consider starting a company for years before they actually take the leap. While they may be moved to do so by a specific opportunity, it appears that, subliminally, they had been considering for years how to work for themselves or how owning a business could be their right next step. This contemplative pre-entrepreneurial phase doesn’t get much attention; as I’ve noted, the popularized misconception is that business ideas come on like brainstorms and, once someone has one, they can’t help but charge forward.

  Perhaps this is why, until recently, there have been few resources to help nascent entrepreneurs get a feel for what starting a business might be like, or even how to meet and talk with entrepreneurs who have made the decision to start a company. Fortunately, a few newly created programs exist to help those who are considering starting a business, even if they don’t yet have a fully formed concept. These programs help people become familiar with the world of entrepreneurship. They exist to help you recognize whether you are likely to take that plunge, what it might feel like, and what you should do about it.

  The most widely available program, now operating in 110 cities, is the Kauffman Foundation’s 1 Million Cups. An informal weekly gathering usually held on Wednesday mornings in a local cafe, the program is open to anyone interested in meeting with local entrepreneurs who, just like you, once wondered if they should start a company. This is the best program if you want just to get a feel for what entrepreneurs experience, what they think about, and how they plan to grow their new companies. Most sessions involve an aspiring entrepreneur pitching an idea. Unlike business-plan competitions, however, where the proposed innovation is relatively settled, at 1 Million Cups events most of the presentations are early descriptions of ideas to gather reactions and input from the general audience. No one is obligated to join; you can stop by once, become a regular, or even try out an idea yourself. To get a virtual feel for the process, examples of pitches are archived at the Kauffman Foundation’s 1 Million Cups website,2 and you also can find upcoming meetings.

  The Startup Weekend program also provides aspiring entrepreneurs with a perspective on starting a company, but in a more intense simulation experience. Anyone can sign up for the fifty-four-hour experience; an average weekend involves about eighty strangers working together through three days of exercises. On Friday, participating individuals describe their backgrounds, outlining their industrial knowledge and skills, any new product ideas they have, and why they might want to start a business. On Saturday, individuals form teams that reflect shared backgrounds or similar interests in new products. Groups discuss and research ideas, build prototypes using common objects like LEGO blocks, and test their ideas with other participants. This purposefully fluid process encourages individuals to clarify and float ideas in a low-risk environment, creating and joining new teams throughout the weekend. On Sunday, all participants listen to five-minute pitches, which often set off new rounds of development.

  Since 2007, nearly 200,000 individuals have attended these weekends. While their purpose is only to expose entrepreneurs to the process of starting a new business, more than two thousand startups have emerged from the experience.3 One, Zaarly, a cross between Angie’s List and Craigslist, provides a matching service for customers and vetted individuals for “gig” work. It raised more than $12 million in venture capital in its first three months.

  Another community resource is the Blackstone LaunchPad program. The initiative was created during the 2008 recession to help University of Miami graduates who were having a hard time finding jobs. The idea was to teach them to create a company as a means of making their own job. Established as part of the school’s outplacement program, it is nondirective and operates without a curriculum or formal programming. Rather, using a technique much like Apple’s CBL, participants learn by quickly surveying ideas that might be developed into new businesses. They gather as much information as they can about an industry, its marketplace, and what makes companies in the space successful. In some ways, it is like an extended session of Startup Weekend.

  Through these LaunchPad programs, university alumni play supportive roles in helping students with their startups, providing introductions, and, in some cases, becoming first customers. While generally located on campuses, t
he programs and their resources are commonly open to anyone in the greater community. In its first eight years, the University of Miami’s program has birthed more than four hundred companies and created several thousand jobs. Initially funded by Kauffman, the Blackstone Foundation has sponsored new LaunchPad community sites on twenty-five campuses.4

  Although operating in only a handful of cities, TechShop allows anyone needing prototyping facilities to use a completely fitted-out machine shop.5 Among the many tools that innovators and entrepreneurs can find on site are 3D printers, laser cutters, wood- and metal-working machines, welding facilities, printing presses, looms, and sewing machines. Similar machine shops exist around the country, part of the emerging “maker movement,” where entrepreneurs can build prototypes and, in some cases, make their products. The Toronto Public Library, for example, operates a community machine shop, harking back to Andrew Carnegie’s vision that public libraries were a critical resource for stimulating more industrial innovation in their communities. Many universities are opening prototyping facilities as well. While generally limited to students, some allow access to community members working on entrepreneurial projects.

  10. There Are No Rules and You Are Playing for Keeps

  Many aspiring entrepreneurs approach the possibility of starting a business after seeing that an enthusiastic community support network is ready to assist them. In fact, as many as 100,000 people work in programs operating at the local level that are aimed at encouraging entrepreneurship. Despite the fact that there is no evidence of their effectiveness, community incubators and business-development centers enjoy public funding of more than $2 billion annually.