Putting Together a Sound Business Plan
Richard Hoy | November 17, 2000
Entrepreneurially inclined? Great. But in your enthusiasm, don't forget that while the Internet changes a lot of the rules, it doesn't change this one: Sound business practices are sound business practices.
I've spent the last few weeks thinking about the next year of my company's life. I thought about where we should focus our effort and what it will take to get there. I was honest with myself about what we're no good at providing. I used this thing -- you may of heard of it (but it seems so few dot-coms have) -- called a "spreadsheet." It helped me to see how to keep the company alive even if we have zero growth next year.
I spent my weeks planning for the worst and hoping for the best. And I can't help but think if more dot-coms had thought this way, the business press would have been struggling for stories to write these past few months.
So this week, I'm going to discuss how to go about preparing a legitimate business plan for an Internet-based company.
- Find your niche.
I wrote about this a couple of weeks back. The greatest opportunity for a small business online is the niches. Customers can come to you (you don't have to go them), you have lower overhead, and niches are harder to kill.
- Figure out the size of the market.
You can't even begin to understand the revenue opportunities unless you have an idea of the market size. So after you figure out your niche, you need to figure out if there is a market you can tap.
- Tap a market; don't try to make one.
It is far easier to find a need and service it than try to create and service a need that doesn't exist. I can think of no better example than one from my own industry -- e-publishing. There are companies in my industry that insist people will pay hundreds of dollars for a physical device on which to read their e-books. If this device were the price of a pocket calculator, then the companies might be on to something. But no one is going to pay that much for a dedicated reading device. There are plenty of cheaper alternatives. So their whole business strategy is planned around a market that isn't likely to emerge. Don't make the same mistake.
- Know when not to listen to your competitors.
I live this one every day in the e-publishing business, but it is true in other segments as well. Just because your competitors are bigger and have more money doesn't mean they have a clue on how to tap the market. They tend to throw money at a problem rather than invest in well-thought-out solutions because in big organizations, money is easier to come by. Pay attention, but don't think that because they do something, you automatically have to do it, too. Follow your own gut. It is usually right.
- Remember to look at things from the customer's perspective.
It sounds obvious, but all you have to do is have a look online to realize few companies get this idea. Always think, "Is this something my customer wants?"
- Make your mistakes early and cheaply.
This principle was the whole inspiration for my series on building an e-commerce site for $6,500 or less. You can use inexpensive, off-the-shelf solutions online to prove something works. Then, once you have cash flow and market share, improve on the process. (This is what 2001 will be all about for us.)
- Be conservative in your spending and projections.
Here's a time when doing the minimum is a good thing. Remember that spreadsheet thing I was talking about earlier? Use it to figure out the minimum business you need to stay alive. Of course, in reality, your effort will be directed toward doing the most business you can. But wouldn't you rather have too much, rather than too little, business coming through the door? (More dot-coms should have heeded this advice.)
- Never believe you're bulletproof.
I can't tell you how many times I've seen this mentality in my life: Companies (and people) think their ideas are bulletproof. No idea is flawless. Study your successes, of course, but spend equal time examining your failures.
- An IPO or acquisition does not a business plan make.
I recently had the privilege of talking with some friends who are successful businessmen about Booklocker.com's direction. Among the many pieces of good advice they gave me, the one that stood out was never plan for an IPO or acquisition.
The fatal mistake most dot-coms make is thinking their business strategy ends with an IPO or acquisition. Then when no IPO or acquisition is forthcoming, their only option is to self-destruct. Instead, you should plan to be running your business for the next 30 years. If an IPO or acquisition opportunity comes up, great. But it should never be your endgame.
Sound business practices are sound business practices. And while the Internet changes many things, it never changes this.