Below is an excerpt from our book Startups Made Simple: How to Start, Grow and Systemize Your Dream Business. Learn more about the book here.
“Plans are useless, but planning is indispensable.” – Dwight D. Eisenhower
“Give me six hours to chop down a tree, and I will spend the first four sharpening the axe.” – Abraham Lincoln
The only thing worse than over-planning is not planning at all. Yes, I’m going to mention again the importance of even simple planning until I’m blue in the face. Planning is how the modern world was built. One doesn’t just throw together a skyscraper or microprocessor (though their first versions were much simpler).
I get a lot of pushback on this step. People either say the idea can’t be tested yet, or they’re so confident it will work that they think this is a waste of time. For example, I built some productivity software that people loved when I had some basic mockups designed. But we found out during development that mostly people wanted features that were easily copied by the big competitors, and I didn’t have the resources to compete with them. Instead of wasting tens of thousands of dollars (and a year or more), I only spent a few thousand and learned some valuable lessons.
I’ll admit I didn’t have much of a clue what I was really doing with my business before I started writing things down to organize my thoughts. Great ideas became apparent, ridiculous ideas exposed themselves (and were dismissed), and my vision became crystal clear over time. Remember that having a clear vision is a Founder Superpower and key to Step 1.
However, a big problem I’ve noticed in the past few years is the rise of the “wantrepreneur,” someone who knows all about startups, follows Elon Musk and other entrepreneur superstars on Twitter, goes to conferences, watches all the YouTube speeches, listens to all the podcasts, but never seems to actually start a business or even test an idea. This is why execution is one of the most valuable Founder Superpowers; you need to execute on your ideas, at least with a test.
Planning is very important, but it seems the entrepreneurs I’ve known do either excessive planning (and never get off the ground) or no planning at all (and make critical mistakes), so it’s important that we find a better middle ground. As I mentioned in the introduction, most people spend more time planning their wedding than their business or lives. Spend a few hours of planning now to save hundreds of hours later or the unnecessary grief of pursuing a bad idea.
In this chapter, I’ll introduce you to the Startups Made Simple Business Plan so you can quickly refine, test, and get feedback on your idea before you waste precious resources on going full speed into launching your business. Our principle will be that a quick plan violently executed (to paraphrase Patton) is ideal for most businesses that are not overly complex or don’t require sophisticated science or engineering (like pharmaceuticals, processors, etc.).
“Keep away from people who try to belittle your ambitions. Small people always do that, but the really great make you feel that you, too, can become great.”
– Mark Twain
If there’s something consistent about people who have business ideas, it’s that there will be no shortage of people who tell you it can’t be done. The list of things that “couldn’t be done” that are now a part of our daily lives is so staggering it would probably take the rest of this book to list it.
Avoid people who never seem to like any new idea. Yes, it’s critical that you get honest feedback, but you know the type of person I’m talking about—they’ve never liked anything new or innovative in their lives, have probably never taken any kind of risk, and generally are what I like to call a “professional bummer.”
Let me put it like this: I’m certain there’s a professional bummer who could shoot down every idea Elon Musk had and make it seem dumb. They know the business failure statistics and will shove them down your throat. Some people are simply very risk averse, and they aren’t cut out for doing risky things like starting businesses. This is okay, but that doesn’t mean you have to listen to them.
These people seem to actually want to crush your dreams. They may be a friend who doesn’t want to lose you to something else, they may not fully appreciate your dreams, or they may simply be like crabs in a bucket, just pulling anyone down who tries to get out. Remember that most people are obsessed with job security and are not entrepreneurial; consider this before taking their opinion seriously.
We don’t need pessimists judging our business ideas right out of the gate. Knowing when to ignore these people is important. These days, even if I think something is a bad idea, I’m more likely to say, “Hmm, that might work, but I would test it with some potential customers first.” And how would I or anyone know until it was tested?
Also, let’s remind ourselves at this point of why most startups fail, not to discourage you, but so you can keep your eye on these issues and recognize them when you see them. As I mentioned previously, simply being aware of these problems and not making big startup mistakes can increase your chances of success.
Now, the Founder Superpowers in Part One we’ve gone over will help prevent many problems, but these are the big reasons that many entrepreneurs identify after their startup has failed. Generally, the top reasons for failure are in a few broad categories that are many times closely related:
Reason #1: Product Market Fit
This reason is so obvious now that many startup gurus just shorten it to PMF. If there’s not a market for your product or service, then you’re going to have a hard time. This is why testing ideas before plunging in is so valuable; try your best to determine PMF before you even launch. This also includes products with low margins (people not willing to pay enough for them).
Note that I will also include “running out of cash” in this category because if people don’t want your product, then they’re not going to give you cash for it. Also, timing is related to this as well. The Startups Made Simple Business Plan will force you to think through PMF, test your idea, and hopefully avoid this landmine.
Reason #2: People Problems
This is a broad category that includes everything from the wrong co-founder(s) to the wrong first hires. The basic lesson is this: Do you want to work with these people day in and out through possibly very challenging times?
Picking the wrong co-founder(s) will sink your company so fast that I rarely recommend any team split ownership in the company equally; this helps ensure the company is not deadlocked into a dispute that could end it. If each owner has 50%, for example, and disagree, then the result can be catastrophic. Even a 49/51 split is better.
You should have this discussion with any potential co-founder before you start the company, and get something in writing about who will own what. In addition, I recommend listing the areas of responsibility and the hours or deliverables required by each founder. Some founders just take off after a while and contribute nothing, while the others are working 80-hour weeks, which will really hurt some feelings. In the resources, I’ve listed some good articles on splitting ownership equity and an overview of stock options.
Pick your co-founder based on whether you like them, can see yourself working with them forever, and are honest enough to tell each other the truth and resolve issues in a healthy manner. Many friends start companies and won’t tell each other the honest truth, which causes problems.
Your first hires are also important, but not as critical as the founder issue. We’ll go over hiring and management best practices in Step 5, but I will remind you that the first hires are important and may set the culture for the company going forward. Don’t ignore that and simply hire the first person who walks in the door.
Finally, the complexity of employment law is very risky for startups, so I always encourage startups to consider outsourcing all non-core functions of the business. Only hire for the critical functions. It’s amazing what remote contractors can accomplish for your company (basically anything that can be done via computer or phone).
Reason #3: Product/Service Problems
This is also a broad category, but sometimes an entrepreneur will have a great idea yet their implementation will be poor and kill the company. Sometimes, I see entrepreneurs with great ideas and clear plans, but the execution is not well done, and the product or service doesn’t live up to the expectations.
This reason is related to people problems as well as sometimes hiring bad people or having the wrong co-founder(s) and will be the source behind the product/service problems. Imagine bad hires giving poor service or a co-founder’s bad management skills causing implementation problems.
Reason #4: Poor Marketing/Sales
I get disagreement on this issue from some because they think that a great product or service sells itself, and sometimes that is true. But as a general rule, a lot of founders are really a product or service expert but have not learned to properly promote and sell, which is a hugely valuable skill.
Some people think it’s scammy or uncool to toot your own horn, but I believe that’s just silly. I used to think that way myself but now know that it mostly doesn’t matter how great your product or service is if nobody knows about it. We all know the great restaurant or shop that shocked us by suddenly going out of business; I can usually assume they didn’t focus enough on sales and marketing. In Step 4, we’ll go deeply into this to hopefully prevent this problem.
What easy lesson is there to be learned? You want to:
Test, then build and obsess about a great product or service that people want and will pay enough money for to support a real business.
Partner with and hire great people from the start who you wouldn’t mind working with forever.
Learn the Founder Superpowers and also add sales and marketing skills to your skill set.
The Name and Initial Branding
Now, let’s move on to the exciting things like picking a name for this idea. Few topics can get as argumentative as the importance or unimportance of naming and branding at this point in a business idea.
Many will disagree with me, but I think the name and initial branding of the company is pretty important but not worth obsessing over for more than a few days. I’ve seen entrepreneurs waste weeks or longer on this (it’s a great excuse for procrastinating), so don’t make that mistake, but definitely put some solid thinking into it.
Why? For example, I’m now on my third company name and a few hours of strategic thinking would have prevented the hundreds of wasted hours in rebranding, legal filings, domain/email name change, etc. each time. I started out with Bold New Enterprise as a company that helped start new companies. I soon found out that customers were saying Enterprises and didn’t fully understand the name, so I changed it to MyNewCompany.com.
This was the second mistake. We eventually did more than just form new companies, so it never really described that we’ve become this full-service business entity formation and management company. We had to change it again to MyCompanyWorks which I love, and I believe will survive the growth of the company to encompass many possible futures and products or services.
Here’s another example: Say you wanted to start a company that did financial planning for individuals and businesses. Of the two names/brands below, which would you immediately trust more:
Fast Eddie’s Financial Services, Inc.
Integrity Financial Services, Inc.
This is obviously an unfair comparison, but I hope you get my point: The name, font, and coloring can convey more than you may realize. Be mindful of perception. Have I ever done business with a company only because of a logo or name? No. Have I looked through a bunch of companies to do business with and rejected one because of an unprofessional name or homemade logo? Absolutely. Or worse, my brain has rejected a company because of a perception I can’t even articulate, a feeling of something being off.
This may just be me, but don’t discount my opinion on this. You don’t need an expensive logo or branding package; just make sure the name makes sense, meets the basics, and the logo is decent and looks good across where you’ll use it and in monochrome (and looks good square if you intend to use it online as an avatar on social media).
The counter-argument is that it’s silly to waste time on the name, and you’ll discover that even a silly name like Google will eventually reveal itself as cool and could become a worldwide brand. Again, I respect this argument. I’m simply making the point that you should spend a few hours thinking about it but not obsess over it.
With that cautionary tale out of the way, here are the best practices I know of for picking a company (or product) name:
“A good plan violently executed now is better than a perfect plan next week.”
– General George S. Patton
All right, you have a business idea, you’re aware of the landmines discussed above, and it’s now time to begin testing. This is where the Startups Made Simple Business Plan comes into play. We’re going to force you to think through the idea. Your number-one goal is to learn from potential customers so you can validate this business idea.
Long-term business planning is not required for the vast majority of business ideas, especially small businesses. Frankly, your plan is just a guess, and the best way you can guess is to get real feedback from real potential customers. You may find out that many of these ideas may not work as planned, and if so, keep iterating or trying new ideas.
Trying out many bad ideas is better than never even attempting anything. You want to start tinkering with your ideas and not put so much value into the idea, just the testing and execution. As discussed, many famous entrepreneurs dismissed dozens or even hundreds of ideas.
So your Startups Made Simple Business Plan starts with writing a quick paragraph on what your product or service clearly does. Feel free to write out a lot more to begin with, but then try to refine it to a few sentences or even one sentence if possible.
You’ve probably heard of the famous elevator pitch, and that’s what you want: a quick simple way to explain and sell your idea to anyone who will listen. If the idea is too complicated to explain quickly, that might be a warning sign of unnecessary complexity or that you need to take another pass at simplifying your idea.
Next, let’s define who this product or service is built for. Who is the exact customer for this, and where would you find them? The standard who, what, where, and why questions apply here. You might know this by being an expert in the product already, or you might need to do lots of research.
Mostly, you want to define the ideal customer for this product, so we can somehow get this idea in their face and get their opinion on it. This doesn’t have to be perfect now, but try to get as detailed as possible so you can really drill down to someone who will actually use your product or service.
Similar to the RAS as discussed in Step 1, we want to identify our target market and begin putting our brain to work learning how to find and identify these people. We’ll want to know their dreams, frustrations, how they work, and more. See Step 4 for more details on this.
This will be heavily dependent on which type of business you want to start, but there are many ways to test an idea:
“Don’t worry, be crappy. Revolutionary means you ship and then test. Lots of things made the first Mac in 1984 a piece of crap – but it was a revolutionary piece of crap.” – Guy Kawasaki
Now we just need to run our test or tests and start to get feedback. It’s important for you to avoid perfectionism while testing. Your mockup might look crappy, and that’s okay for now. It’s perfectly fine to have cheesy, terrible designs at this point because we’re just looking for feedback.
As mentioned in Step 1, there are several indicators of a winning idea but a really good one is having a potential customer basically tell you to “shut up and take my money!” When you have 5–10 people saying this, that’s probably a pretty good sign. This isn’t foolproof, of course, because sometimes people won’t tell you the truth (especially friends and family), so the important thing is to really get someone to commit to saying they’d actually pay for this right now if it existed.
You might start out with a simple survey that you can make online, send it around, see the feedback, and then move on to a mockup, website, or even an MVP to further clarify and get feedback. When I first launched my company, I had a friend build me a very simple online order form, and I actually placed some Internet ads to see if I could get some orders. I did and this immediately let me know I’d hit on a viable idea. The first website to sell cars, CarsDirect, actually sold some cars this way, simply to prove that people would buy cars online before driving them.
The point is to closely analyze the feedback, move forward, tweak, retest, or decide that this idea simply has no traction, and if not, go back to the drawing board. Don’t get discouraged if this happens. This is just part of the regular entrepreneurial process of coming up with ideas and tossing out the vast majority that will not work. We’re simply making this process faster and much less risky by testing first. Having your ideas shot down sucks, but wasting years on a bad idea is much worse, trust me. Remember Einstein and Edison who had hundreds of dismissed ideas.
You want to at the least take an educated guess on how much money you could make with your idea, so do some quick math to make sure your business will not only pay the bills, but help you thrive and build wealth. Doing this can prevent some big mistakes down the road; many people were simply never aware of the basic financials before starting.
This is not as hard as it sounds, you want to start out by estimating your current monthly expenses to live at your current lifestyle. (Or perhaps you could skimp in the startup phase and dial things down a bit, the so-called “ramen money” that lets you get by.) Let’s say you need $4,000/month in expenses. Next, take whatever you’re selling (product, service, consulting, etc.) and estimate what the profit would be per unit, hour or whatever.
For example, if I’m starting a consulting or service business and I’ll charge $50/hour, I know that I need at least 80 billable hours a month (plus any expenses I incur) to meet my current lifestyle. If I’m selling a widget for $50, I know I need to sell 80 per month (plus the wholesale or manufacturing cost, which can be considerable and drastically change the math, so don’t ignore it). If I’m selling a recurring service for $50/month, I need 80 subscribers per month. You get my point here. Do so some basic math, and you’ll discover just how feasible the financials are on your idea.
If your idea has passed the test phase to your satisfaction, it’s time to start your company. The next chapter, Step 3, will give you the step-by-step instructions for getting this business started, but there are a few planning issues you should consider now before pulling the trigger on your new venture:
So are we ready to launch?
Visit http://www.startupsmadesimple.com for Chapter 6 Resources and to download the Startups Made Simple Business Plan.
This was an excerpt from our book Startups Made Simple: How to Start, Grow and Systemize Your Dream Business. Learn more about the book here or see our previous excerpts here.
This entry was posted on Thursday, August 13th, 2020 at 4:45 pm and is filed under Starting A Business, Startups Made Simple Book. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.
100% Satisfaction Guarantee | 98% Customer Approval | Covid Discount: