DHH: Doing a Start Up in the Real World [video]
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A business plan is simply the result of doing basic research like:
* estimating the size of the market * checking out the competition * estimating your costs * figuring out what drives your costs * figuring out just how much you need to sell, and at what price, to cover your costs * agreeing who's gonna do what when, roughly
and a number of other things..
A "business plan" is just a piece of paper. Business planning, on the other hand, is essential - unless you like to fly with your eyes closed.
Doesn't mean that you should never do those things, just that I generally find them overrated as your ability to gauge market sizes for non-consumption products is very limited (which is what we try to do almost exclusively, attract people who haven't used a product in the category before).
How do you know you are doing just fine? How much of the market have you captured? How big is that market? What if you had created your business plan 5 years ago and today you did triple your sales? Would that extra 2-3 weeks of work be worth it?
I'm pretty sure they just look at their bank accounts.
In all seriousness, there's doing fine and being greedy. There will always be a step to climb, a market to reach or revenue to grow. The goal is to do enough to enjoy life and be comfortable, not to be the richest man in the world. At some point, you can do "well enough" and not worry about what "could have been".
My point is this: Though they may have taken Jeff Bezos on for his expertise, Bezos made his investment to earn a return. You don't invest in private or public stocks in a capitalist world to do just fine. You don't start a business for that reason either. That's not greed, that's entrepreneurship.
I flew blind in my first business too, but I didn't have the gut instincts built up over years of consulting, like you did. So my first business failed, for a variety of reasons that included the fact that the product didn't fill any real need. If we'd done a bit of market research earlier on, we might have figured it out early enough to adjust.
Now, of course, if someone follows all the best bits of "Getting Real", they'll have a better chance of figuring out these kinds of problems ahead of time, even without a business plan. But Getting Real is not necessarily all that easy for everyone to follow. You need to already be a moderately experienced entrepreneur to make the most of it, imho.
For the neophyte entrepreneur, then, I'd still recommend spending a couple of weeks putting together a business plan, simply as an additional safety net.
I always see the recommendation to spend a huge effort on business planning, etc., up front before you start. This can often lead to giving up on the idea, though. Yeah, you might say then that the person doesn't have the passion to be successful if that is the case but alternatively, I've found that with software, simply doing it and getting something working is what really generates the motivation.
Maybe business planning is good but it doesn't necessarily need to be the first thing you do and it's not worth it if the result is that you do nothing instead.
I'd argue to just do something first.
To get the loan that we've taken out, and to get meetings with useful people, we've had to have a traditional business plan and cashflow forecast.
Here's the good news though: it only took me one evening to write and another to edit, and it doesn't matter if we don't stick to it.
I wonder if Jason Fried had to man up and write one when he founded his consulting firm?
Looking at 37S, my guess is that they're mostly self funded, so I don't think they ever went looking for loans. I would say this is the "ideal path", even if it isn't practical.
If you do need start up capital, then of course you're going to have to show the bank that you're good for it. You should still cling to the idea however that your ultimate business is about making "something" and not sticking to what you thought you would be making before you started.
I agree with most every angle, except I do think he over-simplifies, a little, the idea that all viable businesses must start with a product that people pay for. While it's a hard road, and a great challenge, web apps that begin life as free play a very important part in the whole web ethos, and some become very valuable through a variety of valid business models that can be tacked on later depending on what/how things evolve. So to dismiss "startups" that shoot for this particular "success" wholesale, I would say is it's own sort of nay-saying. But again, as a whole...loved the pres.
But, how feasible is it to start companies this way? Sure it may have worked well for them and it may even work incredibly well for your business. As hackers though, we know that just because something worked once, twice or 500 times doesn't mean it's the truth or will always work.
It's best to be prudent wherever possible and do some research into your market and pricing strategies. I'm not saying go off and create 5 year business plans, I'm just saying it definitely deserves some of your time cycles.
In the traditional business, I suppose the answer would probably be yes (although I haven't really seen anything that supports this). Working in tech however, is much more of a crapshoot. Most of the time, you can't really research a market you're creating. This alone makes the whole process a giant guessing game.
If forming a business plan is just a series of guesses, you'd be better off moving straight into the part where you're actively testing those guesses with a workable product.
What if your new product, that has never been done before, will costs tens of millions? Surely those products have existed, and yet are still somehow able to do the prudent 'guesswork' to convince venture capitalists.
Bluntly, my opinion here would be that this isn't a viable option for a startup, unless they have access to easy angel capital or can self fund to that amount.
Developing an idea with that price tag is an is a risk orders of magnitudes higher than a low cost startup. Having a hit is hard enough, but you'd need a run-away smashing super hit to even break even.
Even if you choose that path, there are still aspects of the idea that can be harnessed and build at much lower costs to begin income generation to help fund the remainder of the idea.
Investing money of that amount into an idea that has yet to prove itself is not my idea of a good move, really.
EDIT - Curious, what problem space are you thinking about/working in that requires that level of funding?
If you look into startups in the medical, pharmaceutical, chemical and energy fields, you will see very high startup costs while sharing the high risk attached to software startups.
Even in software though, there are companies working on solving difficult problems that would require the work of scientists, engineers and administrators for 1-2 years. This would place you into that multi-million dollar category pretty quickly.