Dharmesh Shah


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Fall In Love With Your Business, Not Your Business Plan

By Dharmesh Shah on March 30, 2012

That business plan, that business plan,

I do not like that business plan.

I do not like the writing part,

I do not even like to start.

I do not like them at a bar,

I do not like them from afar.

~Dharmesh (with h/t to Dr. Seuss, who I read every day to my son)

My feelings on business plans varies: from extreme dislike to just mild irritation.

I don't think business plans are completely useless, just mostly so. And sometimes, they're even dangerous.

Here's why…

1. Business plans are energy-depleting exercises. When I went to MIT Sloan for business school, I took what was (and is) one of the “definitive” classes for entrepreneurs “New Enterprises”. The class was oriented around coming up with ideas, forging a team of classmates around that idea (you had to actually sell them) and then having that team write a business plan during the course. All of this was intermingled with some presentations and some guest lectures. All around, I loved the class but hated the writing of the business plan. It was painful. I had a great team — and it was still painful. We had a real business (what later morphed into my current company, HubSpot) — but it was still painful. And, took a lot of time. I'd much rather have been talking to potential customers or building product prototypes — both of those activities, unlike writing business plans, are energizing.

2. You should be committed to your business, not your business plan. As a way to capture your current plan and thinking about the business, business plans are inefficient. Shortly after you're done writing it (or editing it), you will realize that the plan is a little out-dated and does not reflect your current reality. Startups change constantly, especially in the early days when you're trying to find product market fit. The market changes, you get more feedback from your customers, and your understanding of the opportunity changes. Even more simply, you might just change your mind. In the early days, your startup is likely changing so frequently that going through the effort of making sure your business plan keeps up with your latest thinking is frustrating and futile. You're much, much better off spending that time and energy talking to customers and making the product better. Business plans are often dangerous, because you become overly committed to what you've written down. The risk is that you revise the plan so much, have toiled so many nights getting it just right that you actually start becoming emotionally attached to the plan. It becomes your baby — not the business itself. This can be fatal. You want to stay pragmatic and willing to change. If you have a 100 page tome that you've poured your heart and soul into late into the night, you'll have this small piece of you that begins resisting the change to the plan. That's a Very Bad Thing.

3. Business plans are written in the waterfall method, and you need to be agile. Some entrepreneurs take the “classic” approach to a startup. Have idea. Write business plan. Rewrite business plan. Rewrite busines plan. Pitch plan to investors, team maters, etc. Keep pitching until you get money or fall into the dark abyss. If you raise money, go out and start “executing” on the plan. Later discover that some of the core elements of the plan were flat out wrong. Does those sequence of things sound familiar? If you're a developer, it will sound to you an awful lot like the “waterfall method” of software development. And, in that case, you just listen to your instincts to run screaming in the other direction. Agile is not just for software development, it's for startup development too.

4. Nobody will read your business plan. If you enjoy the act of writing a business plan and like having it, that's fine. Perhaps you like sleeping with it under your pillow because it gives you comfort. That's cool. As long as you don't have some delusional idea that anyone is going to actually read it, you're fine. It's when you expect potential investors, team members and other unsuspecting victims to read your masterful work of brilliance that you have a problem. Once you get through the first few iterations, it's likely that even you won't want to read the plan anymore. You'll become sick of it.

5. It's a work of fiction. The executive summary can be useful (but can be manifested in much better ways), but a lot of the marketing sizing, financial projections and long narratives around go-to-market strategy are usually complete works of fiction. Some plans have more reliable market data than others. Some include more realistic projections than others. But, they're all works of fiction. All that varies is the degree to which the business plan resembles the truth and the degree to which the entrepreneur believes the fiction.

Entrepreneurs that write business plans should receive honorary degrees in creative fiction.

 

blog onstartups

6. Write a blog, not a business plan. Although I advise against writing the classic business plan, I'm not against writing down your ideas and describing them in a way that is consumable by other humans. In fact, I'm a big fan of that. Just not in the form of a business plan. Instead of writing a business plan, which nobody will read, write a blog instead. Unlike a business plan, a few people will actually read your blog. The blog has the added value of being interactive. People can leave comments on your blog. They can poke at your ideas, tell you about these other 3 startups that sound like they're working on something similar. They can call you an idiot. All of that is useful. The earlier in the process you can get feedback from places other than the voices inside your head that talk to you at 1am in the morning after a long day of work, the better off you are. Unlike a business plan, a blog is useful forever. It pulls people into your business (through things like Google search). It helps people visiting your website to get a better understanding of what's going on in your head. It serves as both a vehicle for crystallizing your thinking and as a tool for marketing. In fact, it's one of the most important inbound marketing tools at your disposal. Every startup should have a blog.  

What do you think?  Have you tried writing a business plan? Do you know of a "friend" that tried to write one, because they thought they needed one for some reason?What's your take?
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Avoiding Founder Failure: 26 Quick Tips and Real Data

By Dharmesh Shah on March 26, 2012

Several years ago, I met with Noam Wasserman who had recently joined Harvard Business School as a professor.  I initially came across Noam because he was doing some fascinating research on startups -- particularly in the arena of founder relationships.  When I met him for lunch, he brought up some of the toughest issues I've ever encountered in my entrepreneurial career: Should you start a company with a close friend or family-member?  Is it wise to divide equity in the startup equally among the founders?  If you had to pick, do you want the cash (get rich) or the control (be queen/king)?  What about your co-founders?  Deep, deep, topics.founders dilemmas

I've seen too many startups flounder and fail because of co-founder conflict.  Everyone starts off with the best intentions -- and then things start unraveling.  In many of these cases, the conflict could have been avoided -- or at least surfaced sooner, if the founders had confronted some of the potential issues and asked each other the hard questions early-on.

I've written about this topic before in "Important Questions Startup Co-Founders Should Ask Each Other".  There are only two times when lack of clarity and understanding between founders becomes a problem for a startup: when things are going well and when things aren't going well.

So, back to Noam.  He's taken the result of his years of research and conversations with founders and created what I think is the definitive book on the topic: "Founder's Dilemmas".  If you are a founder or thinking about becoming one, you should read this book.  I agree with most of what Noam says in the book.  Howver, it doesn't matter whether I agree with it or not, unlike me, Noam's actually collected data.  

Below are some quick tips and stats from the book, made ready for convenient tweeting.

Tips and Insights From The Founder's Dilemmas

1) In 73% of founder-CEO replacements, the founder was fired rather than voluntarily stepping down. [tweet]

2) Founders feel like Lewis and Clark: Rough idea of where to go, but don't see a clear road ahead or upcoming pitfalls. [tweet]

3) Founding-team turnover increases dramatically when the startup raises its first round of financing. [tweet]

4) Unfortunate but true: If entrepreneurship is a battle, most casualties stem from friendly fire or self-inflicted wounds [tweet]

5) The chances of founder-CEO succession rise with each new round of financing. [tweet]

6) 65% of startups fail due to problems within the management team. [tweet]

7) Feel like a "people decision" is a no-brainer? You may be in for a nasty surprise later on. Decide rather than default. [tweet]

8) A dirty little secret of entrep: Many decisions along the journey push a Rich-and-King outcome further out of reach. [tweet]

9) Each additional social relationship within the founding team increases the likelihood of cofounder departure by 30%. [tweet]

10) Friend/family cofounders are often the least likely to tackle the elephants in the room (Relationships, Roles, Rewards) [tweet]

11) Playing with Fire by cofounding with friends and family? Carefully construct firewalls and discuss worst-case scenarios [tweet]

12) After a 6-month honeymoon period, teams with prior social relationships are the least stable. [tweet]

13) Founders often fail to realize when they are about to make a fateful decision. [tweet]

14) Examine the motivations of your potential cofounder to see if they are compatible with your own motivations. [tweet]

15) Motivational compatibility does not guarantee success, but incompatibility is asking for trouble. [tweet]

16) Founders often describe their equity-split negotiations as "war," "exasperating," or "stressful." [tweet]

17) Is pivoting a possibility? So why do more than 50% of teams split equity without allowing for adjustments? [tweet]

18) 73% of teams split equity within a month of founding: amazing given the big uncertainties they face. [tweet]

19) The Founder Discount: A labor of love can become a trap in which you're paid less than an equivalent non-founder. [tweet]

20) Within each of the 3Rs (Relationships, Roles, Rewards), the most common choices are often the most fraught with peril. [tweet]

21) The trial by fire of founding a startup often burns a team rather than forging a stronger team. [tweet]

22) Neglect the 3 Rs (Relationships, Roles, Rewards) at your peril. Misaligned 3Rs cause tension, dissension, and blow ups. [tweet]

23) Rich founders should be making very different investor choices than King founders; understand your core motivations! [tweet]

24) A founder-CEO's success at leading a fast-growing startup can accelerate his or her own obsolescence and replacement. [tweet]

25) 52% of founders are replaced as CEO by the time the startup raises its third round of financing [tweet]

26) Firing yourself as founder-CEO enables you to remain more involved with your startup after you're replaced. [tweet] 

Two quick notes: The links to the book are affiliate links.  I donate all money made from such links to non-profits (I'd rather a worthy cause get the ~5% than Amazon keep it).  

So, what do you think?  Have you run into any tough founder issues yet?  How did you go about resolving them? What issues are you struggling with right now?

 

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