The Business Plan Fallacy

As I'm reviewing business plans from college grads I'm mentoring (as an alumnae mentor at Brown Univ ) and from Glengary , the VC firm I'm a partner in, this whole business plan process is getting to me.   So much of what I see in biz plans (and strategies) is, pardon the phrase, BS.  We all know none of us believe any of the numbers is the proformas, the market growth, etc., so why do we bother with all this stuff when we know it's a joke?  I don't know, but here's what I'd like to see in a biz plan for a change.

1. The current, accurate, real, truthful view of the world - market(s) as it exists and will exist. If it doesn't yet, why, what are the real needs, current and potential competitors (in/out of your market space).  What have others tried and what has succeeded or failed and why. Tell me a TRUE story of the world you're going into - you can use spreadsheets, analysis, etc...you should give me #'s, but tell me how this world really works, not how you'd like it to work.
2. Clearly state your assumptions and hypotheses (e.g., if we do x, then y will happen; we can make A with $X in T months, we will take C to market and the market will do S) - how will these impact the market you're going after or creating - and ideally, do it in a way that you can change the assumptions so they automatically change the outcome.
3. Delineate your plan ‘management/mitigation' story - since we know you'll make mistakes in #2 above, what are you going to do when this happens?  This has 3 critical areas: 1) how flexible is your management - can you adapt and shift if necessary? 2) how flexible is your product or service? Can it adapt or is it a binary choice? 3) if things really don't happen as planned, are you done? Do you have other ways to go to market?
4. People - you need the required resumes of course, but what matters more is their level of passion, commitment, heart/soul into the biz, attitude, abilities, history of executing, of doing, of making things happen.
5. Money - how much do you need, what are you going to do with it, cash flow, P&L, balance sheets, margins, exits etc. - the usual stuff.  But, what are you doing while you're waiting for the money - are you still moving ahead? Are you able to straddle ramping up based upon funds? Investors want to see that you can still make progress while you're waiting for funding or if you don't get enough.

Your Greatest Asset? ROF: Return on Failure

Innovation and failure go hand in hand.  So, what is failure? When things don’t go according to plan or expectations, ending up with unexpected and/or undesired outcomes.  The key is ‘undesired’ – because if they were desired and not planned or expected, that would be great!  But, as we will see, failure is a terrific way to learn.  Maybe we could measure learning as Return on Failure: ROF.  And many of these learnings are intangible, but as the 21^st Century is proving, it’s the intangibles that matter.

We’ve heard the phrase “fail often, fail cheap, fail fast” or “it’s ok to make mistakes, just make different ones.” So, can we do a better job of learning from failure?  We’re not built to do this easily, either by learning from others’ failures or our own.  There are many ways to learn from failure, so what I’m suggesting is just one way.

One way we could start learning from failure is through a simple 3-step process (bear in mind, simple ≠ easy!):

1. Identification of the Failure(s)
2. Analysis of the Failure(s)
3. Iterative Experimenting & Prototyping based on the learnings from the failures

So, and check my ‘math’, ROF = Failure Identification + Failure Analysis applied over (and over…) Iterative Experimenting & Prototyping.  That’s the framework (for now).

Failure Identification is proactively identifying what went wrong, what failed.  Systems and processes can help capture this information for sharing with those who need to know now and in the future.  Feedback loops with employees, customers, and suppliers are also important (and who else?).  Most companies are complex entities which make getting and sharing information difficult.  Also, most cultures don’t tolerate failure too well so we learn to play the blame game.  And of course, there are a lot of other reasons we’ll get into in further posts.

Failure Analysis is not playing the blame game but discovering the Why.  When a plane crashes, the NTSB goes over every inch of the site.  They don’t blame; they use a formal, objective process to discuss, analyze and learn.  Try a model like this.  Be objective, don’t personalize or blame (not as easy as it sounds).  Organizations also succumb to confirmational bias; we become inured, not realizing we’ve fallen into that trap.  The “blame game” makes doing the necessary forensic work challenging because it can be hard to trust our colleagues.

Iterative Experimenting & Prototyping involves creating a well designed experiment so we can limit and test the variable (ideas) and prototype.  Test where we think we could fail, try what does and doesn’t work.  The more we experiment, the more we learn, the greater the chances of success.  Do small, inexpensive experiments and prototypes (they don’t have to be grand).  Do virtual and thought experiments.  There are many ways to experiment and prototype today that are not expensive or lengthy so try it.  Why don’t we? How many organizations are structured for experimentation? Not many (remember the scientific method? Bet not).  And culturally, we don’t incent, reward, recognize our people to experiment – we incent being right, not trying to be right!

What do you think? Does this make sense? Are you trying to learn from failure in your organization?  What have you learned that you’ve been able to apply?

Happiness or Value?

21^st century capitalism is shifting focus from making money to making meaning (ends vs. means, trailing indicators v leading indicators). This is good and necessary.  However, ‘happiness' is starting to dominate discussions about 21^st C capitalism, even in governments' measures of economic growth.  While it is important to find happiness in life, make no mistake, even in the 21^st C, business is all about value, not emotion.  To keep creating jobs, paying taxes for schools, donating to the arts, growing communities, etc., business must first and foremost create and deliver real value to customers (and then to other stakeholders, like shareholders).  Happiness ≠ Value!

This is not to say that happiness isn't important.  It is.  It makes total business sense to try to create an environment in which employees can be happy.  The way Tony Hsieh has run Zappos is a great example of a ‘happy' culture...which delivers significant value.  But a company, a person, an experience is not responsible for another's happiness.

Happiness is taking on a tone of a right, of entitlement.  We must not go from "it's all about mywealth/stuff" to "it's all about my happiness" with "MY" remaining front and center.  Usually, happiness focuses on ‘me' - extrinsic, external things making me happy - my friends, my family, my job, my stuff, my stature, etc.  If happiness is the goal, it's a fool's errand - the desire/need to constantly feed it is insatiable.  The incredibly prescient Declaration of Independence states, "We hold these truths to be self-evident...endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness..." As Saul Kaplan, a sage and friend, asked, what if the Founding Fathers had replaced ‘happiness' with ‘goodness'?

John Stuart Mill, a stalwart believer in free-markets and liberty, said, "Those only are happy who have their mind fixed on some object other than their own happiness...not as a means, but as itself an ideal end. Aiming thus at something else they find happiness by the way."

What if that meant creating something truly good, truly valuable, consistently, for someone else?  Isn't that what companies should be doing? If they don't, we won't need to worry about happy employees and customers. So, in this 21^st century, let's focus our energies, time, and resources on providing real and significant value.