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BAP#3: The evils of business plan

Published June 6th, 2005 edit replace rm!

More Bootstrap Anti Patterns:

In the last startup where I worked, we halted all my development work to work on various revisions of our business plan a total of 3 times. This worked out to about 4 months of lost time.

In my post mortem of the now failed venture, I believe that focusing on business plans, possible partnerships, lawyers, governments etc. and not on getting ourselves to a live production state (read in business) was what killed it.

The business plan was something that became of outmust importance anytime there was someone waiving a potential sizable check infront of us. The fact of the matter though was that the business plan was nothing more than an unreadable sales document.

We never used it in daily life, which is what it should be.

Most people go out and buy or download business plan templates. There are millions of them out there. They all claim to be tried and tested. The only problem is that they are very time consuming and will never reflect a dynamic growing business.

I think it is much better to create a freeform Business Plan Backpack and ofcourse use Stake It Out to help glue it an other sites together. Here you have a way of exchanging real ideas and maintaining it easily.

Dont worry about top-down, bottom-up marketing numbers, nor outlining the “team” and how you magically will have 135,000 signed up users in 9 months. It doesn’t matter it is all made up anyway. Do not waste your time here.

Small is the new big

Published June 6th, 2005 edit replace rm!

Seth Godin hits it again. Small is the new big he claims. This is what I’ve been claiming for years now:

Small means the founder makes a far greater percentage of the customer interactions. Small means the founder is close to the decisions that matter and can make them, quickly.

Small is the new big because small gives you the flexibility to change the business model when your competition changes theirs.

Small means you can tell the truth on your blog. Seth Godin

In Bootstrapping a business versus playing a business I write about the importance of sticking to the core business and not going through the trappings of acting like a “big business”.

I think that is one of the big lessons we all should have learnt from the dot com boom/burn. I see almost all the successfull startups follow the small route, but unfortunately there are also many who keep going down the traditional eternal loop of writing business plans and seeking funding, while they really should be focused on their business.

What we really need now is a CEO, CFO, HR person etc. No!!! Focus on your business is the only thing you need.

A Flip/Flop Bubble of Microventures?

Published June 1st, 2005 edit replace rm!

Ross Mayfield has a great little article about flipping micro ventures
A Flip/Flop Bubble of Microventures?. By this he means creating micro ventures for the sole purpose of selling it to some large company like Google.

I am a big believer in developing a company with the goal of making it as great as can be, with an eye on exit in public markets. I look M&A exits as options along the way. The problem is when you build to flip, you may be focused, but short sighted. Essentially, you loose IPO as the exit option and M&A opportunities you can’t foresee.

Which is really the whole idea of bootstrapping, you are focused on building a solid business from day one.

BAP #1: Bootstrapping a business vs playing a business

Published May 29th, 2005 edit replace rm!

[ Just added this to my new series on Antipatterns ]

A mistake I myself have made as well as many other smalltime entrepreneurs is that we have wanted to appear like a business to early. Symptoms of this are things like:

  • Incorporating
  • Renting office space
  • Buying a fax machine (You know a business needs one)
  • Fancy stationary
  • Fancy graphic designers
  • Multiple fault tolerant high availability servers
  • Human resources officer (If you’re a startup and have one these you really are on the slippery slope)
  • etc. etc.

These are all fine at the correct phase of your business, but don’t waste these huge money suckers without an actual need.

I for example have rented a server which hasn’t really been in use since february. That is ¢49 out the door every month. Stupid really. Now is when I need it and I could have saved ¢147.

I also just bought business cards from VistaPrint because I’m going to Reboot in a couple of weeks and it’s handy to have at such events, but if not it would have been a waste of money at this time.

If you think about it one of the traps that leads to big businessitis is playing a business. This is often necessary if you want to attract venture capital, after all they want to know that you are serious and have things like a fax or an hr department. But really, I think the businesses who really succeed are the ones that focus on their business model and not how they appear outwards.

6 simple rules for micro ventures

Published May 28th, 2005 edit replace rm!

Last year I wrote a long pice The Electronic Micro Venture in which I outlined these 6 simple rules to help launch and fund a transparent micro venture.

As these are very important to what I am doing right now it I will keep an updated version of the 6 rules here.

These rules are somewhat inspired by The Cluetrain Manifesto, The Agile Manifesto and Joi Ito’s essay Emergent Democracy :

1. Focus on one and only one clearly defined economic activity.

You need to be able to model and audit this in real time. Create another entity for each related activity. If you need to group them together create a new parent entity, whose only focus is as a kind of mutual fund investing in it’s child entities. This also distributes it’s profits that it receives from it’s holdings direct to it’s share holders.

The revenue model should be very easy to understand. Model it out and create an online revenue calculator. This will help share holders understand and focus on the business at hand.

2. Distribute revenue early and often.

Depending on the exact revenue model, distribute in realtime or on a weekly basis. If deemed necessary keep a limited reserve in the venture, but distribute everything else to the share holders. This helps the transparency and motivates all parties to focus on 1.

3. Attempt to eliminate the burn rate.

If at all possible reduce all fixed costs. I’m not just saying what the GAAP says are fixed costs. The idea that consultants fees and monthly hosting fees are dynamic expenses are a left over from the industrial era. Any fixed costs need to be funded by you or an investor. So keep them small and transparent. Each one should be justified publically. If at all possible eliminate the burn entirely by offering shares to a stakeholder responsible for managing one particular function (see 6.)

4. Pay stakeholders with shares, not cash.

Salaries, wages and consulting fees are NOT transparent nor do they make sense in a massively networked world. Pay developers, staff and suppliers with shares. Due to rule 2. they will start receiving funds quickly. This focuses all parties on Rule. 1.

5. Keep a flat democratic command structure.

Representative democracty is NOT transparent. We are all on the internet now, there is no longer a need nor excuse for the traditional 3 layer structure of (officers, directors and shareholders). Utilize Blogs, Wiki’s, Discussion Forums and email to maximum ability.

6. Outsource Capital Costs

The traditional lump sum funding method is not transparent. If there are any major capital costs outline each one them when seeking funding. As an example in my hosting company we have the following capital costs:

  • Server hosting
  • Completed Transaction Processing Server customized for the hosting business.

For me the two of them are worth each say 25% of the company. Now an investor might want to offer $20,000 so I could buy the servers and pay for hosting until the venture is profitable. However I would receive the same value if a hosting company offered to handle the physical server hosting on an ongoing basis in return for 25 of the shares. The same thing is true for the software development. Traditionally the vc would pay a large lump sum to handle all the developers salaries. Offering 25 of the company to whoever solves the problem is better. Maybe a guy with big pockets could hire a team of developers in Hydrabad to do it or maybe a guy in Hydrabad or Talinn decides to bid for it himself.

If you do end up with a burn rate. Fund it as a kind of reverse option. Investor B. guarantees a maximum of $500pm for 12 months. When the venture needs it to cover it’s burn, it calls the monthly option.

update I have created a presentation over on my latest project SoapBX following up on my ideas for micro ventures. Have a look your self Six simple rules for Micro Ventures

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My name is Pelle Braendgaard. Pronounce it like Pelé the footballer (no relation). I live in wonderful Managua, Nicaragua. I work with Clojure, Bitcoin and Ethereum.

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