I’ve been thinking about something that will seem completely backward to some. That is that old fashioned business planning has fallen too far out of favor and needs to be brought back to the forefront. I’m not talking about written business plans per se, but I’m talking about the process of planning a business and analyzing an opportunity and market in a way that delivers unique insight and a real strategy for a business.
This trend away from business planning started with very positive roots with the concepts behind Steve Blank’s work and later with the Lean Startup movement. A few other developments have followed in their wake, for example:
- Numerous, high-flying companies that started really by accident or as side projects (Twitter for example). This has led to a myth that great companies are not born out of an intentional effort to solve concrete problems, but through trial and error. The reality is that stories like Twitter are the exception, not the rule. Moreover, in order for a company like Twitter to become truly successful, its business value needs to ultimately catch up to its hype and impressive user numbers.
- Angelist and other seed investors popularizing the emphasis on social proof. Check out the standardized pitch “deck” that is being experimented with at Angelist. Notice the emphasis on social proof points – the companies the founders have been at, prior investors, “supporters” and “references”. All good things that investors should consider. But you don’t see a serious discussion about market dynamics, competition, value chain, etc.
- The surge in popular media surrounding internet startups, which focus primarily on bursts in “traction” and shine spotlights on seemingly overnight successes vs. sound business planning.
My fear from all this (and I’m seeing it in my interactions with founders) is that a whole crop of young founders are starting companies with a far too little planning and analysis about their businesses, and too simplistic a view about what it will take to win. It leads to thoughts like:
- We are a startup – of course we’ll beat the big incumbents (except sometimes, you can’t)
- We will win by simplicity and design (know of any companies dethroning Tripadvisor anytime soon?)
- Sure we don’t have a business model. But we’re generating huge amounts of valuable data (and so is every other internet business with scale)
- We are an excellent team of hackers and hustlers (but for certain products and types of customers, hackers and hustlers won’t cut it)
What I rarely see from younger teams these days is really insightful analysis about the industry they are playing in. Usually, when I invest, I look for some unique insight into a market that others miss. And hopefully, some reason why that insight will lead to a differentiated strategy that incumbents and imitators will have a hard time copying.