| May 19, 2011
In honor of Small Business week, I wanted to share a few insights that I believe will help any entrepreneur get their new business off to a good start.
Tip 1: Write the advertisement first
Writing a long business plan is relatively easy. Creating an effective pitch deck is a lot harder. Writing the ad for your company is harder still. But it’s the first thing you should do. Pretend you’re pitching your product on a billboard. What would you say? What visual would you pick? The exercise of writing your ad forces you to think about the problem that you’re solving, who you’re selling to, and how you are going to explain your value proposition in just a few words. If you can’t write a compelling ad for your business, there’s no point in creating a business plan. Nobody will sit still long enough to read it.
Tip 2: Pick a Name
Try your best to pick a name that reflects what you do, is memorable, and is easy to spell. Names like Facebook, SpeedDate, and Twitter, all give you a clue about what the company does. Another consideration should be finding a name that someone can spell when they hear it spoken. For brands like Nexxo, xRos, Pyxis, and Psystar, you’d be hard pressed to guess the spelling if you heard the word. So why make finding your company any harder than it needs to be? And finally, you have to be able to register or buy the URL. Be prepared to pay the squatter.
Tip 3: Don’t focus on your financials
Just about everyone who’s starting a business creates detailed financial forecasts – P&L, Balance Sheet, and Cash Flow. For the most part, in the very early days these are pie-in-the-sky numbers and all look the same, with huge numbers 4 or 5 years out. What’s really important is unit economics. Instead, focus on the economics of a single average customer. Let’s take the example of a cell phone carrier. The whole business boils down to four simple metrics: 1) how much it is going to cost you to acquire an average customer, 2) how much revenue (and gross margin) will the customer bring in each year, and 3) how long will you keep each customer. Break these down to prove out your assumptions. For example if you bring in customers by advertising on TV, 1) how many ad dollars will it take to get someone to your web site or to your store, 2) how many potential customers will try your product, 3) how many potential customers will become repeat customers, and so forth.
Tip 4: Don’t bother with the elaborate business plan. All you need is a pitch deck.
This document will make or break your fund raising. Don’t start with a lot of company background or backstories. Jump right into the business: here’s what we’re going to sell, here’s why we think people will buy it, here’s how much it will cost to make, here’s why it’s different, and here’s why we think it will be big. Present any evidence you have that people will actually buy whatever it is that you’re proposing to make. If you still have their interest, talk about your team and their ability to execute, and other background materials. The point is, don’t try to set the stage. Just jump right into selling your idea.
Tip 5: Check your ego at the door.
Prepare for multiple rejections. Typically, investors will look for reasons NOT to invest, including the following: You probably can’t design it; if you can you won’t know how to manufacture it; you won’t be able to reach your potential customers; they won’t buy it anyway; you probably don’t know how to run a company; your team doesn’t have the experience; and whatever it is, Microsoft or Google will probably give it away for free anyway. Just be prepared to pitch, pitch, pitch. You only need one person to believe.