Happy New Year, all. We’ll be gone tomorrow for the holiday (and definitely will not be nursing an egg nog hangover), returning on Friday. Yes, you’ve got another year of business planning advice along with our standard amalgam of sass and rambling to look forward too. You can stop with the hand-wringing now.
Cheers!
When Sequoia Capital told their portfolio companies earlier this year that they needed to make dramatic cuts to their business plan, they apparently weren’t screwing around. Today tech blog GigaOm has a round-up of what’s gone down at SC’s portfolio start-ups since the announcement was made last fall. It can be neatly summed up in one word: layoffs. Lots of them. Since that October meeting, twenty of their portfolio businesses have laid off more than 500 employees. Online shoe seller Zappos made the most dramatic cuts, axing 128 members of their staff. For their part, Sequoia says they haven’t changed their stance regarding the importance of making cuts in this economic environment.
So, what’s all this mean for an entrepreneur working on a business plan? Believe it or not, there is some relevance—particularly if you’re seeking funding. The take-home message is that you should keep your payroll as lean as possible. Figure out exactly how many employees you need to sufficiently operate your business—and be realistic—and don’t go over that amount no matter who tries to convince you that you need an in-house accountant or an extra receptionist. Not only will that demonstrate to investors that you get it, but it’ll also help you have a more realistic picture of what your nascent start-up will really look like. While it’s always been true that start-ups should strive to be as lean as possible, this is particularly true now.
Here’s some advice worth heeding: VC Guy Kawasaki (who admittedly gets regular, quasi-reverential mentions on this blog) has posted a list of the “Top Ten Tiny Things Every Small Business Owner Should Do in 2009″ over at the American Express OPEN blog. What we particularly liked about the list is that the ideas are not only concrete, but they’re feasible. Not only that, the points worth considering as you’re working on your business plan. Here’s our edited version of Kawasaki’s best tips:
-Act like a prospective customer and call your company to see how the phone system and receptionist treat you.
-Make sure that your company website as a “Contact Us” section with accurate information.
-Send your company an email asking for customer support and see if someone responds.
-Answer customer support calls or emails for a day.
-Read the documentation or manual that your company provides.
-Pretend that you lost the documentation or manual that came with your product or service and try to find it on your website.
Obviously the idea here is to get you thinking about your start-up’s customer service. While that’s always a key element in the success of a business, this has never been more true than it is in this new economy. As it becomes increasingly difficult to part consumers with their cash, it will be the businesses that set themselves apart with excellent customer service that will actually continue to make sales. The best part about these tips is that they’re a simple—and, even better, free—way to help you determine if your business is doing it right.
“The biggest fundamental change I see in venture capital is the ability of entrepreneurs to learn more about specific VCs—and their strengths and weaknesses—through the Internet. Sites like TheFunded can, and are, changing behavior. I think for the positive in many cases. We have always been way too arrogant and detached as an industry.” -Venture Capitalist Jim Robinson of the firm RRE regarding how venture capital is changing.
(Via TheDeal)
When it comes to small business marketing, there are plenty of people sharper than us (we’re just lowly business plan experts). That’s why we’re a fan of smart marketing blogs like Duct Tape Marketing blog, which typically offer up excellent advice for small businesses. So we were particularly interested when we noted yesterday that the site posted “Snackfest 2009″—brief, forward-looking tips for marketing in the new year from some of the biggest names in the business marketing. Frankly, we were slightly disappointed. Maybe it’s because the list falls under the category of new year blog posts, which we’re not a fan of, or maybe it’s just that marketing experts have sipped a little too much of their own Kool-Aid, but the thoughts many of these experts—and they are experts, like Seth Godin and Ann Handley—share are downright worthless. For instance, Dan Pink, the author of Whole New Mind tells us:
“Think boldly and push frontiers while the big guys run scared and retreat to safety.”
Um, okay. From our standpoint, that’s about as useful as telling a small business owner to “think outside the box” when it comes to advertising and marketing. Translation: it’s not. And then there’s this little gem from Scott Allen, the author of the Virtual Handshake:
“Get funded. Cap gain tax cuts and revitalization of the SBA = available equity and credit $$$$. It’s time to make a big move that needs big capital.”
If only getting funded was as simple as wanting it.
Now all that being said, let us reiterate, we like the Duct Tape Marketing blog. We really do. And in fairness, these info bytes provided by experts did have to be under 130 words (Twitter size!), and there are still a few semi-useful tips among them. For instance, Laura Lake who writes the About.com marketing section offers this up:
“Make a major shift into social marketing and online relationship building. It’s no longer an option, it’s vital.”
And Chris Baggott, the CEO of Compendium Blogware says: “Take advantage of their inherent advantage in local SEO. Targeted business blogging empowers small business to control their own destiny and win the online battle.”
Still, we have to ask: what is it with marketers and their cute little sound bites? They make our head hurt.
Not to beat this whole end of the year thing like a dead horse, but the New York Times has a useful list of “Ten Year-End Tax Tips” that can potentially help you save a few bucks on your tax bill. Most are fairly obvious, but if you’re a relatively new small business owner or you don’t have an accountant, there may be some useful nuggets. Example:
“-Review your portfolio: If capital gains are high, consider taking a loss to offset some of the capital gains income.
-Pay your January 1st mortgage payment on or before December 31st: This allows you to take an additional deduction for interest paid. Remember to add the interest amount to the amount reported by your lender when they send you a 1098 form.
-If you’re self-employed, stock up: This is the time to buy all of the business equipment and supplies you haven’t yet purchased. Make sure to mark and save your receipts.”
In the next few days, you’re going to see a lot of predictions about what’s going to happen to the economy and in business in 2009. If you’re an entrepreneur working on your business plan, we realize that the temptation is to read them, and take them to heart.
Don’t do it.
The fact is that 99% of the time these sorts of predictions are flat wrong (excepting, of course, the predictions we asked you to make for this week’s survey). Don’t believe us? Let’s take a little trip back in time to late 2007. Here’s what Business Week and MSNBC said were “Ten Likely Events in 2008″:
“There will be a backlash in the green movement after it becomes clear that many of the companies claiming to be green are in fact nothing of the sort.”
And then there was this:
“New York Mayor Michael Bloomberg will enter the Presidential race in February, after it becomes clear which nominees will get the nod from the major parties.”
Right. So by “likely” they meant “not going to happen at all.” Yahoo News points that other sources got it wrong as well. Last December, the National Association of Realtors sent out a press release with the following headline: “Existing-Home Sales to Trend Up in 2008.” And economist Rich Yamarone, the director of economic research at Argus Research in New York, told the International Herald Tribune that: “the economy will chug along, expanding at a solid 2.7 percent rate next year. He expects consumers, supported by a healthy job market and low interest rates, to do what they have done for 63 consecutive quarters: Spend more.” Well, at least he got the part about low interest rates right!?
If you were listening to Ben Bernanke early last year (and acted based on what he said) you probably kicked yourself several months later as well. In February he announced:
“I expect there will be some failures. I don’t anticipate any serious problems of that sort among the large internationally active banks that make up a very substantial part of our banking system.”
Whoops!
Need further proof that you don’t need to invent a revolutionary new tech toy to make money? Look no further than the iFart—an iPhone app that does little more than make, ahem, farting noises.
Since its release on December 12—a mere two and a half weeks ago—the 99-cent app has skyrocketed to number one in the iPhone app store. Not only that, it’s netted the app’s developers a whopping $78K. And just on Christmas Eve and Christmas Day alone, the app pulled in its creators around $40K, with 58,000 downloads, according to VentureBeat.
We’re obviously in the wrong business.
If you’re an entrepreneur pitching your business plan to a group of investors, you can basically assume that a lot of people are going to hear your idea. Secrecy? Not a chance. And if you show up at a serious investment film wielding a non-disclosure agreement, chances are you’ll be laughed into next week. Still, should entrepreneurs expect some level of confidentiality when it comes to their idea?
Here’s why we ask: recently big-wig venture capital firm Kleiner Perkins Caufield & Byers accidentally published a list of ideas submitted by developers to their iFund, which provides investment to entrepreneurs working on iPhone apps. While the glitch was blamed on a former KPCB contractor who accidentally exported the database—with names, business plans, and a myriad of other critical information—to a public web server. Not surprisingly, many of the entrepreneurs who names and business plans were listed were angry. None more so perhaps than Aaron Greenspan, the head of Think Computer who’s taken to the Huffington Post to rant about what he says was KPCB’s egregious failure. While Greenspan has been embroiled with KPCB’s attorneys (and it seems that much of his angst stems from those interactions—which are admittedly bizarre), we have to wonder, does the fact that that information was posted really make that much of a difference? Sure, there’s the risk that another developer could potentially steal one of the ideas, yet so far that doesn’t appear to have happened. The worst thing that’s gone down is that Internet trolls have taken the concepts and have posted them for the public to vote on in various forums. Despite that, Greenspan submits that by having this information made public, that it effectively kills any shot he has at funding:
“Just as an individual’s Social Security Number, date of birth, and credit card number are all intended to be kept confidential and can easily be abused once in the public domain to the point where an individual’s ‘identity’ is rendered worthless, so too can a company’s business plan be subjected to similar abuses in the high-stakes world of institutional fundraising. By publishing the plans of several hundred companies, KPCB’s errant vendor all but extinguished the chances of those companies receiving funding for those ideas, whether from KPCB or any other firm. It also guaranteed that everyone in the database would be receiving even more e-mail spam than usual.”
Now we understand Greenspan’s concerns about his ability (or lack thereof) to receive funding—although we don’t quite understand why having the information made public would render him unable to secure a cent from an interested investor. But spam? Seriously? That’s one of the worst things that happened? Please, spend a day with our Outlook inbox and then tell us how bad your spam problem is.
We get that expecting privacy within a venture capital firm (you shouldn’t) is wildly different from expecting confidentiality from the public (you should). Still, it strikes us that more harm could be done, and actually has been, with credit card information.
While there’s no question that KCPB was decidedly in the wrong by accidentally posting ideas they were pitched, the question we have is whether the outcome was as disastrous as the entrepreneurs who are screaming about it actually let on. Idea secrecy is something many entrepreneurs hold near and dear, but we’re not convinced it’s as big of a deal as they make it seem. Tell us what you think in the comments section below.
So, the New Year is nearly upon us. While in some circles (the ones we want to be a part of) that simply means cracking out the good bottle of champagne, in the blogosphere it translates into cranking out a bunch of lame end-of-the-year stories. The good news is that we’ve decided to skip the yearly round-up posts (this year is perhaps best left in the dust) and aren’t going to provide you a list of resolutions you MUST make (you’ll forget them by Friday anyhow). Nevertheless, we think there’s nothing wrong with a little reflection at the end of the year, particularly when it comes to your business plan. If this past year taught us anything—yes, we know, no round-ups—it’s that a soon-to-be tested entrepreneur or fledgling business owner should be prepared for anything—and that we’re in a very different place than we were this time last year. With that in mind, here are some elements of your business plan that are worth reviewing before the ball drops on Times Square:
-Determine what the worst case scenario (short of failure) is for your business. Once you’ve figured that out, develop a contingency plan demonstrating that your start-up could actually survive it. And make sure it’s realistic. No serious investor is going to believe that you could pull through a quasi-nuclear holocaust by making record sales.
-Review all your costs. We’ve said it before, but it bears repeating: make sure you can justify every cost in your business plan. If an expense is questionable, nix it. This will not only make you look more financially savvy to investor (you get it!), but it will actually help your start-up become stronger. Win-win!
-Looking for funding? Reevaluate how much investment you’re seeking. Banks and investors are tightening their pursestrings, which means that funding is not only harder to come by, but you can expect to get less than you would have a year ago. Take a close look at how much funding you’re requesting in your business plan with an eye to where that money is slated to go. If some of those expenditures can be reduced, do it. Also consider whether at least partially bootstrapping your business—covering the costs yourself—is a possibility.
-Ensure you have a strong sales team. While layoffs tend to be the immediate fix when times get tough for a start-up, make certain you maintain a core group of excellent salespeople. It may sound obvious, but because these employees bring in the sales, they’re the bread-and-butter of a business. Keep a sufficient number on your payroll.
-Ax any mentions of major expansion. If you’re like most small businesses, sales have probably lagged recently. So unless your start-up (providing you’ve launched your business already) is experiencing records sales and profits, excise any mentions of expansion in the next few months. Most savvy business owners are laying low and hoarding cash until things get better. Don’t end up a casualty of the economy because you’ve spread yourself too thin.
Er, Happy New Year?
All posts come from our CEO, Bryan Howe.
