Talking about starting a business? Before you start the talking, identify yourself and your business on this scale. It makes a huge difference. Try to choose one of three possible choices, the one that most applies to you and your business.
- Just get going: you don’t need anybody’s approval except possibly your first customer or client. You’re a consultant, artist, artesan, professional service, or something else that doesn’t require building a product, or packaging, or design. Nobody has to approve your plan except you. You have what you need to get going, or the money you need to acquire what you need to get going.
- Building something: You’re looking to start a business that requires more start-up money than you have, maybe more knowledge than you have. This is like a restaurant, an auto body shop, a retail store, a serious website, anything that requires building serious products, or packaging, or significant market launch. For the restaurant, as an example, by the time you buy the expresso machine, the chairs and tables and stoves and ovens, hire the people, develop the identity, prepare the location, you’ve spent serious money. You need investors, or partners, or (gulp) a lot of debt.
- Planning to fly: You have worked with a successful startup or two or three behind you, you’ve got a team ready, and you have an idea that seems to offer very high growth of sales (or maybe web traffic instead of sales, if you’re in that world) and reasonable prospects of defensibility.
All three of these are startups, but they have very different needs and wants and prospects. One of the things I want to do with this new blog is distinguish between these different kinds of startups. Much of the writing and thinking about startups applies to some but not all startups. Here are some examples:
- What do you need to start a business? I’m a business planner, I have been for years, so you think I’m going to start talking about the business plan.
- However, while I do think everybody benefits from planning, if you’re in that first group — the get going group — when what you really need, can’t start without, is at least one customer. I supported my family with planning and research consulting for more than a decade before Palo Alto Software took off, and that business started with a customer (Apple Computer) before there was a plan.
- If you’re in the second group, the builder group, then yes, you need to develop a business plan. You can’t get customers until you have a location rented and fixed up, you have assets in place, you’ve launched the marketing, etc. You don’t have the resources on your own, so you’ve got to involve others, and that takes a lot of explaining, and making commitments, and, frankly, it’s just dumb to try to go that way without having a prepared plan.
- If you’re in the third group, intending to fly, some of the more fashionable high-tech and highly-visible ventures of recent years were able to land at least verbal agreement on venture financing without actually completing a full traditional business plan document. They used pitch presentations and personal track records and personal commitments. Those, however, are the exceptions; most of the high flyers need a plan whether their investors read it in detail or not, because they can’t build a pitch without a plan and they can’t manage without a plan. Of course some of them avoid the plan because they confuse it with a brick wall, but that’s a different post.
- The legal steps change. The “just get going” crowd doesn’t really need to sweat the difference between corporations and partnerships and LLCs and ficticious business names. I ran my consulting business for years using my real name and my social security number. I didn’t worry about corporate umbrellas or the extra expense of legal formation because — who was I kidding? — it was just me and my client. I was a lot more worried about how long they took to pay invoices than about them suing me. Those of you in the “planning to fly” group, in contrast, are going to have legal work coming out of your ears, lots of jockeying for position between your lawyers and their lawyers, with their lawyers having the final say because they’re writing the checks. You builders will need good attorneys to set you up right, with the details depending on what you’re doing, resource levels, which state, and other factors.
So those are just a couple of examples, but I assume you get my point. In this blog, talking about startups, let’s establish a better mode for talking about apples as apples and oranges as oranges; or something like that.
— Tim
Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry.
