3 Steps to the Startup Sweet Spot

(Note: reposted from Planning Startups Stories)

Every startup has its own natural level of startup costs. It's built into the circumstances, like strategy, location, and resources. Call it the natural startup level; or maybe the sweet spot.

1. The Plan

For example, Mabel's Thai restaurant in San Francisco is going to need about $950,000, while Ralph's new catering business needs only about $50,000. Sweet Spot The level is determined by factors like strategy, scope, founders' objectives, location, and so forth. Let's call it its natural level. That natural startup level is built into the nature of the business, something like DNA.

Startup cost estimates have three parts: a list of expenses, a list of assets needed, and an initial cash number calculated to cover the company through the early months when most startups are still too young to generate sufficient revenue to cover their monthly costs.

It's not just a matter of industry type or best practices; strategy, resources, and location make huge differences. The fact that it's a Vietnamese restaurant or a graphic arts business or a retail shoe store doesn't determine the natural startup level, by itself. A lot depends on where, by whom, with what strategy, and what resources.

While we don't know it for sure ever -- because even after we count the actual costs, we can always second-guess our actual spending -- I do believe we can understand something like natural levels, somehow related to the nature of the specific startup.

Marketing strategy, just as an example, might make a huge difference. The company planning to buy Web traffic will naturally spend much more in its early months than the company planning to depend on viral word of mouth. It's in the plan.

So too with location, product development strategy, management team and compensation, lots of different factors. They're all in the plan. They result in our natural startup level.

2. Funding or Not Funding

There's an obvious relationship between the amount of money needed and whether or not there's funding, and where and how you seek that funding. It's not random, it's related to the plan itself. Here again is the idea of a natural level, of a fit between the nature of the business startup, and its funding strategy.

It seems that you start with your own resources, and if that's enough, you stop there too. You look at what you can borrow. And you deal with realities of friends and family (limited for most people), angel investment (for more money, but also limited by realities of investor needs, payoffs, etc.), and venture capital (available for only a few very high-end plans, with good teams, defensible markets, scalability, etc.).

3. Launch or Revise

Somewhere in this process is a sense of scale and reality. If the natural startup cost is $2 million but you don't have a proven team and a strong plan, then you don't just raise less money, and you don't just make do with less. No -- and this is important -- at that point, you have to revise your plan. You don't just go blindly on spending money (and probably dumping it down the drain) if the money raised, or the money raisable, doesn't match the amount the plan requires.

Revise the plan. Lower your sites. Narrow your market. Slow your projected growth rate.

Bring in a stronger team. New partners? More experienced people? Maybe a different ownership structure will help.

What's really important is you have to jump out of a flawed assumption set and revise the plan. I've seen this too often: you do the plan, set the amounts, fail the funding, and then just keep going, but without the needed funding.

And that's just not likely to work. And, more important, it is likely to cause you to fail, and lose money while you're doing it.

Repetition for emphasis: you revise the plan to give it a different natural need level. You don't just make do with less. You also do less.

The Secret Sauce

Where's my discussion of the secret sauce? Somebody asked me that a couple days ago, expecting it to be in this book. I was embarrassed. I talk about the secret sauce a lot, in my seminars and in my class, at the office. It's definitively another view of the same reality I'm calling the heart of the plan. So that's one thing to add for the next edition. Differentiate

The secret sauce is the magic, also called (boring) differentiators, and sometimes competitive edge; Guy Kawasaki calls it "underlying magic" and recommends that it be one of the 10 (or so) slides is a pitch presentation. You can google it and see how people are writing about it, using it to define what's new or different about some businesses. (You'll also see some items on McDonalds' secret sauce for the big mac, and some cooking stuff, but you'll see what I mean).

This idea of the secret sauce is a good way to explain how you're different from your competitors. What sets you apart?

Examples? Apple Computer's secret sauce is design, for example. Michelin tires' branding tries (in my opinion) to emulate Volve, the safety angle. My favorite restaurant in Eugene, Poppi's Anatolia, has an extremely spicy version of vindaloo chicken. Whole Foods' secret sauce is its having established the brand for healthy and organic foods. In cars, just look at the mini-cooper or the Honda Element or the Toyota Prius and you see secret sauce immediately.

Take the Brand Genie quiz now!

Impatient? Then Jump In

I understand. Enough of the explanations and positioning, let's get working on a plan. So go ahead, just jump in and do it.

  • Most people like to start with the heart of the plan. Jump there now, you'll see what I mean. It's about what really drives your business. Your target market, your business offering, your strategic focus. And don't worry about format; write it, speak it, use bullet points, slides, or whatever.
  • My personal favorite is the plan review schedule. This makes it very clear that you're after planning, and better management, not just a plan.
  • Another very good starting point is the sales forecast. Some people like to get to the numbers first, and many people do the conceptual thinking while they work the numbers. Your target market, your business offering, your strategic focus are all in your head as you make your sales forecast. That's not a bad way to proceed.
  • Maybe you want to start with an expense budget instead. Estimate your payroll on an average month. Calculate your burn rate, a very important number, meaning how much money you have to spend per month.
  • If you're planning to start a business, startup costs is a good place to get going. Make lists of what you need, in money, goods, locations, and so forth.
  • Particularly when you have a team, SWOT (strengths, weaknessess, opportunities, and threats) analysis is a great way to start. You can jump to the SWOT analysis now and do that.
  • Some people like to set the scene better, with the mission statement, vision, mantra, objectives, or keys to success. That gives your plan a framework to live in. If you like.

However, there are some things in business planning, even plan-as-you-go planning, that have to happen in a certain order. For example, you can't really just start with the cash flow statement without having done your sales forecast, burn rate, and some asset and liabilities assumptions.

Still, you can get started fast. I don't blame you. Maybe you'll jump back here (use your Back button) to continue the explanations after you've made some progress.

The Big Plan, All At Once

Tips and traps

You can also do the big plan all at once! I understand. This new approach is great but never mind, you need the formal plan. You've been asked for it by somebody who might invest, or a bank loan manager, or a boss. Maybe you're doing it for a business school class. I call these business plan events. When you need the old-fashioned full document, so be it; there's a business need, so let's get it done.

We'll get there, in this book. You can jump there right now, and start writing things down, section by section. I'd rather have you develop your core plan first, then get the essentials including the who-what-when-how-much, the sales forecast, and the spending budgets (a.k.a. the burn rate: the amount of money that flows out of the business each month) but that's up to you. "Get started and get going" means you can also do it the old-fashioned way if you want.

Filter Ideas from Opportunities

Tips and trapsBusiness ideas are interesting, exciting stuff to build a business by, but they are worth nothing (in general) until somebody builds a company around them.

Opportunities are the best of the ideas. An idea is just that. An opportunity is an idea you can implement. You have the resources, and know-how to do it. There is a market. You can make money on it, and the investment will be worth it.

Good business planning filters the opportunities from the ideas. Apply the planning process to the idea to make it an opportunity. Determine the market strength, what exactly is needed, how long it will take, how much money it will take, what people are required. Lay it out into steps.

Not all ideas can survive the rigor of planning. Some fall by the wayside, ending up as interesting ideas that aren't really opportunities.

Some of the factors that count:

  • Risk vs. return. Is what it takes to pursue this idea worth the likely return? This is not scientific. It depends a lot on your business' attitude about risk, and what other opportunities are available.
  • Realism. How realistic are the forecasts? Give them a good look. Are you pushing the forecast to make things work.
  • Resources. What will really be required? Think of people, know-how, skills, compensation, implied risk (paying people to build this company up). What are the start-up costs, including expenses required and assets required?
  • Market potential. The heart of your sales forecast is the market potential. How much do people want or need the business offering?
  • Business potential. How much money can the business make? How will this impact the business? How big is this opportunity, overall?

If You Dread Planning Your Startup, Don’t Start It

Recently I had one of those lightbulbs go off in my head. I'm referring to those times when you're reminded of something you already knew, but had forgotten. In my case today it was this: Planning your new business, the one you're thinking of starting, ought to be fun. Planning isn't about writing some ponderous homework assignment or dull business memo; it's about envisioning that business that you want to create. It should be fascinating to you. What do people want, how are you going to get it to them, how are you different, and what do you do better than anybody else?

Honestly, isn't that related to the dreaming that makes some of us want to build our own businesses? It was for me, every time, including those ventures I worked on that made it and those that failed. Dreaming about the next thing I wanted to do was always part of it. Dreaming is related to looking forward, anticipating, and (in this case) business planning.

This came up during an interview for SBTV (which was later absorbed by a bigger site, and the video lost), which was filming interviews with me on starting and managing a business and business planning. I was answering a question Tim on SBTVrelating starting a business to getting out of the cubicle, when I realized that I was in danger of forgetting that business planning is part of the dreaming and part of the fun. And it is.

I think what's important is that none of us should be intimidated by business planning because of what I've called the not-so-big business plan, or the point I've made about starting anywhere you like.  The business plan is a way to lay out your thoughts and think them through -- it  shouldn't be some dull ponderous task you have to get through.

If thinking through the core elements of your business, or for that matter the details of your business, isn't interesting, then get a clue. If you're not really looking forward to it, maybe you don't want to start the business after all.

If you dread the planning of your next vacation, stay home. If you dread the planning of your new startup, don't start it.

Before You Write a Business Plan

Validating the idea and understanding the business model are pretty important steps that should come before writing a business plan. That's hardly a novel idea.

Still, novel idea or not, successful entrepreneur Vivek Wadhwa spells out the early stages very well in a BusinessWeek special report published in early 2008, "Before You Write a Business Plan."

He starts with a short list for validating the idea:

  1. Write down your thoughts on the product you want to build and the needs you want to solve. You'll be detailing your hypotheses.
  2. Validate these hypotheses with as many potential customers as you can. Ask them if they will buy your product or service if you build it. Learn about what features they need and what they will pay for, ask them for more ideas, and be sure that there is a large enough market.
  3. Build a prototype of your product or offer a test run of your service and again ask potential customers what they think about it. You'll find that customers usually provide much better input when they can actually try out a product.

Then Wadhwa also suggests a slightly longer list for developing the business model, by answering s a series of questions:

  1. How are you going to find customers or have them find you? Are you going to advertise, cold-call or rely on word of mouth?
  2. How will you differentiate your product or service? There is always competition, so how are you going to set yourself apart?
  3. What can you charge for your product or service that's profitable for you and provides value to the customer?
  4. How are you going to persuade potential customers to buy from you? Even great products or services don't sell themselves; you have to develop a process for closing deals (BusinessWeek, 7/12/05).
  5. How will you deliver your products or services to your customers? Are you going to have a direct sales force, sell through distributors or over the Internet? Can you do this cost-effectively?
  6. How are you going to support your customers if your product breaks? Are you going to provide a telephone hotline, on-site support or answer e-mails?
  7. How are you going to ensure customer satisfaction and turn customers into loyal fans? Your success will ultimately depend on how happy your customers are.

These are good lists to go over as you consider your plan.

Guy Kawasaki on Mission Statements

The fundamental shortcoming of most mission statements is that everyone expects them to be highfalutin and all-encompassing. The result is a long, boring, commonplace, and pointless joke.

In The Mission Statement Book, Jeffrey Abrams provides 301 examples of mission statements that demonstrate that companies are all writing the same mediocre stuff. To wit, this is a partial list of the frequency with which mission statements in Abrams's sample contained the same words:

  • best - 94
  • communities - 97
  • customers - 211
  • excellence - 77
  • leader - 106
  • quality - 169

Fortune (or Forbes, in my case) favors the bold, so I'll give you some advice that will make life easy for you: Postpone writing your mission statement. You can come up with it later when you're successful and have lots of time and money to waste. (If you're not successful, it won't matter that you didn't develop one.)

Make Meaning : The Art of the Start
[see-also]How to Write a Mission Statement (Video) »[/see-also]

Jump to the Future and Ask This Question

You fall in love with your plan, and love is blind. You don't see the fatal flaw.

I know a man who jumped headfirst into a new venture based on building a chain of used CD stores. The punch line? It was 2000. Napster was already there. Do you see the fatal flaw? He didn't. And this was a man who'd had a string of successes.

Love is blind.

So here's a trick that might, sometimes, if you're lucky, help you see the fatal flaw.

  1. It takes imagination. So close your eyes, relax your shoulders, and take a deep breath and let it out slowly.
  2. Jump in your imagination to the future. Go to three years from now.
  3. Now pretend that, there in the future, you know that the business you are starting now, your baby, your dream, is over. It failed. I know, that's hard, but it's a game; it's only in your imagination, so make that leap.
  4. You're sitting at a table, maybe in a coffee shop, maybe at lunch, and somebody asks you: "What happened? Why did it fail?"
  5. Now, using your imagination, your intelligence, and what you know about your business, answer that question. This is fiction now, so you have to tell a story. Make it believable. What happened?

This activity will help you think about flaws. Was it competition? Did the management lose interest? Was there not enough money? Did some new technology come along?

I don't know for sure, but I believe that if my friend with the used CD stores had done this exercise, he would have come up with the possibility of a change in the way we deal with music, meaning Napster, downloading, iTunes and so on.

And, for the record, I haven't done the research, either, but what do you think? Would you like to own a used CD store? What do you think has happened to the sale of used CDs?

Adapted from Up and Running blog.

The Business Model

Nobody talked much about business models until suddenly a lot of businesses, valued for a lot of money, didn't have them.

For almost any traditional business, the business model is so obvious that you don't have to talk about it. Stores sell goods. Restaurants sell meals. Hotels sell lodging. Airlines and taxis sell transportation.

Think of the business model as how you make money -- how you get money out of your customer's pocket and into your bank account.

The new businesses, mainly Web businesses, need to explain how they make money. Some of the most highly valued businesses in the world -- Facebook, for example -- don't have an obvious way to make money.

Some businesses still get away with generating traffic, so-called eyeballs, but not money. The underlying assumption in these cases is that the traffic means a likelihood of being able to generate money somehow, some day.

And if you want to be really trendy, use the phrase business model to mean type of business. This can get really interesting. Take a look at Alexander Osterwald'sBusiness Model Alchemist, for example, a blog focusing on new ways to do business. Here's how he defines the business model:

A business model is a conceptual tool that contains a set of elements and their relationships and allows expressing the business logic of a specific firm. It is a description of the value a company offers to one or several segments of customers and of the architecture of the firm and its network of partners for creating, marketing, and delivering this value and relationship capital, to generate profitable and sustainable revenue streams.

Along with that he adds nine points:

  1. The value proposition of what is offered to the market;
  2. The target customer segments addressed by the value proposition;
  3. The communication and distribution channels to reach customers and offer the value proposition;
  4. The relationships established with customers;
  5. The core capabilities needed to make the business model possible;
  6. The configuration of activities to implement the business model;
  7. The partners and their motivations of coming together to make a business model happen;
  8. The revenue streams generated by the business model constituting the revenue model;
  9. The cost structure resulting of the business model.

This is perhaps a bit thick in language, but still, a nice summary of a business. You could use this as the heart of a plan too, no? His value proposition is our business offering, his target customer segment is obvious, but our strategy adds more attention to your business identity and your narrowed strategic focus. This is descriptive. Regardless, it's a good list.

Yes, You are Qualified to Forecast Your Business

There's a scene in one of the Monty Python movies in which the woman on the operating table is about to give birth. Frightened, she asks the doctor--a memorable John Cleese character--"Doctor, doctor, what do I do?"

The doctor, looking down at her with a sneer, answers "You? Nothing. You're not qualified!"

It's a very funny scene. I'm a man. I've been present for several births. I know who does everything. Not the doctor.

And the same strange hesitance shows up a lot when people in business need to forecast. They think somebody else, somebody with more schooling, knows better. Someone else can run the numbers, do an econometric analysis, look at the data better, find the trends.

The truth, however, is that nobody is more qualified than a business owner to forecast her business. You've been there, you've lived through the ups and downs of it, you have the sense of it better than anybody.

For the record, I spent several years as a vice president in a brand-name market research consulting company. Our clients often thought we knew better, because that's how we made our living. And most of the time we were just making educated guesses, like you do when you forecast your own business.

You are qualified. Trust yourself.

And I'm sorry, I just found the scene in YouTube. You can click the link if you don't see the video below. I couldn't resist adding it here. The specific "You're not qualified" moment is at about 1:25:

Spreadsheet Basics

You probably know this already, but I'll go over it just in case. I recommend using Business Plan Pro software so you don't have to do this, but it's good to know anyhow, and you can certainly do everything in this book without that software. So here's a bit about spreadsheets.

Spreadsheets are normally arranged in rows and columns, with rows numbered from 1 to whatever, and columns labeled from A to whatever. Simple mathematical formulas refer to the cells that are identified by row and column. For example:

So what we see here is a simple formula that adds the 34 in cell B2 to the 45 in cell C2 to get the sum of those two, which is 79. That number is in cell D2, so you see the formula showing at the top when you click on D2. Also the number in the upper left corner indicates which cell the displayed formula belongs to.

Here's another simple example:

In this case the cell named B5 is highlighted, and its formula says to sum up all the cells from B2 to B4. That's three cells, and the numbers they contain sum up to 128.

There are lots of books and websites and different instructions and tutorials available for spreadsheets. This is enough for now, so you can understand my simple forecast examples.

Assets vs. Expenses

Many people can be confused by the accounting distinction between expenses and assets. For example, they would like to record research and development as assets instead of expenses, because those expenses create intellectual property. However, standard accounting and taxation law are both strict on the distinction:

  • Expenses are deductible against income, so they reduce taxable income, but expenses cannot be depreciated, ever.
  • Assets are not deductible against income, but assets whose value declines over time (usually long-term assets) can be depreciated.

Some people are also confused by the specific definition of startup expenses, startup assets, and startup financing. They would prefer to have a broader, more generic definition that includes, say, expenses incurred during the first year, or the first few months, of the plan. Unfortunately, this would also lead to double counting of expenses and nonstandard financial statements. All the expenses incurred during the first year have to appear in the profit and loss statement of the first year, and all expenses incurred before that have to appear as startup expenses.

This treatment is the only way to correctly deal with the tax implications and the proper assigning of expenses to the time periods in which they belong. Tax authorities and accounting standards are clear on this.

What a company spends to acquire assets is not deductible against income. For example, money spent on inventory is not deductible as an expense at the point when you buy it. Only when the inventory is sold, and therefore becomes cost of goods sold or cost of sales, does it reduce income.

Why You Do Not Want to Capitalize Expenses

Sometimes people want to treat expenses as assets. Ironically, that is usually a bad idea, for several reasons:

  • Money spent buying assets is not tax deductible. Money spent on expenses is deductible.
  • Capitalizing expenses creates the danger of overstating assets.
  • If you capitalize the expense, it appears on your books as an asset. Having useless assets on the accounting books is not a good thing.

Fixed and Variable Costs and Burn Rate.

As you consider your projected income statement, I hope you see three of your spending budgets there -- the cost of sales, the payroll, and the expenses. These also contain your fixed vs. variable costs, and your burn rate, which we went over in the Chapter 4. Those are good numbers to keep in mind.

Why do fixed costs matter? They add to the risk. You have to pay them, whether you're making money or not. Some companies reduce risk by trying to make as much as possible into variable costs, depending on sales, instead of fixed costs. For example, to make programming expenses variable instead of fixed costs, contract the work by milestone, or pay less fixed compensation and more royalty on sales.

The burn rate is the same thing. It's a sense of risk. If you know you need $10,000 every month to cover your burn rate, then when you watch your sales you have an instant sense of where they have to get.

Business Ratios

By the time you have your financial forecast complete, you have numbers available to do some standard business ratios. I can't say that I'm a big fan of ratios, but they can look good in a full and formal business plan, even though they are projected ratios. Here's an example.

The real use of ratios, in my opinion, is watching them as they change over time. In the best of the plan-as-you-go business planning idea, you have some key ratios that are important to you. They are in your objectives and you review them in meetings.

Notice in this case that I've also added a reference to standard business ratios. This is a good touch in a business plan. They come from available industry data, which I discuss in the next section. Don't expect your company projections to ever be an exact match. Be prepared to explain why they are different. And they are always different.

Break-Even Analysis

The break-even analysis is not my favorite analysis for a business plan. It has lots of problems. First, people often confuse it with payback period, meaning when do you break even on the money spent with money returned to you from a business, as it grows. That's not break-even. Second, it depends on being able to deal with estimated average numbers that are hard to do. Businesses rarely produce an average revenue per unit, or an average variable cost per revenue unit, or average fixed costs.

Still, it is useful if you take it with a grain of salt. It can help you see the implications of fixed vs. variable costs, and it can give you a basic idea of how much you need to sell to cover costs. If you don't expect it to be too exact and you don't put too much stock in it, then it can make sense and be useful.

I have an example here. The standard break-even financial formulas are:

The units break-even point is:

Fixed Cost ÷ Unit Price - Unit Variable Costs

The sales break-even point is: The sales break-even point is:

Fixed Cost ÷ (1-(Unit variable Costs/Unit Price))

This section of the model calculates technical break-even points, based on the assumptions for unit prices, variable costs, and fixed costs.

The break-even analysis depends on assumptions for fixed costs, unit price, and unit variable costs. These are rarely exact assumptions. This is not a true picture of fixed costs by any means, but is quite useful for determining a break-even point.

People often represent break-even a line chart, showing the break-even point as the point at which the line crosses zero as sales increase. The example here shows a break-even analysis that compares unit sales to profits, and assumes:

Fixed costs of $94,035

Average per-unit revenue of $325

Average per-unit variable cost of $248

Always Lead With Your Story

Start with stories. In your business plan, your presentation, and even your elevator pitch, always start with a story about who needs what you're selling. Needs and wants are the biggest thing in business, so make that come alive.

Ralph promised his wife Mabel that he'd get new suits before his London trip, but Mabel normally goes with him to the stores and she's been busy with their daughter and new grandson, and Ralph hates shopping. His solution, for this and his long-term need for a steady supply of good-looking clothes befitting his position as president and founder, is The Trunk Club. He doesn't have to shop, his clothes will fit, he'll be able to just call the club and ask for what he needs, whether it's business casual, office suits, or formal, or even golf and hiking. He'll be in style and matched and he won't have to worry about it. And he won't have to go into a store either.

I just made that story up to illustrate a point. That one paragraph does a decent job, in my opinion, at setting up the market need, the target market, and the business offering. This is one of the more interesting new businesses I've seen lately. The plan, the presentation and the elevator pitch could begin with this story.

Linda's been dreaming about and thinking about the business she wants to start. Sometimes she can't sleep at night for thinking about it. Will people want what I'm selling, she asks herself? How many? How much will they pay? What's the right equipment to start? Can I afford it? What will I need to spend to get going, and what will I need to spend on people, rent, and so on as I start? How much will it cost me to build what I'm delivering? Can I make an offering that will be attractive to outside investors? Finally Linda gets Business Plan Pro and starts working, building the plan. She takes it a topic at a time, a step at a time; she jumps around the different projections and concepts. Now when she wakes up in the middle of the night thinking about it, she has a plan underway, somewhere to put those thoughts down. Now she has a much better idea of what she needs, how long it might take, what the key points are.

Leslie and Terry both work, and they also both care very much about creating the right home life for their two children, three and one years old. When they shop for groceries they always go to the more health-oriented grocery store. They buy organic, they cook organic, but they don't always have the time to cook. They hate giving their kids the foods they can get delivered, and they hate giving their kids the meals they can pick up. Then they discover a new business that prepares healthy family meals and sells a subscription plan. Terry stops by several days a week to pick up the family dinner on the way home from work. What business is this story for? You tell me; I'm just thinking here about a problem that needs solving. It's about telling the story. That makes a business plan come alive.

One final example, this one a true story: Recently, I spent most of Thursday and Friday one week at the University of Notre Dame with seven other people reviewing more than 60 executive summaries submitted to the two Notre Dame venture competitions – the McCloskey Business Plan Competition. As part of this we reviewed two otherwise equal executive summaries. One starts with the founder's story of how he had this problem nobody could solve. That one scored significantly higher than the other one, which was relatively similar on all other noticeable points but was missing a story.

This story idea isn't new. For more on how to do it, try reading Made to Stick by Chip and Dan Heath or All Marketers are Liars by Seth Godin. What's new here is that I've experienced another example of how much difference this tactic can make. Turn your core marketing strategy into a story, and then tell that story first.

Adapted with permission from Planning Startups Stories blog

Sidebar: Tip: What If I Don’t Know

This headline caught you because you're planning something new. If you're planning something that's been around for a while, then you do know, or somebody knows, what you've been spending. That gives you past data to help with your planning.

So, for you newbies, first you should know that you're not the first. Everybody who plans something new has to go through that initial stage when you don't have past results as a base. So you estimate.

I get this complaint a lot. "I don't know what my costs are." Or, the interestingly naive alternative to that: "What will my costs be?" The answer is, you'd better know. Here again, if you're never going to get this and don't want to, but you believe in the business, then you either already have somebody who does this or you better find somebody and get him on the team. Teams, remember? Businesses don't have to be teams, but then most of them are, and that's because people are different.

One way or another, if you're going to run your business you're going to have to plan the ebb and flow of money. Deal with it. It's not that hard. Just break it down into pieces. Guess your rent first, or maybe your salaries. Utilities are fairly easy. Health insurance. Don't try to globally guess how much it will be altogether; break it into pieces. Your car. Gasoline and insurance. Maintenance.

And then follow up. Check your plan once a month, compare the plan with the actual results, and improve the plan. Nobody's supposed to know everything, and nobody knows the future, but you can keep making your projections better. The hardest is the first, before you have any results. From there, things improve.

Who Isn’t Your Customer

Consider the Trunk Club, Joanna Van Vleck's interesting startup described in "Startup Success Story: The Trunk Club" in Up and Running at upandrunning.entrepreneur.com. How important is it that she understands who isn't her customer? She told me this herself:

  • I realized that although I thought my target was women, women are normally closer to style. In general. So they aren't as likely to pay money for style consulting.
  • Men have less ego invested. Some, in fact, pride themselves on not knowing style. In general.
  • The metrosexual man is not my customer. He loves his own style and spends his own time and effort finding it.
  • The man whose partner in a relationship likes to shop for his clothes is not my customer. She wants to do it. She doesn't want me to.
  • The younger men on a budget aren't my customer. They can't afford me.

Notice how the "isn't my customer" routine helps define and position your marketing better.

A fast-food restaurant knows that the relatively well-to-do baby boomer empty nesters aren't their customers. On average. The sushi restaurant knows that the construction worker driving a pickup truck who eats at the Texas barbecue drive-through isn't its customer.

Consider Jolt cola. Twice the sugar and twice the caffeine. How important is understanding who isn't the customer.

Your blog, if you're doing a blog as a business, needs a focus. People don't care about your inner angst, but there are specialty niche areas all over the place. Old Volkswagen maintenance. Arranging dry flowers. The narrower you cut it the better. Sure there are some general blogs that work, but they started years before you did. Nowadays you need to focus.