The right business planning greatly increases the probability of your company’s success. To that end, StartupNation interviewed Tim Berry, the preeminent authority on business planning for small businesses. Berry is Chairman and Founder of Palo Alto Software (70% share of the business plan software market), Founder of Bplans, Co-Founder of Borland International, Co-Founder of Eugene Social, and author of six books, including "The Plan-As-You-Go Business Plan."
Bestselling author of "Escape from Cubicle Nation," Pamela Slim, calls Berry the Obi-wan Kenobe of business planning.
StartupNation had the pleasure of discussing business planning issues with Berry and documenting his advice to help you start and build a highly successful business. The following is our interview with the business planning expert:
There’s been quite a bit written recently about the value of a 1-page business plan. What are your thoughts on this type of plan vs. a thorough document?
Berry: The only problem is confusing the two as if one replaces the other. The 1-pager is a summary of the plan. You can’t have real information on it — milestones, sales growth, headcount, etc. — without a plan that develops that information.
I love a one-page summary of a business plan, which is extremely useful as long as it isn’t instead of a plan. Investors will use the summary not to invest in companies, but to rule out those they don’t want to know more about. Investors don’t invest in companies without having a business plan, except for those rare exceptions where they know the people thoroughly.
The plan is a necessary but not sufficient condition. And while generalizations on what investors think are dangerous, because they are diverse people, my above thoughts are a summary and aggregation of what I know from my role as the head (fund manager) of our local angel investment group.
How can an entrepreneur develop a business plan that will be flexible enough to adjust to evolving customer and market needs?
Berry: First step is a monthly review, 1-2 hours a month, scheduled in advance. Second is list assumptions so you know what to change. The business plan is voided by change, but more importantly it actually manages change. It connects the dots in the background so you know what to change. A business plan that doesn’t know it’s obsolete about once a month is obsolete forever.
You originally offered consulting services, which in turn funded your product development. How can an entrepreneur know that the timing is right to translate service revenue into an investment in product development?
Berry: No way to be certain. Nobody gets to be certain about the future. But doing a business plan breaks that uncertainty into meaningful pieces…sales, costs, expenses, focus, etc. That’s the best way to manage those educated guesses.
In what situations would you recommend that an entrepreneur seek outside funding? And what do you think are good sources of outside funding?
Berry: The best thing I’ve seen in a while on what investors want — at the high end of venture capital — is this one on The Anatomy of a Successful Entrepreneur by Rip Empson that appeared on TechCrunch. The short list from this article is as follows:
- Big & Bold Idea (Non-consensus idea)
- A.I.M. (Authenticity, Integrity, Motivation)
- A+ DNA (Winning Team)
- R.I.P. (Rapid Iterations & Pivoting)
- Objectivity & Adaptability
Non-traditional yet effective ways to get outside funding include:
- Prepaid sales (the absolute best startup financing!).
- Innovative non-traditional borrowing.
- Percent of revenue, or royalties.
- Do-now pay later.
- Lease equipment.
Are there any situations where an entrepreneur should avoid outside funding?
Berry: The following are 10 good reasons why you may not want to seek outside investors:
- It’s almost impossible to get investment for your very first startup. If you don’t have startup experience, get somebody on your team who does.
- You are selling ownership.
- Investors are bosses.
- Valuation is critical to them and you. (If you want to give only 10
percent of your company to investors who pay $100,000, you’re saying
your company is worth $1 million. And so on. Simple math, but wow, not
so simple negotiation.)
- Investors don’t make money until there’s a liquidity event.
- If it’s not scalable, forget it.
- If it’s not defensible, it’s tough going at best.
- Investors aren’t generic. (Some become collaborative partners and even mentors. Some are nagging
insensitive critics. Some are trojan horses. Some help, some don’t.)
- Just getting financed doesn’t mean diddly.
- Investors sometimes take your company from you.
What were the best decisions you made in starting and growing Palo Alto Software?
Berry: The biggest decision
was not just correcting bad packaging when we had a very bad start in
retail, but also going back to the mats and creating a stand-alone
application so we didn’t have to sell templates anymore.
What were some of the biggest mistakes that you learned from starting Palo Alto Software?
Berry: 1. Cash flow isn’t
just theoretical. It’s real. And frequently the cause of cash flow
problems is rapid growth, especially in a b-to-b business, and
especially in a product business.
2. Ideas and vision and inspiration can get a company to a mezzanine
point, about 20 employees and $5 million in sales, in which management
and structure is needed in a way that it wasn’t during the first push.
Anything else you’d like to share?
Berry: Yes, some final thoughts. Through more than two decades of bootstrapping, here are 10 reasons for our entrepreneurial success based on my own experiences. This may not apply to all businesses, but it was applicable to my own personal story.
- We made lots of mistakes. (And then learned from them.)
- We built it around ourselves. (Our business was and is a reflection of us, what we like to do, what we do well.)
- We offered something other people wanted.
- We planned.
- We spent our own money. We never spent money we didn’t have.
- We used service revenues to invest in products.
- We minded cash flow first, before growth.
- We put growth ahead of profits.
- We hired people slowly and carefully.
- We did for employees’ families as we did for ourselves.
Follow Tim Berry on Twitter: @TimBerry