David Ronick is a co-founder of UpStart Bootcamp. This organization provides entrepreneurs who are tackling challenges with just-in-time, remote help. He’s coached over 100 startups, is the author of Hit The Deck: Create A Business Plan in Half the Time with Twice the Impact, and is a graduate of Harvard Business School and Brown University. In this interview, he brings us up to speed with the current state and expectations of business plans for startups.
Q: Because of the lower cost of starting companies, are venture capitalists necessary anymore?
A: Yes, but venture capital is a better fit for some startups than for others. UpStart’s clients tend to be early stage founders. Most of them need to build teams and products, and prove the dogs will eat their dog food before they raise significant capital. Of those, I’d recommend VC if the companies are in high growth areas (e.g. consumer internet), have teams with proven track records and strong networks, and need access to dry-powder for follow-on rounds.
Q: If you’re not trying to raise venture capital, is there any reason to write a plan anyway?
A: Yes. A business plan is really about making sure you’ve thought through your ideas and can communicate them in a clear, compelling way. That’s important for pitching investors of all kinds—including friends, family and angels. But there are other benefits. A plan lets you share ideas to get feedback, and ensure that everyone involved is on the same page. When you hit roadblocks, a plan lets you take an objective look at what you are doing and why, what you know for a fact, and what you are trying to figure out. That doesn’t mean you should hide away in a library for months writing 40+ pages of text. A plan should take you three weeks or less, and you should use a presentation format for speed, flexibility, and impact.
Q: Does an MBA degree add significant value to a startup entrepreneur?
A: MBAs from top schools often come with powerful networks of faculty and alumni, which can open lots of doors. On the other hand, MBA programs are expensive and time consuming, and the vast majority of successful founders don’t have them. If you’ve got a startup idea that’s right for the times, and a team capable of executing, I wouldn’t hold off for two years to get an MBA. Go to UpStart Bootcamp instead!
Q: What’s worse: too much or too little money?
A: I recommend that founders start by doing more with less. I like the discipline of concentrating on a very specific target, building a minimum viable product, testing it on customers in a methodical way, and pivoting based on results—and doing it all as quickly and inexpensively as possible. Once you find a formula for attracting customers in a way that’s profitable and scalable, you can always raise gobs of capital and dominate the market.
Q: What if you’re truly an unproven team in an unproven market creating unproven technology?
A: Then you probably have no choice but to bootstrap, which isn’t necessarily bad.
Q: Everyone says they have a “proven team,” how are you suppose to differentiate your team?
A: If you’ve had previous startup wins, you can probably raise capital easily. But most entrepreneurs have to begin with rookie teams, and trade-up later. I advise founders to identify the key operations of their business and put a founder at the head of each one who has the right talent and experience to get the company to the point where they’ve got a product up and running, and proof that customers will use/buy it. At that point, it’s easier to recruit all stars.
Q: Why do you suggest a five-year financial projection when you know that most entrepreneurs will just make up numbers?
A: It’s true that five-year projections are just about always wrong. Still, running the numbers can help both founders and investors. It’s important to understand unit economics, which are the building blocks of your business. For example, predict and track how much it costs to acquire a customer, and how much a customer is worth. Get that wrong, and you don’t have a business. You should also understand how many customers you’ll need to break-even, and set goals for when that will happen. And you should have a sense for how big your opportunity is, how much capital you’ll need, and when you’ll need it.
Q: What if you have no idea which, if any, revenue model will work?
A: Starting a company without a revenue model is ok if you are comfortable taking on lots of risk, believe you’re onto something with the potential to grow very big very quickly, and have founders and investors with a lot of patience. Otherwise, I don’t recommend it.
Q: What should an entrepreneur accomplish in the first 60 seconds of a pitch?
A: A lot of founders start by telling their stories, but I recommend getting right to your elevator pitch and saving any drama for later. Within the first minute of your presentation, lay out the basic logic behind your business idea, using simple, clear terms even your mother would understand. Explain who your customers are, what problem they want solved, and how you’ll solve it in a way that delivers unique benefits. Also explain how you’ll make money, and what it is you want from your audience members. It may not be sexy, but it works.
Q: Do you really think investors will accept a PowerPoint presentation in lieu of a business plan?
A: Over the past few years, I probably met one founder per month who plunked down a 40+ page term-paper style plan and wondered why they couldn’t raise money or get a product to market. After a while, I decided to survey 100 leading angel and venture capital investors at places like Sequoia, Kleiner Perkins, The Keiretsu Forum and New York Angels. Over 95 percent said it’s about the “deck”, not the “doc.” Long form plans take too long to read, write, and update. They’re useless for pitching. And they don’t force startup teams to prioritize, which is critical given limited time and resources. Instead, focus on thinking through your ideas, crystallize them in a pitch deck, and give investors more detail if and when they ask for it, preferable in the form of data and analysis. I’m so convinced, I wrote an entire book on the subject.
Q: Is it better to be lucky or smart?