Category: Business Model

Fresh Start

belmont_campus_sunset.jpg

Today is the first day of classes for me here at Belmont University.  I love the rhythm of the academic calendar.   The start of a new academic year offers a sense of renewal.  But, there is something special about this one.

As those of you who are regulars readers know, 2010 has not been the best of years for me personally.  Early in the year, my wife and I lost our oldest dog Keb, who died much too young at the age of eight.  Soon came the loss of my father to a stroke, which happened at the same time as our daughter and her husband had been flooded out of their home in the Great Nashville Flood of 2010.

While life seems to be getting back to normal, we can’t help but being haunted by the ghost of “what’s next?”

So the fresh start that comes with every fall semester is particularly welcomed this year.

The fresh start is also exciting to me as after many years of teaching entrepreneurs, I am in the middle of a renaissance in how I help my students learn about planning for their entrepreneurial ventures.

Unlike many of my colleague around the country, I have not completely abandoned the good old business plan.  I am simply in the process of relegating it to its rightful place.  Business plans are certainly useful tools for certain situations, such as raising funds or selling a business.

Business planning is a critical activity for any entrepreneur, but we seem to have gotten lazy and assumed that learning the process of writing business plans is the be all and end all of planning.

This laziness has included entrepreneurs, investors, and those of us who teach entrepreneurship.  We are all guilty of a misguided understanding of what is essential about planning for a new and growing venture.

Enter a small, but growing body of work on business modeling.

Business modeling is a way of conceptualizing and planning for a venture that looks at it as a whole.  Business plans, on the other hand, are much more like a series of short stories that may or may not loosely hold together.

Business modeling is all about the integrity of the planning process and the importance in internal consistency among the moving parts that make up a successful venture.

As with any new way of thinking in business, there is no clean and simple text for us to teach from.  What we are learning about effective business modeling comes from a variety of places and disciplines, each of which is shedding a little more light on what makes a successful business model.

Some of the best work out there so far includes:

Johnson – Seizing the White Space: Business Model Innovation for Growth and Renewal 
Osterwalder et al – Business Model Generation
Mullins & Komisar — Getting to Plan B

None of these works offer a complete view of business modeling, but each offers insights on part of the process.

Well, it is time to get ready to head for campus.  More than most years, I am truly thankful for the fresh start this new semester offers.

Building Bootstrapping into Business Models

The myth still exists that it takes outside funding, sometimes massive outside funding, to launch a successful high growth firm. 

If you have a very capital intensive or labor intensive business model you will need a large base of funding to get off the ground.  But for most start-ups, you may be able to adjust your business model enough to cut the funding you need, while still making a successful launch.

One example comes from an e-mail I received about launching a children’s indoor play center.  Such facilities can take a lot of cash to launch due to the cost of facility rent and equipment costs, and the aspiring entrepreneur had no ready source of cash.

My response is that there are no ready outside sources of cash out there for new start-ups like this. The only real options are to use money from your savings or to tap into friends and family who would be willing to invest.

If the entrepreneur wanting to start the indoor play center cannot raise the money to launch the program fully formed, there are other options.  She could start with a much smaller scale that fits in with the money available. Or she could develop the program she wants to run by partnering with a local facility like a YMCA.  Or she might be able to save rent expense by partnering with a local church to use their space.

The point is that some modest tweaks to the business model may bring costs way down and still meet the need of the market.  Once the bootstrapped launch of the play center is cash flow positive, all kinds of options for growing and expanding emerge.

John Wark sent along a great example of how bootstrapping did not stop a new venture called Logik from making the Inc 500.  Logik is one of the firms featured in a series at the blog 37signals called “Bootstrapped, Profitable and Proud.”

According to the interview, Logik launched with only $20,000 from savings and credit cards (NOTE:  I am not a fan of using credit cards to start businesses).  It was profitable within nine months.  And did the bootstrapping limit their ability to grow, as it often commonly assumed?

“Financially, we’ve been very successful considering our size relative to the
competition (most have close to or well over 100 employees, we have 16)…. [F]rom 2005 to 2008 we grew revenue by 1,067% from $373,866 in
2005 to $4.4 million in 2008 with about $3 million in profit. We did that with 8
employees, a ton of servers, niche software, and 1 dog. This, minus the profit,
is all public information now. We were ranked
#181 overall on the 2009 Inc 500 survey and #1 for eDiscovery companies.”

And Logik is still bootstrapping their venture to this day.  This is a great series at 37signals and is worth following for all you aspiring bootstrappers out there.

If funding is your barrier to starting your new venture, play with the business model to see if you can still create a value proposition that the market will be attracted to.  You might be surprised how much start-up capital you can save without hurting your ability to launch and grow.

Steve Blank on Customer Development

Some of you may have been following the writings of Steve Blank on business modeling.  He has been writing, talking, and teaching about business model development since retiring from active entrepreneurship — he also has a great blog.

Here is a talk he gave recently to a conference called the Start-up Lessons Learned Conference.  Here is a short preview of the talk that runs on You Tube:

The full video runs about 44 minutes, but is well worth the time.  Here is a link to the video. 
 
(Thanks to John Wark for passing along this video).

Reaction to Pink Slip? Bootstrapping to a Business Model

My Friend Ami Kassar (formerly with ideablob, which died when Advanta went bankrupt) offers a great bootstrapping story.  Fresh off his pink slip from Advanta, Ami used bootstrapping to navigate his way through using the market to help refine and develop his new business model behind his venture MultiFunding.

From the Philadelphia Daily News:

To start up quickly and cheaply, MultiFunding used WordPress as its blogging
platform (“so we can evolve it,” Kassar explains). He and his partner printed a
scant 100 business cards apiece, he says – then scrapped them and reprinted a
micro-batch when they realized that their corporate tagline was off-message.

“We found our office as a sublease on Craigslist,” he says. “We moved in and
the phones were here and the Internet was here, and we got going.”

Baby steps for newborn companies: “I think you have to start with your idea,
then break your idea into steps,” Kassar says.

Step one, he says, is to “sort out what the fundamental economic proposition
of your idea is and what it would take to prove it….”

“Then find a way to execute it as inexpensively as you can. Then, in
two-month or three-month increments, you can say, ‘OK, I’ve learned this or
proved this. What is the next step?’

Ami offers great lessons for any start-up.