No business plan survives first contact with customers

I read a great article by serial entrepreneur Steve Blank, “Start With a Business Model, Not a Business Plan,” in today’s Wall Street Journal.

It reminded me of entrepreneurs I have known who spent ages creating a business plan, only to have it fall apart the minute they tried to put it into effect. Others spent so much time refining their business plans that they never actually got to the point of launching the business.

A fog settles over my company’s virtual headquarters. The Hyperica business plan is even foggier.

And what happens when your business plan falls apart before your eyes? Sometimes, you just throw in the towel. Or you throw out the plan and just “wing it.”

According to Blank, the whole idea of business plans came from big corporations rolling out new products or services, where there was a lot of information available and — relatively — few assumptions to be made.

By comparison, any business plan made by a startup is pretty much all assumptions.

It takes actual interaction with customers to replace assumptions with reasonable estimates, and a great deal of interaction before you get hard numbers.

Instead, Blank suggests that startups focus on their business model first. That is, where will your company create value?

In the virtual worlds space, it seems that entrepreneurs often start with the idea that they like doing something, and they start a business in order to get paid for doing it.

Let me illustrate with some examples from my own experience.

A few years ago, I started a company in China that provided editorial services to US magazines, in particular, financial publications based in New York that didn’t have staffers in place in China, and weren’t up to the task of managing freelancers remotely. Especially since there were few freelancers in China who were able to write business articles in fluent English to U.S. standards.

China was just opening up to the world, the stock markets were taking off, a lot of industries were becoming globalized, but there was little information available about all this in English.

So we provided a pretty valuable services. It wasn’t particularly sexy. Nobody is going to write several articles a day about the payments industry for fun. Or about derivatives regulations or algorithmic trading. These kinds of articles required a great deal of expertise, so the barriers to entry were high. And because of all the changes, there was a great deal of interest in what was going on. And there were few competitors to what we were doing.

We did great, until the financial crash of 2008 that wiped out the budgets of our customers, and drove a couple out of business. My company went under. By the time the market started recovering, interest in China had waned — most of the big changes had already happened. Plus, there was now a lot of news available in English from blogs, analyst reports, local bilingual publications. And with the rise in English-language publications in China — both local and foreign-owned — there is now a  trained, experienced population of writers that US publications could draw on when they needed freelancers.

We had a realistic business model before the crash. No business model afterwards. My team and I produced probably dozens of business plans while the company was active, but none had any connection to reality. Our customer base was too small, and our experience too limited, to make any realistic predictions. Plus, there was no way we could have foreseen the crash, or the rise of local, English-language media.

Jump to today. During the day, I write about enterprise technology and finance for business publications like Network World and Treasury & Risk. Not sexy, but it pays the bills.

And during my spare time, I do Hypergrid Business and Hyperica. There’s no real business model for either project. There’s just the idea, “I like this stuff. I wish there was a way to get paid for doing it.”

Now that I’ve been doing it for a while, I can even quantify it.

Based on our readership numbers, there are about 20,000 people seriously interested in OpenSim, who are interested enough to stop by every month. Another quarter million or so is vaguely interested, stopping by only when a particular topic catches their attention.

A rough rule of thumb for general readership blogs is $100 a month per 20,000 readers and that, on average, is what I’d say Hypergrid Business brings in. (The money goes straight out to freelance writers, so actual profits are zero or negative.) Given the current size of the market, just writing about OpenSim is clearly not a viable business model.

In fact, in general, “I like doing something and want to get paid for it” is a bad bet. I like taking pictures of my cats. Trying to make a living by doing that, however, is almost impossible. That’s because pretty much everybody else likes taking pictures of their cats, too. And they’re willing to share those pictures for free.

The work you do has to offer obvious value to your potential customers, and there have to be enough customers out there, and there has to be some kind of differentiator or barrier between you and your potential competitors.

Finally, the work of starting a business is rarely fun work, except for the small percentage of people who enjoy budgeting, management, and administration. With a virtual worlds company, a founder is basically the CTO, CFO and the head of sales all rolled into one. And few people say things like, “I love bookkeeping. It’s my favorite hobby. It’s so much fun — I wish I could get paid for doing it.” Fewer still would also say the same about sales and tech support.

If it seems like I’m rambling on about this topic, it’s because I’ve been thinking about it a lot lately. My daughter just got her driver’s license a week ago, and suddenly I have a couple of hours a day free that I used to spend driving her around.

I could put that time towards non-paying projects – writing fiction, cleaning the house, cataloging more hypergrid destinations. I could put that time towards doing more of the paying work I do during the day.

Or I could do something in between, hypergrid-related but at least somewhat profitable.

For example, I like creating office buildings. Size of potential audience: small. Selection of buildings already available: free and better than I could make them, thanks to Linda Kellie and the creators at OpenSim Creations. Barriers to entry: none. Anybody can do this. If they can use a viewer well enough to be able to buy and place a building, they probably have the skills necessary to create a minimalist modern building for use as a virtual office. Bottom line — as a business model, this idea sucks.

Could I turn it into a viable business model? With enough work, maybe. I could do custom virtual buildings for corporate clients, after studying up first on virtual architecture. I could create a curated, iTunes-style marketplace for virtual content, where I would sell my buildings, as well as stuff by other creators, after studying up — a lot — on modern database and Web design. Both of these alternatives would take me away from the fun part of building stuff, to doing more marketing, customer support, administration — and database programming.

maria@hypergridbusiness.com'

Maria Korolov

Maria Korolov is editor and publisher of Hypergrid Business. She has been a journalist for more than twenty years and has worked for the Chicago Tribune, Reuters, and Computerworld and has reported from over a dozen countries, including Russia and China.

  • Vanish

    Well, I long ago gave up on the idea of making money off creativity. And you know, it takes the strain out of it somehow – I can just do what I want and enjoy myself. And I find that actually very comfortable. At least the thing I like doing doesn’t have anything to dampen its enjoyment. God knows, I’m doing enough things I *don’t* like, so that’s a plus. On the other hand, I totally understand your considerations, but as it goes with these things – you’ll only find out afterwards what works and what doesn’t, and more often than not you’ll have no clue whatsoever about why it worked.

    • http://www.hypergridbusiness.com/ Maria Korolov

      I think it was Mark Twain who said something to the effect that the surest way to get someone to hate an activity they used to love is to pay them to do it.

      I don’t really agree with that, though.

      I’ve had jobs where I woke up in the morning and said to myself, “Wow! I can’t believe I’m paid to do this!”

      And I’ve had jobs where I watched the clock all day and couldn’t wait for it to be over. (The last one of these was over 20 years ago, thank God!)

      Most of my career has involved getting paid for creativity, and, most of the time, I’ve been pretty happy with it.

      I guess it’s just nice to have a change of pace every once in a while. Do something in a new medium, or learn something new. Or maybe just take a vacation. :-)

  • http://www.facebook.com/profile.php?id=100000240396672 Paul Wilson

    What has been found (and known for a while now) is that rewarding people for creativity does not work. Have a look at this TED video: http://www.ted.com/talks/dan_pink_on_motivation.html

    What happens quite often is that people who are creative want to make a living out of being creative so they seek to get a job or create a business being creative. However, because rewarding people for creativity makes them less creative, their work becomes harder and less creative, and they enjoy it less and less.

    In terms of psychology, they have traded an intrinsic reward (that is self motivated) for an extrinsic reward (external motivation), as creativity and enjoyment of work is dependent on intrinsic motivation, this is where the problem lies.

    So the solution to the problem is to find a balance between seeking reward for your efforts and enjoying what you are doing.

  • http://twitter.com/iliveisl Ener Hax

    nice article and i suggest that you first start with what you love and throw your passion into it

    and patience, after all, over night success are often long in the making (Alex haley and Roots – about 19 years to reach success)

    great article and good food for thought =)