Eight Warnings for first-time entrepreneurs at the biz plan stage

While I post here infrequently because the start-up world does not need more noxious pollen wafting through the Web as if words on a screen can help entrepreneurs succeed, I needed to summarize the experience with many new companies over the last year. Here are my seven tenets for first time entrepreneurs at the business plan stage for business concepts focused on the Web. You'll see there is little advice here, mostly warnings.

1. You have a 98% chance of losing your money.

For your personal capital going into the start-up and when talking to family, friends and other seed investors, honesty in your odds for success is crucial. Silicon Valley honors failed entrepreneurs and the hard lessons they bring from their flame-outs. Don't ruin relationships for your future entrepreneurial pursuits by sugarcoating your odds.

Fresh case-in-point: A top Silicon Valley VC recently told me that after announcing an early-stage fund, they received 5,000 business plans, funded 5 deals, none consumer/SMB facing (see #4 below). That's 1%, with the cred of a top-tier VC to help them survive, succeed & raise more capital.

2. Content is pollen. Be allergic to it.

The Web has not needed new content-focused sites for years, ever since content starting doubling and tripling each year, while digital marketing dollars were increasing at under ten percent. Please don't start another one, and please never utter the phrase, "content is king." But look at the rotten heaps of content produce festering in big empty warehouses as an opportunity. One possible way? Please read this post about 'Content Curation' by my advisory services client Steve Rosenbaum of Magnify.net: Link.

3. Advertising is a cicada. Maybe you'll see it years from now.

Most cicada species hide as wimpy nymphs underground for 2 to 9 years before emerging with all that wing-rubbing racket. That's where traditional digital advertising is hiding right now, even in plain sight as ignored and obtrusive banner advertising. Start over on a biz plan that promises investors you'll garner enough revenue from "advertising budgets" held by agencies and their clients to ensure your success. If you survive 2 to 9 years, perhaps digital advertising will claw its way out of the muck to make a ruckus that helps/delights your audience (to then consider becoming customers).

4. Previous VP (or above) in large corporation? Seek an exorcism.

With apologies to my friends who've climbed the corporate anthill only to ruin their health and happiness as first time entrepreneurs: If you are about to undertake your first Web-focused start-ups, the absolute first thing you should do is seek out corporate execs who've failed miserably at their start-ups and act like an investigative reporter in digging out their stories. And don't just interview them. Talk to their teams who sunk with his or her ship. Once you've uncovered the demons, chase them from your every move and thought in starting your business. Better yet, find a co-founder and advisors whose job is to exorcise you at every utterance of "but when I was the vp of something at somewhere big, this is what we did."

5. Consumers/SMB your target? Retreat to the back room.

OK, if not advertising, are you thinking you'll sell consumers and small business owners (who act a lot like consumers) products and services as your revenue model? Remember Alec Guinness as Marcus Aurelius in the movie The Fall of the Roman Empire? His flair with the 'thumbs-down' kill-them-now motion is what should dance through your head if you are forecasting significant sales in your plan. OK, if not ad or sales revenue for your Web start-up, then what? Whatever it is, it must come from the back room and it must be organized and quantifiable data focused. That is, what data can you glean from what happens via the User Experience at the front end of your site that someone will find of value and pay you for?

6. Utter these words & wash your own mouth out with soap: 'Our Strategy', 'Scale', 'No one'.

a. If you think you and your cronies are going to hammer out your unique strategy because you're so damn smart, read this quote & its full Web page:

Gary Hamel: the "dirty little secret" of the strategy industry, of which he is a leading practitioner, is that it "doesn't have any theory of strategy creation." The truly innovative strategies, he says, "are always, and I mean always, the result of lucky foresight."

Link to full page.

b. "We have to build the Web site/business to be prepared for scale."

I repeat: There is a 98% chance you'll never see enough customers/business to survive, much less have to worry about scale. (See No. 6 below)

c. "There is no one competing against us..."

....and all its variations. "No one is doing what we're doing." "No one has better IP than we've filed for." Blah, blah, blah. The truth is there is nearly a 100% chance that you haven't yet been left cowering in a corner when a competitor hits the front page the WSJ -- or even TechCrunch -- with an announcement of their millions of new funding (or big partnership) to give them the runway to figure out your business before you do.

7. Be a Sheep, not a Donkey.

Dolly, the cloned sheep, took 150 days to gestate; Daisy the Donkey took 374 days.

To launch a Web-focused business, commit under $250K of likely-to-lose it capital, rent or cobble together a Web front end, launch with a go-by-your-gut strategy, go-to-market in under six months, and test-and-tweak till the sheep and donkeys come home.

8. Persistence, in the face of failure, is pestilence.

Lastly, in reflecting on the disappointing start-ups in my Ventures & Advisory Services practice over the last year, each ignored some of the warnings above, and all exhibited this shortcoming. Internalize going in to your business, that you will walk away when your gut tells you to.

Link: read John Vespasian's post. Be sure to read about "realistic double vision".

An excerpt:

"To persevere in obstinate condolence is a course of impious stubbornness," Shakespeare, from Hamlet

Persistence is often presented as the key element of entrepreneurial success, but this approach misses 99% of what makes a business viable and prosperous.

No matter what goal we choose to pursue, our energies and resources will be always limited. Overemphasising persistence can lead to commercial arrogance and blindness.

A Final Note:

Naturally, I get pushback from most entrepreneurs on these warnings. My response? Smart investors like comparables. I ask: Tell me about another Web-focused start-up in your city you are familiar with that two years ago had only a business plan and a first time entrepreneur. Tell me what the status of the company is today? Again, from my work with VCs, those who invest at the earliest stages tell me today that if after two years a company is not on track to do $2M in revenue in the next 12 months, they'll never raise significant capital, and can either hope to be acquired, or stay small and be happy. For if they look up, what they'll see is 98 others hanging off cliffs by their fingernails.