Do I Need to Plan Differently for a Dot-Com Business?
Q: "I already own one company -- a construction business -- and am thinking about starting another one that would make use of the Internet to serve a consumer niche in the housing market. Before I make any decisions, I want to do some business planning. But I'm wondering, Should the planning process for an Internet-related company be different from what I went through when planning my first business?"
--Joel Burtman, president of Burtman Construction Management Inc., a seven-year-old commercial and residential construction company based in Albany, N.Y.
A: Your asking that question is understandable. Before this past spring's shakeout in dot-com stocks, it did seem almost as though all the traditional rules of business planning had been thrown out. In the new economy, marketing plans and technology budgets seemed to matter much more than five-year income statements and balance sheets did.
But experts agree that's not the case. "Whether you're dealing with an Internet company or any other type of business, a good plan can accomplish the same goals," says Mark Sawicki, a business-planning consultant with Virtual Growth Inc., a provider of outsourced accounting and bookkeeping services based in New York City. "It helps you figure out where you're going, identifies some things you need to worry about along the way, and then -- depending on your specific needs -- helps you devise a budget, begin to raise capital, or develop growth strategies based upon realistic cash-flow projections."
Lance Miller, a former banker and a cofounder of Intevo Inc., a New York City-based provider of E-mail-marketing services, worked on his company's original business plan about two years ago. "In many ways the process I went through was no different from what I used to do for my banking clients -- and I think that traditional strategies are even more important now in this period of stock-market volatility. Companies need to prove that they can generate profits. Putting your ideas down on paper and working through a variety of business models is a great way of coralling yourself into a framework that will help you achieve your goals," he says.
Rigorous business planning can also help a young company stick to a tight budget, a big plus if its owners hope to finance their own growth through the early stages, as Intevo's did. "By the time we tried to raise outside capital, we had a great business plan to show prospective investors, plus a product, plus customers," Miller says. Last year the company received a $1-million infusion of capital from a strategic partner in the media industry; for the current year Miller anticipates sales of more than $1 million.
Although the business-planning process and its potential rewards are basically the same as they've always been, there is one key difference for today's entrepreneurs: the speed at which many industries -- and not just those in which dot-coms are thriving -- are changing these days. "In the E age, speed to market is everything," says Courtney Wood, a senior manager at Ernst & Young's business incubator based in New York City. "In the so-called old days, a business plan would have been very detailed and would have gone to great lengths to explore all kinds of different strategic models and document the validity of the concept. Now there's no time for that. Your instinct about a market niche becomes the hypothesis you've got to evaluate -- and you must be able to do that very quickly or move on to something else."
Fortunately, the rise of the Internet has made it easier than ever to move speedily on the research front. "It's really amazing how things have changed," Intevo's Miller says. "When I was trying to generate our financial projections and business description, it was very useful to read the SEC registration statements for Internet companies on the Web, especially the Management's Discussion and Analysis section." Another tip from Miller: examine the financial assumptions that underlie other companies' cash-flow and other predictions. They're an indication of what the competition expects to happen in rapidly changing markets.
For most start-ups, Ernst & Young's Wood believes, it's better to carve out a sizable piece of the company's long-term business plan (what she calls the "60% solution") and research its viability than it is to get bogged down in an effort to prove your comprehensive model. "You need to move quickly and let the market do the ultimate testing of your business plan, so long as it basically looks good," she says. "The way to mitigate your company's risks while doing this is by concentrating on only one piece of your concept at a time." As for knowing which 60% to concentrate on, Wood advises going with what you can get to market quickest, what you believe will win you a customer base the fastest, and what is likely to be validated the earliest.
There's another way that planning has changed in this quicksilver world of business: it has become a more continuous process rather than an annual or a semiannual review. "It's not possible to have all the information that's necessary when you complete your original plan," says Virtual Growth's Sawicki. "No one will expect your financial projections for later years to be accurate. What's important is to establish some targets, put what you know down on paper, and then keep amending your plan as you gain more knowledge."
So when it comes to your business plan, it's not really a question of whether you're launching an Internet or a non-Internet company. For any entrepreneur the challenge today is figuring out how to adapt the intellectual rigors of traditional business planning to the rapidly changing demands and opportunities of an Internet-influenced commercial universe.
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