Defining the Business Plan:
1 Sheet of Paper and 10
Netpreneurs Celebrate One-Year
Anniversary of Get-Togethers, Camaraderie
Almost exactly one year ago, the Netpreneur Program held its first get-together. The
event was commemorated on February 25 at the now monthly Coffee & DoughNets meeting
with party hats, noisemakers, and the requisite cup o' joe and doughnuts. The network has
grown by leaps and bounds since that first meeting in February 1997, continuing to nurture
new and "old" (or what passes for old in this market).
Following a friendly warning to offer only true "success stories" during the
regular show-and-tell portion of the morning, several netpreneurs gave the group a
run-down of recent accomplishments. Among them:
- John Simmons of George Mason University announced the upcoming World Congress on
Information Technology to be hosted by GMU, June 21-24, 1998.
- Troy Fenley, Regional Sales Director of Junglee, moonlights as a sales consultant to
local company RouteLink. He reported that RouteLink has recently acquired five trucking
companies to provide financial backing.
( http://www.routelink.com )
- Ben Lilienthal said that his company, Nascent Technologies, has recently entered an
agreement with Qualcomm, the makers of Eudora. Qualcomm will be using Mailspinner under
the name Qualcomm Mobile Network in conjunction with Eudora and other Qualcomm products.
( http://www.nascent.com )
- 1st Principles Group, represented by founding partner Verne Harnish, recently relocated
to Loudoun County from Boulder, CO.
- Bob Nelson of CrossMedia reported that his company has recently grown to include a
former Visa Corp. vice president on their executive team.
- Online Marketing Services, also celebrating a one-year anniversary, has recently become
a partner with Neilsen Media Research of TV-ratings fame, which is expanding to offer
online-based ratings, said OMS's Chris Young.
- Ann Shack of MapSys reported that her company has partnered with the Good Sam Club to
offer Web-based information about RV-related resources on the road. Her product is also
receiving the endorsement of the National Truck Stop Operators.
( http://www.freetrip.com )
- Dolores Ebert reported that So Others Might Eat (SOME), whose board of directors she is
on, is moving to open a technology training center to assist their clients in acquiring
- atyouroffice.com got a recent infusion of $400,000 in investments, said CEO Tom Graham.
On the heels of the many success stories around the room, Mario Morino framed his
presentation around one of business's sacred cows, the Business Plan. Mario related the
words of a faculty member of Babson College, a premiere school in entrepreneurship, who
said, "It may be possible that about half the successful start-ups in the United
States do so without having a business plan."
He also said this does not make Babson anti-business plans. It does show, however, that
there is more to a business plan than the traditional presentation to investors and
clients. A business plan may not always capture what an entrepreneur needs to communicate.
Mario confessed frankly that he and his partner, Bill Witzel, did not have a
traditional business plan when they created Morino Associates. The deal that got them
started was sold from a one-page summary of the opportunity, which they brought to one of
the then leading software vendors in late 1972. Benefiting from Bill's relationship with
the firm's CEO, Mario's product experience and track record, and a succinct business
statement describing the opportunity, they walked out of this meeting with a handshake
deal and the beginnings of their own company, Morino Associates, which went on to become
Legent some 17 years later.
Whether it's called a business plan or not, any netpreneur should be able to write a
one-page executive summary about their business with ten presentation slides encompassing
the following points.
Mario Morino's Ten Questions for Business Plan Writing:
1. What is the market opportunity or market niche you are targeting?
Investors are interested in understanding the market opportunity your business is going
after. Define the opportunity that your product or service is going to address or solve
and WHY this is an important matter to the buyer and market. Be as clear and precise as
you can with respect to the market sector or niche that you are targeting.
2. What is your solution to the market need in your niche?
Along with defining your customers and their needs, you need to be able to explain in
simple business terms how you are going to meet their needs. Respect the critical
distinction between "implementation" and "solution." A smart investor
is far more interested in the solution you'll come up with, rather than what technology
you will use in the process. Try to describe the solution in one paragraph.
3. What is the size of your market niche, and how is it growing?
Investors want an honest appraisal of the current size of the market you are targeting,
and how it will change in the future. This is all about your informed opinion, and, while
you should have the statistics to back up your predictions, it's your business sense in
terms of understanding the markets that will impress an investor and provide credibility
for your business.
Mario also stressed the importance of "similarity selling," or finding
comparable companies or business models. This will help you pass the "reasonableness
test" with all of your partners and make it easier for you to demonstrate that yours
is a reasonable business model.
Information about most business sectors is available from security analysts, most of
whom can be reached through an investment banker at no cost, and from industry analysts
for a fee. Mario encouraged the netpreneurs to use such research.
4. What is your economic model? How are you going to make a profit and when?
A sure way to kill a good business idea, Mario said, is to come up with a bad model for
pricing and profit. Your pricing model in terms of the price (i.e. is it within a
reasonable range?) and model (i.e. is the pricing structure being used by other firms?)
should already be familiar to and accepted by your customers.
Mario said that too few netpreneurs factor in price erosion when talking about their
profit strategy or income projections. Most markets see prices decrease as competition
sets in. It's important to look honestly at your product and factor in price erosion if
Mario targeted transaction-based fees as one of the more risky pricing models in
technology businesses. While they may work in selected cases, there is a natural tendency
to free yourself from the transaction fee. When your customer's or partner's business
takes off and transaction volumes grow, a transaction-based price looks untenably
expensive, giving your partner or customer a strong incentive to get rid of you.
5. How are you going to reach (sell to) the market you're targeting?
As Mario bluntly stated it, "Success is less about the quality of your product and
more about the effectiveness of your sales channel." The choices of marketing and
sales channels are many: direct sales, telesales, direct response, net-sales, alternative
channels, etc. Each carries hard-won truths about profit margins, type of customer, and
cost of delivery and marketing. You need to figure out which is most appropriate to your
market and honestly project what your sales and profit will be not by simply
projecting n% of a market, but by understanding the sales performance of the channels you
Sales is often not the strong suit of engineers and other technology types, so find a
friend or advisor in sales to pick apart your ideas and help you develop a sales strategy.
Channel planning is another good place to do "similarity selling," bringing
in examples of how other firms and products have fared over various sales channels.
6. What's the competition? How will it change and why are you better?
Know your competitors almost as well as you know your own company. Know how they work
and what their customers think about them. Be ready for some "street fighting,"
in Mario's terms, and never underestimate your competitors.
Think hard not just about who your competitors are today, but more importantly, who
they will be tomorrow. If you are successful, you will naturally attract competitors to
7. What's your differentiation and how do you maintain it?
Be clear about the competencies and distinct advantages of your business. Avoid
generalized claims that amount to promising "motherhood, Chevrolet and apple
pie." For example, netpreneurs will point to their development team or management
calling them "world-class!" Don't just make the claim that you have a great team
everyone does. Show the accomplishments of your team members, particularly their
experience in the area in which your business focuses.
Anything that differentiates you positively is important to highlight. Maybe it's your
technology, maybe it's your delivery channel, or maybe it's the experience you have on
your team. Make sure you get that point across to your investors and are able to
substantiate the claim.
8. How are you going to execute to grow and manage the business?
Investors want a feeling that you are capable of running your business or are open to
learning how to do so.
Good execution often starts with pragmatism. Be realistic about your growth potential.
A company like Yahoo!, which has experienced remarkable growth, is by far the exception.
Smart investors will disregard grossly inflated projections, so honestly assess your
market potential. A well-substantiated estimate of 35% annual compounded growth is music
to most investors' ears.
Know your own strengths. You don't need to be talented in every area, but bring an open
mind to areas where you are less strong. Investors like leaders who are
"coachable," and who will accept advice and criticism from their whole team.
Again, investors look for people with the vision and "emotional maturity" to
carry on long-term.
9. What are the risks? What can stop you?
Mario termed this the "what keeps you up at night?" question. For some, it's
the threat of a large competitor taking over the market suddenly. For others, it's a fear
of their own ability to stay focused and execute. Be honest, without being paranoid or
10. Why is your business going to succeed? Why you?
Explain what is driving you to succeed. What is the great strength you bring to this
market and this product? Is it your enthusiasm, experience, intelligence, competitiveness
or resourcefulness? Do you want your investors, partners and customers to view you as
someone who is "going to find the way to succeed?" Succinctly, but assertively,
state your relevant competencies. Adopt the constructive arrogance of a Bill Gates
convey a feeling and a sense of success.
So how did the non-traditional business plan work for Morino Associates?
They gave the rights to their first product to the software vendor, COMRESS, in a deal
that was struck after that first 1972 meeting. COMRESS, in return, covered all expenses
for the first two years of Morino Associates' existence, paid a royalty on future sales of
the product, and sold the product for them via their distribution channels. This gave the
new firm its chance and allowed it to build key customer relationships, while developing
their second product. The opportunity allowed them to get started, demonstrate their
software track record, and provided important reference accounts.
Beyond being able to answer the ten questions, Mario said that closing their first deal
had a few additional elements. They benefited from a trusted introduction and
relationship, a demonstrated track record, compelling knowledge of their space, the right
market opportunity, and a strategic fit with their partner. And they created an urgency to
make it happen.
Audience members added their own experience to the mix:
- If you are hesitating to show your business plan, why are you reluctant?
- Why hasn't the company you're approaching already started marketing a product like the
one you're offering? The answer to that question should aid your sales pitch.
- What will my intermediary get out of introducing me to my target company? These
introductions are of great value, but be careful about straining relationships for friends
One participant asked, "At what point should you believe the business plan and
sales pitch you're making?" Mario responded that if you have doubt about the
potential for success, you may not be cut out to be an entrepreneur. Unshakeable belief is
the cornerstone of success.
Tony Nguyen, owner of California-based "Beer Guy," and Mike Wilson and
Stephen Oroszlan, sales guys from Seattle's Connectsoft, tied for longest commute to
attend Coffee & DoughNets. Stephen, who recently moved to Seattle from D.C., lamented
the lack of a netpreneur-like organization in the "other" Washington.
Clarence Wooten, Senior Partner of Metamorphosis Interactive Studios, said that while
he's been keeping up with the Netpreneur Web site for several months, this was his first
Coffee & DoughNets. "I should have been here a year ago and I'll never miss
another one. The interaction is phenomenal."