The Business Plan Fallacy

As I'm reviewing business plans from college grads I'm mentoring (as an alumnae mentor at Brown Univ ) and from Glengary , the VC firm I'm a partner in, this whole business plan process is getting to me.   So much of what I see in biz plans (and strategies) is, pardon the phrase, BS.  We all know none of us believe any of the numbers is the proformas, the market growth, etc., so why do we bother with all this stuff when we know it's a joke?  I don't know, but here's what I'd like to see in a biz plan for a change.

  1. The current, accurate, realtruthful view of the world - market(s) as it exists and will exist. If it doesn't yet, why, what are the real needs, current and potential competitors (in/out of your market space).  What have others tried and what has succeeded or failed and why. Tell me a TRUE story of the world you're going into - you can use spreadsheets, analysis, etc...you should give me #'s, but tell me how this world really works, not how you'd like it to work.
  2. Clearly state your assumptions and hypotheses (e.g., if we do x, then y will happen; we can make A with $X in T months, we will take C to market and the market will do S) - how will these impact the market you're going after or creating - and ideally, do it in a way that you can change the assumptions so they automatically change the outcome.
  3. Delineate your plan ‘management/mitigation' story - since we know you'll make mistakes in #2 above, what are you going to do when this happens?  This has 3 critical areas: 1) how flexible is your management - can you adapt and shift if necessary? 2) how flexible is your product or service? Can it adapt or is it a binary choice? 3) if things really don't happen as planned, are you done? Do you have other ways to go to market?
  4. People - you need the required resumes of course, but what matters more is their level of passion, commitment, heart/soul into the biz, attitude, abilities, history of executing, of doing, of making things happen.
  5. Money - how much do you need, what are you going to do with it, cash flow, P&L, balance sheets, margins, exits etc. - the usual stuff.  But, what are you doing while you're waiting for the money - are you still moving ahead? Are you able to straddle ramping up based upon funds? Investors want to see that you can still make progress while you're waiting for funding or if you don't get enough.

175 Years of Innovation Lessons

Suffice it to say I was honored my friend Chris Thoen would agree to talk about P&G’s Open Innovation history at the 3rd Open Innovation (OI) Summit at BW’s Center for Innovation & GrowthPractical Challenges of Global Open Innovation.  Chris has been interviewed, quoted, written about extensively as a leader in OI, and for good reason.

He opened with P&G’s 175yr old history OI.  Two brother-in-laws, William Procter (candle maker) and James Gamble (soap maker), using the same raw material, fats, were encouraged by their father-in-law to collaborate to get better ‘fat’ pricing! This was the start of P&G in 1837.  They grew the company with their own innovations and through (un-named at the time) open innovation with other technology makers and companies.  These partnerships were the foundation of P&G’s growth into 300 brands in over 180 countries, 24 billion dollar brands and most importantly, one of the most trusted names in the world.

About 10 years ago, CEO A. G. Lafley transformed P&G’s open innovation heritage into a key cultural component of the company –Connect+Develop (C+D).   This wasn’t just a way to come up with new products, but a fundamentally new way to do business.  Lafley challenged P&G to source at least 50% of their innovation from outside its hallowed R&D halls.

Chris clearly described OI as an ongoing journey requiring recognition and investment in top talent and external synergies.  When done well, OI is all about value creation for both partners, with both sets of interests in mind.  It’s about sharing your expertise and strategic needs of your brands, businesses, even corporately.  To do this, P&G has developed and put 70+ C+D leaders around the globe with 11 regional hubs (e.g., NA, LA, Europe, Israel, China, India, Japan), 100s of networks and academic partnerships.

Several products you may know are a result of OI: Swiffer, Tide, Mr. Clean eraser (1 of my faves).   Clorox’s Glad ForceFlexproduct is based on a P&G licensed technology.  Sometimes, you can even collaborate with your competitors! P&G’s technology and IP have created $3B in sales for their OI partners.

So what has P&G learned on this 10+ year journey?

  1. Drive from the Top:  Without Lafley’s challenge, commitment and leadership as CEO, it couldn’t have taken hold corporate-wide.
  2. Build an OI culture: You have to support and learn from failure, communicate openly (and often) to build trust, help your people understand the innovation process and consistently reward partnerships and results, not just patents.
  3. Focus the Hunt: Keep your eyes on the strategy at all times!  It’s what guides you; build internal relationships by sharing needs and goals; manage leadership’s expectations for reality, not for fantasy; create and communicate clear innovation selection and filtering criteria.
  4. Be Where the Action Is: get out of Cincinnati (or wherever)! You need to be where the innovation is happening and the markets exist – like developing markets, areas of VC activity, Social Media, SMEs, Academia/Universities and places with diverse expertise, cultures, ideas.
  5. Build Efficient and Effective Knowledge Management Systems: Track connections among your own people, capturing their knowledge and experience partnership nuances, deals so they are not repeated, saving time and money.  Include your partners, networks, and competitors while protecting your IP and create a way to visualize and analyze these intertwined relationships.
  6. Obey the Law of the Land: Take what you need, only what you need, and leave the rest.  Share what you’re not using because it may find a great application in another home
  7. Staff for Success: Hire and train a unique blend of Hunter-Gatherer.  This is not a typical person, but you may already have them – people who have expertise in a technology with business acumen with the ability to develop relationships, influence people, inside and outside your company.  Deliberately hire for this.  And, keep investing in R&D – doing OI doesn’t mean closing down your own R&D.
  8. Be the Partner You’re Looking For: The Golden Rule!  Celebrate your partners, look beyond the first deal with them, facilitate more connections for you and them, keep that Win:Win mindset front and center and be transparent because a second (third, fourth…) deal with the same partner takes about half the time while creating twice the value.  Remember, strong partners make you stronger as well.

Bottom line? P&G has created more value together with their OI partners than they ever could have alone.  It is a real ecosystem that creates value on a global scale to accomplish P&G’s mission: “…improve the lives of the world’s consumers, now and for generations to come.”

Ok, so maybe you’re not P&G, but you can still start the journey.   What do you need? What do you have to offer? Who could you partner with? Just start small, doesn’t have to be huge, just a step.  Give it a try.

Yes, Compare Apples & Oranges!!!

One of my favorite authors is the Albanian,  Ismail Kadare, and there's been a lot of discussion of the Mideast in my home. Trust me, these are related.

The media keeps comparing Egypt, Libya, Yemen and Tunisia’s futures to either Iran or what? Pakistan? Indonesia? Turkey? Always to other Mid-East, Asia, or Asia Minor countries (yes, Turkey straddles both continents, in so many ways).

No one compared these countries futures to any European country. I kept thinking about Albania. Now see the link?

Having read Kadare’s books and learning a bit of Albanian history and ‘freedom’ post-1989, it seemed Albania could be just as likely a model for Egypt as any of the others. Kind of wondered if I wasn’t a bit nuts with this analogy until Monday 2/14’s WSJ article by Matthew Kaminski.

So what in the world does this have to do with strategy and innovation? Everything! When we start creating our organization’s strategic direction (which should be a living, ongoing, adapting process) and look at how and where we can innovate, we tend to look at others ‘like us’.

This is natural, but not helpful.  Blockbuster did this, was offered the opportunity to buy another ‘near’ it, but not ‘like it’ and got Netflixed*.  What if Blockbuster had looked at those not “like us” or even combined what it did with what others did…the power of “AND”?  Apple and Best Buy have built success on not looking at those ‘like us’ AND combining what’s out there (e.g., iTunes, iPod). Who else can you think of?

So, try these two things to grow your business:

  1. Stop looking at those ‘like us’… look at those very “not like us”;
  2. Start combining…instead of asking do you want this or that, put them together!

Sometimes it’s worth comparing apples and oranges! As Capt. Renault said in Casablanca, [don’t] “Round up the usual suspects.” Go look for unusual suspects.  My friend, Saul Kaplan, puts it so eloquently: innovation is found in “random collisions of unusual suspects” – in RCUS (ruckus!) – go make a RCUS! You’ll be amazed at what you discover and learn to grow your business, your people and yourself.

Treating Start-ups like Adults? Wait!

Humans are one of the few mammals whose babies are not fully developed at birth. Unlike horses, whales, etc., human babies can’t stand, walk or forage on their own at birth. They are totally dependent upon adult humans for constant, continual support just to live.  We are used to this, we accept it, we don’t expect anything different.

Yet, when we discuss the birth and development of innovations and companies, it’s totally different. We expect an accelerated path from birth to adolescence to adulthood. It doesn’t need to as long as human development, but it’s rarely Google-speed.

We know innovation and entrepreneurs need nurturing and support, but usually just pay lip service. The similarities, and therefore lessons learned, between newborn babies and innovations/ideas are seldom applied.

Within companies, many innovations aren’t given the time or support (e.g., prototyping, experimenting, testing) to ‘prove’ their worth – they are subjected to processes (e.g., stage-gate) and reviews prematurely and are not given a chance to try to crawl let alone walk. While vetting is critical, vetting too early can be fatal to the company as a whole longer-term.

For startups, entrepreneurs usually have to grow up (too) fast if they want to get the funding to nourish their growth. As a mentor to startups, my role is paradoxical - to nurture and advise but also help push out of the nest.

As a partner in Glengary LLC, an early-stage VC firm, we provide the necessary support and network AND hold them accountable for milestones, without asking for meaningless data in business plans. It is always a balancing act.

So, as you are involved in innovation and with entrepreneurs, apply some of the lessons learned from raising your kids, if you have. Provide a path providing sufficient nurture and nourishment for growth that teaches self-discipline and self-sustenance for independence.

It isn’t easy to do as parents, and it isn’t easy to do in business, but few rewards are easy.