Up and Running:

Browsing and searching last night, I discovered “Why You Need a Business Plan” by Colleen Debaise on the Wall Street Journal’s website. This is a good, strong post and a good reminder. Her five reasons:

1. Identify your company’s strengths and weaknesses.
2. Figure out how much money you’ll need.
3. Get clear direction, which can help eliminate stress.
4. Summarize for lenders, investors or partners.
5. Evaluate the market for your product or service and size up the competition.

My personal favorite is No. 3, particularly the phrase “help eliminate stress.” It’s not as if the business plan eliminates uncertainty, but business planning does manage and reduce uncertainty by laying things out where you can see them more easily (like cash flow, for example). The interrelationships between the different parts of the business are not all intuitive.

Point No. 4–summarize for lenders, etc.–bothers me. Too many people miss the benefits of business planning because they don’t need to show anything to anybody else. If that’s your case, look at points 1, 2, 3 and 5.

That link is “Why You Need a Business Plan”–WSJ.com

Do you know that many successful entrepreneurs are not risk-takers? I was taken aback by that in “7 Uncommon Traits of Successful Entrepreneurs” by John Jantsch on his Duct Tape Marketing blog. However, as I reflect on the 20-some years my wife and I built Palo Alto Software, I think he’s right. Here’s what he says, as the second item on his excellent seven-point list:

Risk Averse–This one throws people, but successful entrepreneurs are not any more wired to take risks than most, but they are wired to spot opportunities and possess the confidence that something, perhaps not what was originally envisioned, can be made of the opportunity. They are often better at letting something that’s clearly a bad idea go, limiting the ultimate risk.

I wouldn’t have thought of it this way, but you know, John has it right on that one.

And I liked this one a lot, too:

Planners–This goes hand-in-hand with risk. Successful entrepreneurs enjoy the planning process, not necessarily completing a plan, but this is what makes them averse to taking foolish risks. They often so value the plan for their life that they always hold a glimmer of the vision of the business that can serve that plan.

This is an excellent list. John does it again.

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I’m probably too certain about this one, in an age when certainty is usually a sign of not understanding the problem. Still, I am. There is no “best major” for a college student who wants to be an entrepreneur. The best major is whatever you want to study.

I got to this yesterday on Twitter, with somebody referring me to this site–not particularly impressive, to be honest–where a freshman is asking that question.

In the meantime, I’d been meaning to post here about Fred Wilson’s post One Thing You Don’t Need To Be An Entrepreneur: A College Degree, on his A VC blog. I like his work a lot, and I recommend it a lot, too. It’s on my blogroll here.

Still, Fred is answering the wrong question–or at least, we could say, a different question. He says you don’t need a degree to be an entrepreneur. Not like for a doctor or lawyer, he explains. And I don’t disagree with that; it’s a plain fact. But given the whole range of his writing, I’m willing to bet he’d agree with me that having a degree is much better for you than not having it. Even Bill Gates, the world’s richest dropout, agrees with that–and he now has several.

So the question isn’t whether or you need a degree to be an entrepreneur. It’s do you want one. And the answer to that is yes. Education makes your life better. If you have to drop out to support your ailing grandmother, so be it. But for the record, I practice what I preach. I earned two graduate degrees after marriage, the second one after marriage and kids, and my wife and I paid for both. I worked while getting a Stanford MBA degree, and we’re still married.

But that isn’t the question the student asked, either. He wanted to know what to major in. So here’s my answer to that one:

You should major in whatever you want to study, what you like. The best advice I got was to choose your major as if you were going to die at graduation.

And I’m an entrepreneur, not entirely just guessing. I studied literature first, because I liked it–and I ended up in software.

If you study what you like, that will help you figure out what to do when you’re on your own. My literature led to Journalism, business writing, MBA and then starting companies. And I was always better off for studying what I liked when I was in college.

Business skills are easier to get than straight education.

If business is what you’re really interested in, that’s cool. You can learn a lot about entrepreneurship, marketing or finance. But if you’d rather study art, literature, history, anthropology or math or science, do that. Your business career won’t suffer. The best career path there is heads toward what you like to do.

So I’m having trouble not posting about the huge economic news today, but the series I started earlier this week on starting a consulting business seems even more relevant today.

Also, Pam Campagna of Blue Sage Consulting posted a comment to my Part 1 that deserves repetition. She wrote:

My story is a bit similar to yours: After 13 years in the corporate world, I decided to “light out.”  … and that was in 1997. I’ve never looked back.

I’d like to add a few things that I’ve learned along the way:

1. There’s a real difference between “consulting” and “contracting.” A consultant practices the art of consulting and invests in the long-term value of building a business. A contractor typically looks for work while in-between jobs. It’s useful to be clear which of these two roads you’re heading down.
2. If you decide to head down the consulting road, set limits for yourself. If you’re not successful/haven’t landed a client/don’t have defined products and services within a certain period of time, then acknowledge it and move on. The worst thing that could happen is that you have to look for a job (one of my personal mantras).
3. Starting a consulting practice is a difficult thing. Don’t be fooled by many of us who “make it look easy.” There are no shortcuts, but if you stay with it, the rewards are well worth the investment.

Although that’s already showing in the comments, I thought it was worth an additional post here as well. I’m not organized enough to do guest posts, but this was so very much on point, so I wanted to share.

And since this is a bit of a catch-all post, I want to add some additional tips here, to accompany Pam’s. These are about selling.

As a consultant, on your own, you just became a salesperson. All your expertise is completely irrelevant until you have the client. If you’ve always hated selling, you’re in trouble. Deal with it, or do something else. Here are some tips that might help:

1. Some vocabulary: It’s not a job, it’s an engagement. The consulting equivalent of asking for the order is asking the client to sign the letter of engagement. And deliverables is a good word for what you’re going to do for the client (presentation, analysis, report, business plan, facilitation or whatever). Fees are what you charge.
2. Not everybody would agree with me, so take this with some healthy skepticism, but I believe in a simple letter of engagement written in plain English that defines deliverables and fees and establishes a schedule for both.
3. Results–deliverables–are much easier to sell than hours, days or weeks. While I read about consultants on clocks and meters, nobody I know who was successful did it that way. It was by the job or the milestone.
4. The job or milestone strategy, however, introduces scope creep into the mix. As you write the letter of engagement, be mindful of scope creep. Write your deliverables in a way that makes scope creep obvious. That’s when the client agrees on one thing but doesn’t accept it and gets you to do a lot more. There’s no easy way to deal with this (later on, you prune your clients; but in the beginning, you can’t).
5. My advice, which might be wrong, is don’t get lost in contracts. Keep it in simple English. If you end up unhappy with the client, or the client with you, you’re not going to be fighting over the contract anyway. Furthermore, you’ve got as much chance collecting with a simple signed letter than with a formal contract. In my opinion.
6. If you make it, you’re going to thank me for this tip (if you remember): Don’t set your schedule in calendar dates; set it in days or weeks after the signing of the letter of engagement.
7. For the record, I never did that advance payment or deposit stuff with clients. Businesses don’t expect to have to pay upfront, and mine never did. The good news is that I never had an invoice that wasn’t paid.
8. Take risks on the client paying. Don’t ask them to take risks on you.
9. Start small. Find a small piece of the bigger job that will be easy to deliver and easy to demonstrate value. Do a small, visible job first, do it well, and then your client will be much more likely to continue to bigger things.
10. Always focus on repeat business. Even in the middle of the night before the presentation, when it’s 2 a.m. and you’re tired and mad that you got caught in scope creep and annoyed at the client, remember that it’s infinitely easier to generate repeat business with an existing client than to find a new client.

So, wow, 10 points, from me, plus 3 from Pam. And I think this is just starting to scratch the surface. I haven’t even stated to talk about strategic focus, who isn’t your client and figuring out how to manage accounts receivable.

Be a consultant, they say. Enjoy freedom. Be your own boss. Be the expert. Charge big bucks for a few hours’ or a few days’ work, then hang out. Right — in your dreams.

Setting yourself up as a consultant is certainly a timely topic these days–financial disasters and all–but I think I owe it to you to add some realism to the concept. While traveling this weekend (down to San Francisco for a couple of days), I picked up The New York Times and saw “Risk Yes, Structure No” in the careers section, written by Eilene Zimmerman. It’s about consulting. More specifically, it’s about the move from consulting as a job with a paycheck and a boss to consulting on your own.

Let me start by saying I’ve been there. And for me, it worked. So don’t take all the warnings and concerns I have to add as entirely negative.

By “been there,” I mean that out of business school I took a job with McKinsey Management Consulting, which I didn’t like. They didn’t like me much, either, so I lasted only a few months–but that’s a different post. I spent three years as a consultant with Creative Strategies, ending up as a vice president. Then in 1983–in the middle of a recession as bad as this one–I ventured out on my own. That, too, is a different post. In fact, it’s several, actually: one about how it started . . . and another about the home office.

Zimmerman goes through a series of questions and asks successful consultants to answer. Her piece is well done, and truly the talk of the times, too. But still, I think there’s another whole side to it that I need to add. I’ll get to that in a minute, but first, in answer to the question “Am I ready to quit a consulting job and go on my own?” she says:

Compared with corporate workers who take direction from a boss and receive regular paychecks, consultants lead lives with much less structure and much more risk. You need to know whether you can handle a new level of uncertainty and self-direction.

Before you decide to take the plunge, understand that consulting doesn’t always provide consistent income.

“You may have the best-laid plans, but you still don’t know when you will land that first client or when your income will become regular,” said Edith Onderick-Harvey, president of Change Dynamics Consulting, a leadership development firm in Andover, Mass. Also realize that you will need to spend a significant amount of time marketing your skills.

“Sometimes 75 percent of your time will be spent selling yourself and often that’s just networking, not even real job opportunities,” Ms. Onderick-Harvey said.

That’s all true for sure. Just to add flavor, I’ll give you a specific example: me and my wife, Vange, and, as they grew up, our five kids. From June of 1983 until sometime in 1995 when Business Plan Pro took off, we never really knew where the money was coming from beyond two or three months. I made a good living, when I look back on it, but the uncertainty was hard to live with.

I had one very significant advantage which I hope you’ll also acquire: a very strong, long-term client. I managed to build a relationship with Apple Computer that lasted and became a long-term platform for repeat business lasting 12 years.

I had another, shorter-term advantage that I hope you’ll have as well: a good, strong relationship (meaning somewhat reliable monthly business) with the employer I was leaving. I left Creative Strategies to start out on my own (lighting out, as one of my favorite blogs calls it) but took a monthly retainer for a newsletter contract with me.

And finally, a third advantage that came shortly afterward: another monthly retainer from a second client, one I had met while a vice president, who contacted me afterward and negotiated the monthly retainer.

When I think of just lighting out on my own without these fundamentals to rest on (the Apple relationship and the two retainers), it chills my spine. It could have happened, though, because I lit out first and cemented the key relationships later.

And, it could have gone otherwise. We almost lost our house six months after I started. We were two and a half months late on the mortgage.

So I’d suggest, before you go out on your own, you consider

1. Do you have a choice? and then, if you do,
2. Where is the money really coming from?

By the way, buried in The New York Times story is this reference:

Write a business plan that establishes how revenue will be generated and how you will handle sales, marketing, finance, operations, expenses and fees.

Yes. I consider that a magnificent understatement.

More on this in part 2, tomorrow.

I knew a young woman whose parents had a tree-climbing business. They lived in a tree in southern Oregon (or at least, that’s what she said. Maybe that was a metaphor). They were tree climbers by avocation, and made tree climbing their vocation as well. They sold tree climbing equipment on the web. I don’t think they wanted to grow the business much. They weren’t looking for investors. They didn’t want to sell stock or get acquired. They wanted to enjoy their hobby and make a living at it.

The other day a friend asked me for advice related to taking on investment to build his business, for the first time. He knew the investor. They’d agreed on the amount and the share of ownership in exchange. My friend was comfortable with the idea. But I wasn’t.

I worried about incompatible goals. Assume, for the sake of discussion, that the business in question is doing very well right now, supporting the family, growing well, and keeping its owner involved and happy. I’d thought he’d at least want to continue doing that for a long time, nurturing his business baby, keeping it healthy but also keeping it his.

I didn’t actually ask him whether he wanted to build a treehouse or a castle. But I could have. It’s a good way to get at the underlying tradeoffs involved. It relates to the idea of defining success. The treehouse can be a great place to be, happy, comfortable, a good view. But it’s no castle.

How ambitious are you? How much control do you want to have? How much risk do you want to take? Are you comfortable with maybe growing more slowly but not having to compromise with your investors?

Business schools normally teach about building the castle, not the treehouse. By that I mean that the classic business teaching about startups is to get financing with the right investors and grow fast, then turn it over into a stock offering or acquisition. That’s the castle. So as a result we assume formal business plans, pitches to investors and high growth.

When you take on an investor, it’s not really your business any longer. Minority owners have rights. And aside from the detailed legal elements, you have ethical and moral obligations toward those minority owners. You can’t just keep the business for yourself anymore. At some point, in fairness to the investors, you have to sell all of it, or at least more of it.

Like having the cake and eating it, you can’t own the business and have investors. You have to choose one or the other: treehouse or castle.

You can’t have a business and sell it too.