My students persistently demand instruction in how to write a business plan for a startup company. I think their demand is fair – in fact, I think every MBA student should write at least two full business plans during their MBA program, simply because doing so requires them to think through most of their course literature and how to apply it to a practical situation. Nothing like exercise…
Which gives me the problem of how to teach them to do it. There are the usual sites that provide outlines and examples, of course, but for a number of reasons (including that it is never to late to teach people to read) I tend to give them an excerpt from Neal Stephenson’s brilliant novel Cryptonomicon, in which my favorite (and not altogether facetious) description of a business plan is given (page 238ff.):
Epiphyte Corp.’s business plan is about an inch thick, neither fat nor skinny as these things go. The interior pages are slickly and groovily desktop-published out of Avi’s laptop. The covers are rugged hand-laid paper of rice chaff, bamboo tailings, free-range hemp, and crystalline glacial meltwater made by wizened artisans operating out of a mist-shrouded temple hewn from living volcanic rock on some island known only to aerobically gifted, Spandex-sheathed Left Coast travel bores. An impressionistic map of the South China Sea has been dashed across these covers by molecularly reconstructed Ming Dynasty calligraphers using brushes of combed unicorn mane dipped into ink made by grinding down charcoal slabs fashioned by blind stylite monks from hand-charred fragments of the the True Cross.
The actual contents of the business plan hews to a logical structure straight out of the Principia Mathematica. Lesser entrepreneurs purchase business-plan-writing software: packages of boilerplate text and spreadsheets, craftily linked together so that you need only go through and fill in a few blanks. Avi and Beryl have written enough business plans between the two of them that they can smash them out from brute memory. Avi’s business plans tend to go something like this:
MISSION: At [name of company], it is our conviction that [to do the stuff we want to do] and to increase shareholder value are not merely complementary activities — they are inextricably linked.
PURPOSE: To increase shareholder value by [doing stuff].
EXTREMELY SERIOUS WARNING (printed out on a separate page, in red letters on a yellow background): Unless you are as smart as Johann Karl Friedrich Gauss, savvy as a half-blind Calcutta bootblack, tough as General William Tecumseh Sherman, rich as the Queen of England, emotionally resilient as a Red Sox fan, and as generally able to take care of yourself as the average nuclear submarine commander, you should never have been allowed near this document. Please dispose of it as you would any piece of high-level radioactive waste and then arrange with a qualified surgeon to amputate your arms at the elbows and gouge your eyes from their sockets. This warning is necessary because once, a hundred years ago, a little old lady in Kentucky put a hundred dollars into a dry goods company that went belly-up and returned her only ninety-nine dollars. Ever since, the government has been on our asses. If you ignore this warning, read on at your peril — you are dead certain to lose everything you’ve got and live out your final decades beating back waves of termites in a Mississippi Delta leper colony.
Still reading? Great. Now that we’ve scared off the lightweights, let’s get down to business.
EXECUTIVE SUMMARY: We will raise [some money], then [do some stuff] and increase shareholder value. Want details? Read on.
INTRODUCTION: [This trend], which everyone knows about, and [that trend], which is so incredibly arcane that you probably didn’t know about it until just now, and [this other trend over here] which might seem, at first blush, to be completely unrelated, when all taken together, lead us to the (proprietary, secret, heavily patented, trademarked, and NDAed) insight that we could increase shareholder value by [doing stuff]. We will need $ [a large number] and after [not too long] we will be able to realize an increase in value to $ [an even larger number], unless [hell freezes over in midsummer].
Phase 1: After taking vows of celibacy and abstinence and foregoing all of our material possessions for homespun robes, we (viz. appended resumes) will move into a modest complex of scavenged refrigerator boxes in the central Gobi Desert, where real estate is so cheap that we are actually being paid to occupy it, thereby enhancing shareholder value even before we have actually done anything. On a daily ration consisting of a handful of uncooked rice and a ladleful of water, we will [begin to do stuff].
Phase 2, 3, 4, . . . , n – 1: We will [do more stuff, steadily enhancing shareholder value in the process] unless [the earth is struck by an asteroid a thousand miles in diameter, in which case certain assumptions will have to be readjusted; refer to Spreadsheets 397-413 ].
Phase n: Before the ink on our Nobel Prize certificates is dry, we will confiscate the property of our competitors, including anyone foolish enough to have invested in their pathetic companies. We will sell all of these people into slavery. All proceeds will be redistributed among our shareholders, who will hardly notice, since Spreadsheet 265 demonstrates that, by this time, the company will be larger than the British Empire at its zenith.
SPREADSHEETS: [Pages and pages of numbers in tiny print, conveniently summarized by graphs that all seem to be exponential curves screaming heavenward, albeit with enough pseudo-random noise in them to lend plausibility.]
RESUMES: Just recall the opening reel of “The Magnificent Seven”, and you won’t have to bother with this part; you should crawl to us on hands and knees, and beg us for the privilege of paying our salaries.
Moreover, the purpose of the business plan inside the company is nicely explained – this is the way it is supposed to be in real life, as opposed to the way it frequently is, where the business plan goes into a drawer after the monez has come in. After all, the only thing you know for sure with a business plan is that you will rewrite it (p. 240):
To Randy and the others, the business plan functions as Torah, master calendar, motivational text, philosophical treatise. It is a dynamic document. Its spreadsheets are palimpsests, linked to the company accounts and financial records so that they automatically adjust whenever money flows in or out. Beryl handles that stuff. Avi handles the words – the underlying, abstract plan, and the concrete details, that inform those spreadsheets – interpreting the numbers. Avi’s part of the plan mutates too, from week to week, as he gets new input from articles in the Asian Wall Street Journal, conversations with government officials in flyblown Shenzen karaoke bars, remote-sensing data pouring in from satellites, and obscure technical journals analyzing the latest advances in optical fiber technology. Avi’s brain also digests the ideas of Randy and the other members of the group and incorporates them into the plan. Every quarter, they take a snapshot of the business plan in its current state, trowels some Maybelline onto it, and ship out new copies to investors.
Beryl, mentioned twice in these excerpts (Avi is the CEO, incidentally, Randy is the programmer and one of the main protagonists of the novel) is an important person, and someone perhaps more difficult to find than the more showcasey CEO types. To often, she is missing from the startup company – especially in Norway, I should note (p. 187):
A woman comes into the room, burdened with tote bags, and beams an apology for being late. Beryl Hagen looks like a Norman Rockwell aunt, an apron-wearing, apple-pie-toting type. In twenty years, she has been the chief financial officer of twelve different small high-tech companies. Ten of them have gone out of business. Except in the case of the second one, this was through no fault of Beryl’s. The sixth was Randy’s Second Business Foray. One was absorbed by Microsoft, one became a successful, independent company in its own right. Beryl made enough money from the latter two to retire. She consults and writes while she is looking for something interesting enough to draw her back into action, and her presence in the room suggests that Epiphyte(2) Corp. must not be completely bogus.
(Incidentally, here is an interview with Stephenson where he talks about the novel and the business plan.)
So – do you have a business plan according to these specs, that everyone in the company understands and have contributed to, and someone experienced to hold the pursestrings? Seems like you’re in business….