Defining the Business Plan: 
1 Sheet of Paper and 10 
Presentation Slides
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 job skills.
• 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 it's warranted.

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 project.

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 your niche.

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 humble.

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 and colleagues.

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."