Okay, Let’s Talk Business

Before I go farther, let’s talk business. Real business. As in, business plans, business structure, all that good stuff.

No, don’t roll your eyes. I know, you can read about this in pretty much any “Start UR Own Biz!” book, but let’s apply the sharp point of experience and turn up all the key points to 11.

First, business plans are, in general, an incredible waste of time.

I know someone is going to blow up about this point, but I’ll stand by it. I have written about a dozen serious business plans since leaving college, and every single one of them was seriously researched, complete, and sounded compelling.

Not one of those businesses ever got off the ground.

Why? At least in part because business plans are big and intimidating. A standard business plan template has dozens of sections and subsections, asks for broad knowledge across a wide range of disciplines, demands decent writing skills, and requires some serious number crunching. It’s a lot easier to sit and stare at the thing, thinking, “I ain’t never gonna finish this,” or “I have no idea what these bozos are talking about,” than to finish it.

Because of this, business plans promote paralysis by analysis. If you really want to fill in all the blanks on a business plan, you’ll:

a. Eat up an incredible amount of time that could be used for getting started
b. Stir up a thousand doubts that can keep you from ever starting
c. Be so amazingly exhausted that you might not want to do a business at all

“But business plans are what you need to get capital,” someone at the back says.

Uh-huh. Right. Trust me, if you don’t have a working product that’s making money, you’re not getting capital even if your business plan was written by Hemingway. Period. And no, I don’t care if you’re friends with one of the board members. All VCs know that business plans are fundamentally BS.  

“But it helps you keep your eye on the big picture,” someone else says.

Um. No. The big picture changes every day. This is not the slow, distribution-centric world of thirty years ago. Today, a new competitor can pop up on Amazon overnight—from literally anywhere in the world. Online pundits can make or break a new company with a single post. And even traditional companies are moving faster, and getting into new, unexpected product segments.

What business plans promote isn’t big-picture thinking, they promote “railroad syndrome.” As in, the business plan is the rails, and you’re a train. It’s easy to continue driving down the same wrong path until it’s too late, because:

1. It’s what’s in the plan, so it must be true
2. You spent so much time researching/writing, it really has to be true
3. If it’s not true, you don’t want to spend all that time again to figure out what is now true.

So, throw away that business plan. Forget it. Pay attention to your market. Learn your market. And keep learning. Because it changes every day.

“But I don’t want to just wing it,” yet another audience member says. “I want some structure in my business. What can I do besides a business plan?”

Okay, fine. Let’s try something new. I’ll call it a Business Brief. It can be no more than a page long. It’s not for getting capital. It’s not for answering every question. It’s about having some answers to the most important questions. To create a Business Brief, answer these questions:

1. What will this company do that no other can do?
2. If others can do this, or are doing this, how are you significantly better?
3. Why would someone pay money for it?
4. How will they find out about it?
5. How much money do you need to start it?

The goal isn’t a dissertation—single sentence answers are ideal. Let’s do this for Schiit.

1. What will this company do that no other can do?
Make amazing-sounding, amazing-looking high-end audio products in the USA for prices similar to Chinese manufacturing.

2. If others can do this, or are doing this, how are you significantly better?
Nobody else truly manufacturing in the USA can beat our prices; we also have unique aesthetics and compelling features.

3. Why would someone pay money for it?
Because it’s a helluva deal, and they laughed their butt off when they heard our name.

4. How will they find out about it?
By people with no sense of humor carping about the name to their friends on forums. (No, seriously: through an unforgettable brand and direct engagement in micro-social activities.)

5. How much money do you need to start it?
$10,000, and 2 years of no salary.

See? Easy. And very easy to change when the game changes. A business brief makes you answer the two key questions of what you do and why it matters.

Second, you incorporate. Full stop.

Don’t even think about silly stuff like partnerships or sole ownership. If you are making things that plug into a wall, even with CE and FCC certifications, you need to be a corporation. Period. Yes, it’s expensive ($1000 or so in California), and yes, it’s a pain in the ass (as in keeping your personal and company assets completely separate, corporate minutes, resolutions, etc), but here’s why you incorporate:

Let’s say someone wants to listen to your great new tube amp. While in the bathtub. What’s more, they love it so much they give it a big hug in the warm, watery depths. They die. Their family does not understand that stupidity does not give someone carte blanche to free money and sues your company.

• If you are a corporation, the corporation either pays for a successful defense, reaches a suitable bribe—er, settlement—to make the family go away, or loses and pays or goes bankrupt. It will be a terrible time for you, but they can’t touch your own personal investments, house, cars, etc.

• If you are anything but a corporation, they can go after everything you have, whether or not it was yours before starting the company. And by everything, this means everything.

Third, you truly understand “cash flow.”

They call it cash flow for a reason. For about two years, you get to watch the cash flow from your customers, through your hands, and back out to your vendors. And that’s about it. A fast-growing company eats cash like mad. You’ll be reinvesting everything you make in growth. And there won’t be any left over for you.

• Yes, that’s right. Expect no salary for a couple of years.
• Yes, I know, that’s unrealistic if you don’t have the savings or an alternate form of income.
• Yes, I know that’s not fair because you can’t find anyone to give you free money, and it’s holding you down, you could take on Musk and The Resurrected Jobs with one hand tied behind your back.

It’s not fair, but it’s the way things work. If you can’t afford to put in some money up front and have no salary, you’ll need to start a company that requires little or no capital, and can be done in your off-time from your real job.

Wow, this is starting to sound like a business book. And it’s taking far too long. So let’s cut to one more aside, and then close it up for now.