Published in the San Diego Union-Tribune, June 18, 2018
It is potpourri time again.
First up, a test — when did PowerPoint first become available? The answer is April 20, 1987. That is the day the music (and the obligation of writing a business plan) died. Prior to that time, it was common practice to learn to write a business plan, using sentences and diagrams and paragraphs and the skill of making an idea concrete and tangible.
When entrepreneurs came to me, I used to insist that they write a business plan. I acknowledge that the minute you have finished writing it that it is indeed obsolete and possibly irrelevant, and for sure, it is wrong. But the act of writing, the discipline of putting the thoughts into words, increases the entrepreneur’s understanding of his business. It is hard homework that is required.
Now the PowerPoint pitch deck has arrived. Ah, at last the great true shortcut to rigorous thinking. And for some world-class, maybe wrong-headed thinking, I turn to Carl Schramm, Syracuse University professor and former president of the Ewing Marion Kauffman Foundation (the world leader in entrepreneurship education) who recently has written a book, “Burn the Business Plan,” in which he says on Page One that “you should burn the business plan — creating a business plan is a waste of time.” No double straddle here, this guy is all in.
He argues that the current curriculum for teaching entrepreneurship should be scrapped and that incubators are not effective (I think I am “there for you, baby” on one of those). Schramm argues that companies spring from ideas and that the cookbook business plan approach is obsolete and antithetical to true problem solving.
OK, I have teased Schramm a bit for sure, but I know that writing an executive summary is different than producing 12 slides. For me, someone who invests in people, I am always looking for a demonstration of rigorous thinking and in my addled and aging brain, I hold in high regard the written word and coherent sentences. (Allow me to pause and pay homage to Philip Roth, who died last month — that man could write.)
Now, to one of my favorite concepts — unit economics. The theory here is that if you only lose two cents on each widget you sell, eventually you will turn the corner and make it all up on volume.
For further explication of this thinking, which is similar to the alchemy of turning lead into gold, I turn to Kevin Roose, New York Times writer, who has just started a business called the 75 Cent Dollar Store. He proposes to sell crisp dollar bills to you for 75 cents, no service charge, no hidden fees. How does this work?
His plan is to get tons of people addicted to buying 75-cent dollar bills, so that “in a year or two, we can jack up the price to $1.50 or $2 without losing any customers.” We can collect data on our users and sell that to the highest bidder, and maybe even get “the Treasury Department to start selling us dollar bills at a discount.” You have to love this guy!
As usual, there is substance to the joke. And our boy Roose knows the facts. He notes that “76 percent of companies that went public last year were unprofitable on a per-share basis in the year prior to going public.” In 2018, 15 technology companies went public, and only three had positive earnings per share.
Uber, the perennial whipping boy, lost $4.5 billion last year, and it still has a market cap of $18 billion. And of course there is Movie Pass, an insanity that hopes to make it all up on the popcorn. Blue Apron has lost $2 billion of market cap, but the cilantro is fresh when it arrives. Stop the madness.
The big idea here is a simple one. Eventually you need to make a profit. That concept starts at the lemonade stand where every entrepreneur begins. Mine started by going around the neighborhood sharpening knives.
In my case, the trick was I didn’t have to buy the sharpener, since my mom let me lease it from her — and I have been paying her back for the last 50 years.
Rule No. 564: Scale is something you weigh yourself on, not an alchemist’s potion.