By STR Team
Twitter itself is a triumph of pivoting. The business, which in 2011 was valued at more than $5 bn, started life as the offshoot of a web start-up called Odeo. The original plan of Odeo’s founders had been to create a platform on the internet for people to create podcasts. The trouble was that Apple then decided to add a podcasting platform to its wildly successful iTunes music download service. It looked like game over for Odeo.
In desperation, the company started scratching around for new ideas. One way it did this was to organize brainstorming sessions in down periods during the working day. It also encouraged the company’s IT developers to take a day off to work on new ideas in a sort of contest called a ‘hackathon’.
It was at one lunchtime brainstorming session that the idea for Twitter was suggested by Odeo employee Jack Dorsey. The team happened to be in a children’s playground. Sitting at the top of the slide, Mr Dorsey suggested a business plan for an SMS (or text) service to communicate privately with people in a small group. A 140-character limit was placed on it because 160 characters was the maximum allowed for a single text message by most US carriers at the time, and Twitter’s founders wanted to leave enough space for people to write their names.
There is some disagreement about what happened next, but the generally accepted story is that Odeo was rescued from itself by the inventors of Twitter. In October 2006, Biz Stone, Evan Williams, Jack Dorsey and other members of Odeo formed Obvious Corporation and acquired Odeo and all of its assets, including Twitter.com, from the investors and shareholders. Twitter was spun off into its own company in April 2007.
The tipping point for Twitter came later that year at the South by Southwest festival, a film and music festival held in Austin, Texas. Twitter’s staff placed two 60-inch television screens in the hallways of the venue, enabling conference goers to keep tabs on each other via the messages posted. During the event, Twitter usage increased from 20,000 to 60,000 tweets a day. Four years later the number of customers had grown to more than 200 million active users, generating 65 million tweets a day and handling over 800,000 search queries per day.
All this growth came from one suggestion on the top of a slide in a California playground by a worker trying to save a sinking company.
‘If you don’t spot these major things happening in your market, then the life of your company will be very short,’ Mark Suster said. He claimed that he looks for entrepreneurs who have ‘a mindset to pivot’ when he is making investments. This means that he spends a long time getting to know the founder before committing to putting money into the business. ‘I tend to invest in people who I have got to know over a 6-, 9- or 12-month period,’ he told me. ‘I want to judge how they pivot.’
Mark added that he might not invest in individuals until they are on their third or fourth business idea, as their ability to do this shows him that they have the potential to pivot a business model.
So is it wise to make a business plan if all you are going to do is change it?
It seems fair to say that a lot of the argument for having a business plan comes from those providing the cash for new ventures. Business plans are needed to convince banks to lend money and to attract other investors.
The principle of writing everything down beforehand is beginning to be questioned, however. Ian Sanders, co-author of Unplan Your Business, is perhaps unsurprisingly in the no camp. There are plans that take months — years even — and plans that are a bit more rapid than that,’ he told me. The business plan for Hotmail was written overnight by one of the founders, Sabeer Bhatia, Ian noted. ‘It was enough to secure finances to hire programmers to create the webmail service that was later sold to Microsoft for $400 m.’ Others are not quite so quick, with management teams, analysts and advisers spending months producing financial projections, pie charts and graphs.
‘If you don’t require investment to get your idea up and running, then maybe you only need the time it takes to drink a cup of hot tea to get your plan down on paper,’ Ian told me.
One of those who believes that every business needs a business plan is Paul Marson-Smith, managing partner at Gresham Private Equity. (Those in private equity are another group, alongside bankers and academics, for whom business plans can be sacred.) ‘You wouldn’t drive a car without a dashboard,’ he told me. ‘Sure, there are assumptions in there and, sure, they are not accurate, but they are the best guess at the time.’
Even he admits, however, that smart entrepreneurs should build contingency into whatever they write down because not everything goes to plan. ‘The business plan is a piece of engineering, and as with any structure there needs to be a degree of tolerance to the business plan,’ Paul told me. ‘It needs to be a live document that gets discussed in board meetings. The people running the business should be clear that the goals they are being set are aligned with the business plan and the plan is always aligned with the shareholder strategy.’
|THE AUTHOR SPEAKS
Author Jonathan Moules tells Ankita Rai that entrepreneurs should never get hung up on their business plans.
If the received wisdom on entrepreneurship just isn’t the best way of doing things, why this alternative guide for entrepreneurs?
The point of the book is to point out that entrepreneurship isn’t just about becoming rich. If you want to build a really large company, you have to follow your own path and not the wisdom of the crowd.
It is easy to alter a business plan at the start-up phase, but that doesn’t mean that received wisdom is not a good starting point. Your comments please.
That is true. One thing this book points out is that successful entrepreneurs often do change the business model for their company, so, it is never too late to change. If you start out following a conventional wisdom, you can always change. Another point is that failure is not a problem if you learn from the experience, so if you fail by following received wisdom, you can always try again as a ‘rebel entrepreneur’.
Do you mean to say that business plans have become obsolete? How does one attract investors with a random plan in place?
No, business plans are not obsolete. My book makes that clear. There is one piece of received wisdom that I very much agree with: If you fail to plan, plan to fail. Having said that, what most successful business founders often do is that they change their business plan as the venture develops and they see what works and what does not work. It is about having the humility to recognise that you may be wrong once in a while, but that is okay, if you correct yourself.
THE REBEL ENTERPRENEUR
AUTHOR: Jonathan Moules
PUBLISHER: Kogan Page
PRICE: Rs 695
Excerpted with permission from the publisher. Copyright Kogan Page India. All rights reserved.