Startup business plans

Episode 22: 03/09/2022

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Two waiters dash past. They are carrying heavy rubbish bags.

From their staggering movements and straining necks, it is clear they are doing that thing where you rush to put something heavy down in the right place, before your muscles give out and autonomously dump it in the wrong place.

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They are obstructed by a small crowd queuing for a seat while shouting at each other over plastic cups of beer. Above the din, I watch with interest to see if the waiters make it in time. With a lurch, in the last instant before their strength fails, they chuck the huge bags of mussel shells into a skip on the street outside.

Aprons dripping with white wine sauce, they hurry back. Tables of customers are waiting. There is no time to lose. Welcome to the Lille Braderie.

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Every September, Lille hosts the Braderie, which is allegedly the largest car boot sale in Europe.

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The braderie of 2022 is jubilant. It was cancelled for the previous two years, due to the pandemic. The return to normalcy is being celebrated with particular enthusiasm by the city’s younger inhabitants.

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The windows of many balconies are flung wide in order to blast passers-by with electro pop music. Motley crews of students in various states of undress dangle over the railings, drinking rum from the bottle like extras from Pirates of the Caribbean who take their method acting seriously. The general revelry is in no way dampened by the fact that it has been chucking it down.

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The noise makes it impossible to have a conversation. This is just as well, because I’ve got a new problem to mull over.

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El Toco has been saved by friends and family from an otherwise tough fundraising round. There is a catch. There isn’t enough money to launch a big, generalist search engine.

We’re going to have to pick some particular niche, and focus on searches in that area. It’s time to rewrite the business plan.

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A rude awakening

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El Toco was never intended to be a niche search engine, so I did not arrive at this conclusion lightly. It took a number of factors to force the matter.

One of those factors was an unforgettable call with a prospective contractor.

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The company in question was a marketing provider. They had taken the bold and somewhat risky step of letting potential clients book meetings through their website. This is risky because by skipping the exchange of flirtatious emails which normally happens first, you run the risk of wasting everybody's time. Perhaps in hindsight the open calendar was a warning sign, but we hadn’t worked with anybody in marketing until then so I didn’t know what to expect.

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I certainly didn’t expect this. The webcam blinks on to reveal a person who seems to have XY chromosomes but who has indulged in so much plastic surgery that it feels safer to avoid the subject of JK Rowling entirely. Come to think of it, a recent trip to Harry Potter World probably should go unmentioned as well. The person underneath all the layers of blusher and botox seems to be about twenty, roughly a decade younger than me.

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Like you would, I ignore their external aspect and proceed to outline El Toco’s marketing needs.

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I’ve been droning on for about ninety seconds when they interrupt to ask who our target audience is.

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I explain that El Toco is a general search engine, so we can point it at whoever we want.

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So you’ve got no idea who your users are, they respond.

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I sense a suddenly escalating tension, so try to defuse it with some self-deprecating humour about how you can’t do everything at once.

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This fails miserably. For some reason, they’ve sensed blood in the water, and go into attack mode.

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The rest of the call is spent receiving an aggressive lecture on the importance of market research and knowing how your product solves your customers’ needs. Also the search engine market, which they feel I need to brush up on too.

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They’ve already blown it but I press on anyway, asking questions and taking notes as if it were a normal call. If you find people who have made it to adulthood without developing basic manners it’s much more entertaining to let things stay that way. In the long run they will mainly hurt themselves. In the short run, any time you have to interact with them is guaranteed to be entertaining.

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I smile, nod, and jot things down. Things like “has falsetto voice” and “grasp of English grammar is rudimentary”. Meanwhile wondering how they win clients if their junior salespeople speak to people this way. Presumably there’s a more senior colleague groaning somewhere within earshot, who will gently take this person into a side room and explain that’s not how you talk to customers.

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After the call, I check the mugshots on their website. Incredibly, our junior salesperson is the company’s founder. They have about five employees, a pretty good website, and an office in Holborn. Which is not a cheap area. If people like that can succeed in business, there’s hope for us all.

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Afterwards I mull it over. Despite the atrocious delivery, they did actually have a very good point.

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If we’re ever going to do some marketing, we do need to decide who we want our users to be.

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Picking a niche

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You may be wondering how we can have spent six years building a search engine, and not considered who our users are. It’s actually a bit more subtle than that.

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The idea of El Toco is to make it easy to find things online with filters. The filters we have developed aim to cover everything. It is the general solution, for a whole range of problems.

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It’s not so much the users weren’t considered. It’s just that they’re everybody.

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Without a big investor, we’re going to have to leave this general search solution behind, and niche down. It's simply not realistic trying to crawl a broad swath of the internet on our budget.

In startup jargon, this change in strategy is called a pivot. Picking a niche is El Toco’s first ever pivot.

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Niche search tools are not a new idea. They have been steadily growing as the web matures.

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What’s also been happening, as the web matures, is that people are getting cheesed off with generic search engines. The big boys haven’t really innovated that much since Google Maps came along.

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It is possible that, if they had carried on innovating, many online marketplaces wouldn’t need to exist. You’d go onto a search engine, get taken to the suppliers’ own website, and buy things direct.

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This is basically what we want to demonstrate, with El Toco. What we need to do is pick a market where it’s going to work. How do we pick that market?

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In an established company, you wouldn’t casually publish this kind of strategic decision process. But the point of this blog is to go behind the scenes and explain what creating a startup feels like from the inside. So you'll see how we did it and can decide if you agree.

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When you don’t have a clue how to do something, a brainstorm is always a good starting point. I make a brainstorm of potential niches:

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The brainstorm is discussed with investors. The more people looking at it, the better.

We decide to score the markets numerically. I have a go at doing those scores rigorously based on real data. This is revealed to be too time consuming, even if we had data on all those markets. Which we don’t.

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So we guesstimate the scores. This lets us narrow it down to a shortlist of five:

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Medical and Scientific Equipment wins. It feels like a serious area to do business. It is not well served by an existing search platform. Our page classification algorithm finds pages in this area easy to label correctly.

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Henceforth, El Toco is a search engine for medical and scientific equipment.

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Business plans

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A rite of passage for all new founders is confronting the mystery of business plans. How do you come up with a business plan? But before that, do you even need one?

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I saw a post on LinkedIn from another founder listing all the things they’d learned while building their mid-sized business. That is to say, I’ve forgotten who it was, but the company was large enough that they were a credible source. One of their learnings was that you don’t need a business plan. You focus on each challenge as it comes, and let the details take care of themselves.

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Mark Zuckerberg is a proponent of this philosophy too. He says “If you just work on stuff that you like and you’re passionate about, you don’t have to have a master plan with how things will play out.”

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We’re clearly in the territory of wildcat counter-intuitive advice here. But when I read the comments of the founder whose name I have forgotten, I nodded in agreement.

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This was for two reasons. Firstly, business plans are often expressed as a set of projected accounts. Yes, I know, it sounds boring already. If you fight through the boredom and do it anyway, what lies in wait on the other side are questions. Dozens of questions. If you’re in an industry like catering where comparable figures exist, they at least give you a toehold. You know roughly what sort of sales figures you might expect, how to price your pizzas, and so on. But for a more adventurous venture, say a search engine, you’ve got no idea about any of those things.

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So you guess. How many developers will we need? Dunno, five sounds ok. Where should we put our office? Dunno, near home seems convenient. How long before we start making sales? Dunno, let's say six months.

At the end of all this guessing, you eventually have your set of projected accounts. Then along comes the the second reason that business plans can in practice be a waste of time.

The accounts are based on so many assumptions that they make next month’s weather forecast look like a surefire certainty. If just one thing in the world changes, the assumptions change, and the whole plan needs to be reworked. And, obviously, the world is constantly changing. So the need to update the business plan is almost constant. This is fine if you’re a professional accountant, because they find things like that therapeutic. But if you’re a busy founder, revisiting the business plan once a week to update the accounts aint gonna happen. It’s a waste of time.

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This is why, when reading the founder's comments, I initially nodded in agreement. Initially.

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Then I thought again. Let’s do a reality check. If two dogs walk past you, and they are both poodles, does that mean that all dogs are poodles? Clearly not. If two successful founders don’t have business plans, does that mean founders don’t need a business plan?

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I’m sure you can see the incy wincy hole in this logic. Just because two founders have made it, and they both don’t like business plans, that doesn’t mean that without a business plan, you’re more likely to succeed. It also doesn’t mean, if you took a sample of thousands of successful companies, you'd find that the majority of them got there without a plan.

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It is a situation that’s very analogous to financial analysis.

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Financial analysts are paid large amounts of money to pick investments for fund managers. In theory, they do this by intensive research and a thorough understanding of the market they are studying in. In practice, there’s always the temptation not to bother.

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Thing is, from the outside, you can’t tell the difference. All you see is the analyst's opinions. Some of the ones who don’t bother doing all the work can still get lucky. And they do. The cheeky ones who don't do the work can make just as many accurate predictions as the ones who do what they’re supposed to be doing.

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Now, obviously, the cheeky ones can’t shout about it. They don’t go onto Bloomberg sagely explaining not to worry about whether your analysis is correct, so long as you enjoying lounging around in the office. If they did that, they’d get fired. So you don't see Mark Zuckerberg-style comments coming out of the mouths of investment analysts.

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Eventually, the ones who don't do the work get found out. It may take many years, but it will happen. This is because there’s nothing sustainably generating their predictions. It’s luck. Can you see where we're going with this analogy yet?

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The point is that, for both financial analysts and entrepreneurs to succeed, they do have to do the work. This may not seem obvious at any given moment but in the fullness of time, the ones who do things properly are the ones who survive. For the financial analysts, this means doing their research. For company founders, this means having a business plan.

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So business plans are necessary, but how do you come up with one?

This question has a clear answer too. But, again, some mixed messaging makes the issue more confusing than it should be.

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Founders have a vision, the reason their company exists. This reason can be because they have discovered a new and exciting solution for a difficult problem. But it can just be delivering an existing service, and doing it well.

From this vision, naturally flows the story, in the founder's head, of how that is going to happen. This story is the business plan. To come up with it, you don't have to try. It is a natural product of the founder's vision.

The mixed messaging is because people confuse how this plan is presented with whether it exists or not.

So you'll see investors on Dragons' Den saying "Where are the sales forecasts? You've got no business plan! I'm out".

But this is actually shorthand for "You haven't properly communicated the plan that's in your head, this makes the investment sound too risky, I'm out".

It doesn't mean that they think the founder literally doesn't have a plan. The founder wouldn't be on Dragons' Den in the first place if they didn't have a plan.

How the business plan is presented depends on the audience. As a solo entrepreneur, there may not be an audience. Your business plan need only exist in your head and it can be quite simple. In a micro enterprise, like El Toco, the plan can still largely exist in the founder's head.

A mental plan is the best plan, because it’s the easiest kind of plan to adjust on the fly when circumstances change. Which they do, constantly.

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External investors, not knowing what’s in your head, like to see projected accounts. They can also be useful for internal purposes, as a sanity check. But this isn’t to say that the projected accounts are the business plan, and that you need to spend hours making them even if there are no investors. They’re just one way of expressing the business plan, for a particular audience.

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For El Toco, our decision in autumn 2022 to niche down has meant a big adjustment to the mental plan. The new vision is that we make it easy for buyers and sellers of medical and scientific equipment to find each other. For the buyers, we give them a search engine with filters. For the sellers, we give them a no-frills advertising platform.

Our plan to get there is to spend the rest of 2022 redessing the website to make it feel appropriate for this new audience. While doing that, we will be crawling medical and scientific pages to feed our search results. You'll see how this plan actually panned out in coming episodes.

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The smaller the better

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Not content with living one kilometre from Europe’s largest car boot sale, in our suburb of Lille, they are doing their own.

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The braderie of Marcq-en-Baroeul happens a week after the main one in central Lille. Three hundred metres of local high street are cordoned off for the stalls. It is a decidedly more modest affair. Restaurants do not create mountains of waste in the road.

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There is a truck selling candyfloss. It is a sunny day, and children are running amok with no risk of getting run over, burning off the energy from the candyfloss.

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In the last few weeks, we’ve had to significantly downscale El Toco’s ambitions. Gone is the original plan, to launch a general search engine. That was the plan for six years.

Now, we have a much smaller scale plan, to focus on medical and scientific equipment. It’s not even clear if Google is the competition any more.

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As we walk around the local braderie, everyone seems just as cheerful as they were in the big one. Actually it’s a lot less stressful too. It's quieter, so you can talk at a normal volume. Everybody has a bit more personal space.

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Maybe niching down won’t be so bad after all.