Make no mistake about it. When it comes to BS jargon and hype few other industries come close to the technology startup space. This is understandable because startups attract attention and get venture funding based on their ability to create a buzz. Obviously, the best ways to create a buzz is to throw a lot of BS out there, throw a lot of jargon, get people excited about certain buzz words like cloud computing, augmented reality, business analytics, social media, social gaming, mobile apps and other hot buzz words. The problem is if you are an investor, whether you’re looking to invest $10,000 or $10 million, you can’t base your investment decision on the fact that certain hot buzz words like cloud computing or crowdsourcing gets repeated a lot in the business plan that you’re reading. If you do that, you’re soon going to run out of money. The truth is anybody can write up a business plan with all these buzz words in them to get it to open your wallet.
Here are just some tips on how to read startup business plans so you don’t waste any money and time:
1. Discount all buzz words
When you’re reading through the business plan, pretend that the certain jargon didn’t exist so if you see them, don’t read them. Just look at them as blanks and try to read the business plan in context. In other words, try to read the business plan as if you were ten years old. Would this make sense to a ten-year old kid? If it doesn’t, chances are the people who founded the business are also unclear regarding their business model, how to monetize the business, the overall strategy and more importantly the core set of ideas that constitute the base asset behind the startup. If the startup founders are unclear on these things, chances are succeeding investors will also be unclear and more importantly, customers and the website visitors will be unclear as well. Steer clear of business plans that you can’t read like a ten year old.
2. Focus on the idea
The truth is whatever can be thought of now has been thought of before and whatever can be summed now has been summed before. People aren’t that creative. We can only look at incremental changes or minor tweaks but in terms of revolutionary technological changes, chances are you won’t stumble upon reading startups’ business plans. That’s how you should look at these business plans. Steer clear of hyped-up or superlative words that try to play up the level of innovation a company has. In other words, stay away from the words revolutionary, innovative or groundbreaking but focus on the core idea instead. How different is it and more importantly, does it meet an actual existing need? That’s the bottom line. That’s how you are able to determine between an Instagram and a failed Instagram if you catch my drift.
3. Pay attention to the market
Technology moves so fast that it can be argued that many startups don’t really start off with a market. For example, when the Apple iPhone came out, the mobile market its looking for always on connection to the internet and constant data processing using an always on connection didn’t exist or it existed but it was very small. Don’t focus so much on the existing market but focus on how probable that market would be. If you look at the idea behind the mobile crowdsourcing or cloud computing startup that you are evaluating, how probable is that market for this particular product or service going to be? That is if you can figure out the probability by looking at whether existing markets that would support such a market are already sizable. If that’s the case then chances are there would be a huge market for the product or service that the startup is going to produce. Applying that to the iPhone scenario, while the specific market of people looking for an always on internet connection to process their data signals from the real world was relatively small, the market for people looking for a cell phone was huge so it made a lot of sense to invest in the iPhone at that time. Keep that analysis in mind when trying to wrap your mind around the concept of whether there’s a market for that startup’s product or service.