Friday, April 28, 2006

Business Plan Dependencies

In designing a business plan, it pays to ask, "what are the business plans' dependencies on variables beyond the company's control?" Why? Because the probability of success is inversely proportional to the number of exogenous variables.

Let's assume the business is dependent on five market factors materializing and each independent variable has a 50% chance of occurring - the odds of failure are then 1-(.5^5), or 96.875%. Not good. The odds of start-up success are already daunting; making the odds even more daunting by attempting to execute a plan overly dependent on external variables is a recipe for frustration.

What do I mean? Well, if a business plan requires
  • distribution deals to reach the end-market (ex. wireless carriers)
  • deployment of new networks, infrastructure, and network devices (ex. wimax, rfid readers)
  • new device proliferation (ex. Windows Mobile only)
  • new technology (broadband over powerline)
  • etc...
Too often, I see great entrepreneurs looking to fund businesses that face massive external market adoption dependencies. Skating to where the puck will be is critical, but I would just make sure the rink is built before you strap on your skates.

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