In my last post in the Business Plan series, I promised to tell you about “The Industry”. This is an important early section of a business plan that frames the overall industry the company is part of. It’s important to keep this section short (if I want to learn the history of an industry, I’ll read a history book, not a business plan.) The first part (or first few paragraphs) should describe the industry generally and then become more specific about the segment of the industry that the company is going to address.
In 1987, people talked about “the microcomputer software industry.” The gorillas of this business were Microsoft and Lotus – gigantic software companies weighing in at $200 million in annual revenue. There were many smaller companies (Ashton-Tate, Aldus, T/Maker, MicroPro, WordPerfect anyone) – of which today’s generation of entrepreneurs has never heard. Following is how I described the microcomputer software industry in my business plan in 1987.
In the ten years since Microsoft introduced the world to personal computer software via Microsoft Basic, the microcomputer software industry has grown from nothing to a multi-billion dollar business. In the wake of this growth are thousands of software companies ranging from garage operations to $200 million giants such as Microsoft and Lotus. For a while, thousands of people became rich overnight using a simple formula – create a new piece of software and toss it out into the market via magazine ads and user groups. Software heroes were common – all one needed was something neat. Even the high school computer hacker got in on the action (much to the amazement of his parents who soon were making less money working full time) by spending his afternoons writing a game and selling it to an established company.
It was inevitable that an industry (this industry is narrowly defined as the microcomputer software industry – specifically companies writing software for IBM PC, PC compatible, and Apple computers) growing this rapidly would attract some hungry, experienced capitalists. These people took the form of senior engineers, venture capitalists, and MBAs. As the pool became more populated, the structure became increasingly chaotic. No longer was simply anyone able to succeed – competition began to play a significant factor. The rest of the business world took notice as software companies began going public, large companies started divisions that developed software, and Business Week ran feature articles on the software revolution.
As 1987 begins, the microcomputer software industry is entering adolescence. The organizational frenzy of the past is becoming less of a factor. Do not interpret this as a slowdown in activity – the software industry is busier than ever. It has merely taken on some structure. Methodologies for success are being established and are becoming the norm. The days of easy money for everyone are over.
If you substitute “Internet” or “Web 2.0” for “microcomputer software industry”, does is still work? (Entertainingly, whenever I try to type “microcomputer software” I end up typing microsoft first.)
Back when I was 21 years old I figured you had to start somewhere. Our business plan started with a “charter statement” which – in hindsight – was roughly equivalent to a vision statement.
Feld Technologies intends to become the industry leader in semi-custom software. It will do this by understanding and addressing all of the components of database application software for small businesses, thus defining the industry.
Feld Technologies is also a vehicle through which to tap the productive abilities of its founders, with the intent of creating a “world” for its employees.
The Company is established for their benefit. The Company will act as a mechanism to leverage the founders intellectual and implementational talents in an attempt to make them authorities in the software industry.
In 1987 the software industry was still pretty young (guess how big Microsoft was – if you don’t know, you’ll find out in the next post in the series. Hint – Lotus was about the same size.) So – it was probably conceivable to us that we could “define the semi-custom software” industry (since it didn’t exist). I remember spending a lot of time trying to figure out a unique label for what we were going to do (we hadn’t thought of Web 2.0 in 1987) and ultimately settled on “semi-custom software.”
We were young and idealistic so we were determined to “create a world for our employees.” While our world ended up being modest (we sold the business when we were 20 people), we did create something that was unique and impactful to the lives of most of our employees (including us). A little idealism never hurts. It’s not quite as pithy and elegant as “don’t be evil” but you get the point.
I periodically get questions from readers of this blog about business plans. I was pondering the best way to work through a “business plan series” (similar to the Term Sheet series and Letter of Intent series) when Dave Jilk – my partner in Feld Technologies (my first company) – dropped a few documents on my desk, including the original Feld Technologies business plan. A scanner, Adobe Acrobat PDF maker, and a little OCR later, I had the document in electronic format.
While I don’t read business plans anymore (executive summaries are enough for me), I believe the business plan is a critical document for an entrepreneur to organize his thoughts around his new business. In today’s world of excessive PowerPoint presentations, the art of sitting thoughtfully and writing out the plan has – in many cases – been lost. The best way to explain what should be in a business plan is to show one and, as I read through the original Feld Technologies plan, I was pleasantly surprised by the content. In many ways it is simplistic and reflects the relatively naive thinking of a 22 year old working on his first business. However, when I think about how Feld Technologies evolved, the document framed the business very effectively.
If you are looking for sex, violence, insider trading, hackers, and rock and roll, stick with Tom Evslin’s blook hackoff.com. If you want to see a late 1980’s business plan and some of my commentary along the way, enjoy. I’m going to go linearly through the plan – the actual plan text will be in purple so it’s easy to separate the plan text from my comments.
351 Massachusetts Avenue
Cambridge, MA 02139
April 28, 1987
This business plan has been submitted on a confidential basis solely for the benefit of selected, highly qualified individuals. It is not for use by any other person, nor may it be reproduced. By accepting delivery of this plan, the recipient agrees to return this copy to Feld Technologies at the address listed above when so requested by Feld Technologies. If a conflict of interest is perceived at any point, please return this plan immediately.
Confidential Plan Number: 01
Version Control Number: 1.029
Delivered to: Mr. David J. Jilk
Don’t forget the cover page. I know it sounds silly, but I can’t tell you the number of times I’ve received a plan or an executive summary without contact info, printed it out, and then been at a loss how to contact the person that sent it to me. My cover page was conspicuously missing my name (at least it had Feld on it) and my email address (I didn’t have one in 1987!) I called (617) 492–4642 to see who would answer – I got a modem. Finally, note that 351 Massachusetts Avenue was the address for ADP, my fraternity at MIT.
Tom Barrack is a legendary real estate investor that few people know about. The 10/31/05 Fortune has a good profile on him titled “I’m Tom Barrack and I’m Getting Out.” Barrack’s lead quote concerns polo, of which he is an avid player.
“I feel totally safe playing polo on a field full of pros, but when amateurs are all over the field, someone can get killed. They have more guts than brains. They charge after every ball and don’t know when to hold back.”
Of course, this applies broadly. Be careful out there – make sure you know who else is on the field with you.
As I’ve said in the past, I’m a long term fan of Warren Buffett. Many of you are also as I’ve received over 500 requests for the Annual Letters of Buffett Partnership, Limited, 1957 – 1970 over the past few months. As the Q205 filings roll in, I happened to notice the disclosure for the stock holdings of Berkshire Hathaway, which are as follows.
Company Class Value Shares Coca Cola Com $8,350,000,000 200,000,000 American Express Co. Com $8,070,237,000 151,610,700 Gillette Co. Com $5,112,617,000 100,980,000 Wells Fargo & Co. Com $3,476,090,000 56,448,380 Moody's Corp. Com $2,158,080,000 48,000,000 Wesco Financial Corp. Com $2,053,111,000 5,703,087 Washington Post Co. Cl B $1,442,736,000 1,727,765 M&T Bank Corp. Com $705,493,000 6,708,760 Shaw Communications Inc. Cl B $456,940,000 22,000,000 American Standard Cos. Com $440,072,000 10,497,900 First Data Corp. Com $346,208,000 8,625,000 Gap Inc. Com $304,826,000 15,434,243 Comcast Corp. CLA SPL $299,500,000 10,000,000 USG Corp. Com $276,250,000 6,500,000 Gannett Inc. Com $245,228,000 3,447,600 Costco Wholesale Corp. Com $235,011,000 5,254,000 Sun Trusts Banks Inc. Com $231,500,000 3,204,600 Nike Inc. Com $214,300,000 2,474,600 Iron Mountain Inc. Com $155,100,000 5,000,000 Tyco International Ltd. Com $146,000,000 5,000,000 Pier 1 Imports Inc. Com $113,520,000 8,000,000 Outback Steakhouse Inc. Com $82,283,000 1,818,800 Servicemaster Co. Com $75,195,000 5,611,600 Lexmark International Cl A $64,830,000 1,000,000 Sealed Air Corp. Com $55,431,000 1,113,300 Petrochina Co Ltd. ADR $48,404,000 659,000 Home Depot Inc. Com $36,760,000 945,000 Proctor & Gamble Co. Com $33,232,000 630,000 Mueller Industries Com $23,084,000 851,800 Comdisco Holding Co. Com $22,784,000 1,518,978 Lowe's Cos. Com $22,706,000 390,000 Dean Foods Co. Com $13,233,000 375,500 Total Value $35,310,761,000
While the old mainstays are predictable (and make up the majority of the value), the holdings in the $100m to $1b range are fascinating.