My prototype beat up your business plan


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The business plan is dead. Or at least that's the opinion of a panel Sunday morning at SXSW who posited that prototyping is now the way to go.

Business has shifted in the last few years. "It used to be about clearly articulating every step of the process you intended to take, embodied in a business plan," said moderator Kendra Shimmell, designer at Adaptive Path and board member for the Interaction Design Association. That was how you would explain to potential investors what you planned to do.

Is the business plan dead?

"I don't believe it's dead, but I also don't believe business plans are what people's preconceived notions of them are," said Jeffrey Kalmikoff, who has worked on everything from Threadless to Digg and now is VP of Product for SimpleGeo. Now it's about getting to build something as soon as possible. "Ideas are easy," he continued. "Figuring out how to make money from ideas is hard." If you're not thinking about monetizing, your prototype is going to be about features, and you're going to find yourself focused on that instead of how to make a profit.

Ade Olonoh, founder and CEO of Formspring, said that his company isn't making any money right now. He also disagreed with Kalmikoff in that you don't know which ideas are good and which are bad until you get them in front of users. "Figuring out how to monetize, once you have users, is more straightforward than getting millions of users to use your product," he said.

"The difference is between planning and a business plan," replied Kalmikoff. You can know what you're going to work about without having a business plan. "Business plans have sunk more projects early than prototyping," he said. Investors want to get something out to market as quickly as possible because that's what's in their best interest as investors. But that makes for less time to think about the details.

Then how about a prototype?

Formspring was well beyond a million users before they got investors. "Building a prototype and shopping that around, you can raise money," said Olenoh. "But it's in your best interest to have the opportunity to retool [your idea]. Ultimately you'll get more money." Investors don't even ask for business plans anymore, according to Kristian Andersen, founder of a design firm and angel investor. They ask for a prototype or a slide deck. "I've seen decks function as prototypes--visual prototypes that walk me through a set of actions," said Andersen.

In a larger organization, the role of a prototype is different from one in a startup. They might be a way to build consensus, or a way for you to find a partner. In a big company, it's more likely to be a way to explain to the company why they should take it on, or how the business could look in the future. And in any case, it's just that--a visual of the concept, not just a nebulous plan.

Kalmikoff gave Twitter as a great example of a great product that's really hard to explain. It's a pretty difficult concept to communicate to someone. Particularly imagine trying to explain it before anything like it had been launched. But if you can show someone what you want to create--show how it would work--even through wireframes or sketches, you can make the idea much clearer and be more flexible for change.

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5 Comments

Unidentified's picture

That's Kendra Shimmell, with 2 L's :)

suehle's picture
Open Source Sensei

Got it--thanks! And sorry. As you can probably imagine, I'm pretty sympathetic to name misspellings. :-)

Terri's picture

Do you think investors actually fund a seed-stage startup with a visual prototype?

suehle's picture
Open Source Sensei

Most of the panel seemed to feel pretty strongly that it was actually more effective to have the visual when seeking funding.

Opensource Development's picture

Thats an interesting post to read...Business plans are the really the one which governs the growth of the enterprise.