Business Plan Financial Models: A Mathematical Proof

Over the past 10 years I’ve worked on a lot of business plans.  First as a student, then as a product manager and as a coach to young entrepreneurs.

In every business plan that I’ve worked on or reviewed, there has been one common theme: the financial model was completed last and got the least amount of attention.

This past weekend I was re-reading some portions of McGrath’s Product Strategy in High Technology Companies and he reminds us that treating the financial model as an afterthought is, of course, not the right way to do it.

McGrath describes the financial portion of a business plan in an interesting way – he sees it as a mathematical proof that the business described in the plan will generate positive return over time.

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The Way the World Changes

Among many other things, this election cycle has called attention to a very old gender dynamic in the United States.  Whether it was commentary on the way the candidates were dressed, their physical posture during each of the debates, or the discussion of a very disturbing leaked audio tape.  The way that men treat women is now at an appropriately elevated level of national attention.

And this attention has had an impact far beyond the election.

Recently, Harvard University announced that they had cancelled their men’s soccer season after the team published a lewd report on the attractiveness of several members of the women’s team.  The women who were featured in the report wrote an inspiring joint response to the report, and as if the implication wasn’t already clear, the women titled their response “Stronger Together”.

All of this has really made me think very critically about the topic of gender relations.  It’s also made me think very carefully about my own behavior.  Since high school I’ve identified with being a feminist (that is – believing that men and women should have equal rights) but have I really lived up to that ideal?

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Nothing Left to Prove

Whether it’s writing a business plan, conceptualizing new product, pitching a major prospect, or troubleshooting a piece of technology, at many points in my career I’ve found myself doing something for the first time.  Often times it’s also something that’s totally new for the company, like launching a new line of business.

I love being in this position.  It’s exhilarating.  Doing new things helps me learn and grow the fastest and also helps maximize my impact on the company.  It’s really where I always strive to be.  And whenever I’m in these types of positions I always feel the same thing:

A burning passion to prove myself.

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Warren Buffet’s Prioritization Strategy

Part of working at any high growth technology company is juggling a lot of competing priorities.  To be clear, having a lot of opportunities is a good thing – it means the business is growing and the company is thriving.  However, if you’re not careful, trying to do too many things at once can leave you spread too thin and not really doing anything well.

Add a 1-month old child to the mix – and you can probably guess why I’m thinking about prioritization this week.

I wrote about Essentialism a few months back, but I still felt like I was missing a practical tool for forcing prioritization.

I was chatting with my friend and colleague Justin Pines about this very topic last week and he recommended I read James Clear’s post about Warren Buffett’s “2 list” strategy for prioritization.

The post is fairly short and simple.  It describes an encounter between Warren Buffet and one of his employees, Mike Flint.  Buffet asks Flint to write down his top 25 priorities on a piece of paper.  Simple enough to start.  Given a few minutes, I’m sure we could all write down a list of 25 priorities.

Then Buffet asks Flint to review the list of 25 and circle only his top 5 most critical priorities.

This leaves flint with two lists of priorities: his “top 5 list” and then a list that contains priorities numbered 6-25.

Initially Flint declares that he will get right to work on his top 5 priorities, while at the same time trying to accomplish some of the things from his other list as well.  From here I’ll quote directly from James Clear’s original post (it’s Flint talking to start):

“Well, the top 5 are my primary focus, but the other 20 come in a close second. They are still important so I’ll work on those intermittently as I see fit. They are not as urgent, but I still plan to give them a dedicated effort.”

To which Buffett replied, “No. You’ve got it wrong, Mike. Everything you didn’t circle just became your Avoid-At-All-Cost list. No matter what, these things get no attention from you until you’ve succeeded with your top 5.”

“Avoid-At-All-Cost list”

When those words hit me, a little something in me changed.

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Selling Tech to Businesses

I’ve been very lucky over the past three weeks to have some time off from work to bond with my new son Jack (thanks to AppNexus’ generous paternity leave policy).  Although not sleeping very much, he’s really doing great (and thanks to everyone who gave me baby advice following last week’s post!)

I’ve also taken some time this week to re-read one of my favorite business books – Clayton Christensen’s The Innovator’s Solution.

While reading through the book, I’ve been thinking a lot about how to successfully sell technology to business customers.  It’s really one of the holy grails of the tech industry – creating a product that customers want so badly they knock down your door to buy it. Ideally that technology comes in the form of a product that you can also sell profitably, at high scale, and with low variable cost.

So how do you pull this off?  What’s the magic formula that allows tech companies to succeed?

According to Christensen, the secret is really two things. (more…)

The First Two Weeks of Life

Almost exactly two weeks ago, my wife Miranda and I were blessed to bring our son Jack into this world.  Well, I guess she did most of the work, but I was there and felt quite involved the whole time.

We arrived home from the hospital a week ago Wednesday and started our new life as a family of three.  What we found when we got home was something no one had prepared us for.

See, when we brought our newborn Jack home from the hospital, I thought, at first, that we were bringing home a baby (you might have thought the same thing if you were in my position).

However, I was wrong.

We didn’t bring home a baby – we brought home a puzzle.  A living, breathing puzzle.

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Running a Website Business is Really, Really Hard and Google Makes All of the Money

Two weeks back*, Brian O’Kelley wrote the second part of his Forbes series entitled “Can Technology Save Journalism.”  The article, which is very good, talks about some of the problems facing digital publishers today – namely that they don’t make much money, and a good chunk of the money they do make ends up in the hands of Google and Facebook.

As a product manager on the buy side of the ad tech industry, I spend a lot of time thinking about how advertisers can more efficiently reach their audiences.  However, it’s also important to realize that on the other side of that transaction is an ad-supported website business that is probably struggling to get by (or even operating at a loss).

To illustrate this issue, let’s take a look at this blog (the one you’re reading right now).  As you’ve probably noticed, I don’t put ads on the site and I’m not trying to generate ad revenue, but let’s pretend like I was.  How profitable would this blog be as an ad-supported business?

Surely there are advertisers out there that want to talk to readers of this blog – you are all intelligent successful people, right?  I must be sitting on a goldmine!  Ok – let’s do some math to figure out how much money I could make. (more…)

My 9/11 Story

Today is the 15th anniversary of the September 11th terrorist attacks.  As I do every year, I spent a little bit of time in quiet reflection, thinking about that day back in 2001 and how the world has changed since.  Today, I also read Politico’s excellent piece, “We’re the Only Plane in the Sky,” which walks through the morning and afternoon of 9/11 from the perspective of the President’s staff and support crew.  It’s long, but very good.

It made me think about my 9/11 story.  I was lucky, my story is not very exciting.

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The (Hypothetical) Case for Donald Trump

So, to start, let me be clear: I do not personally think that Donald Trump should be president.

Actually, I don’t intend for this to be a political commentary at all. It’s more of a thought experiment.

As a New Yorker, I rarely run into people who support Trump.  Most people here dismiss his legitimacy.  He’s crazy, he’s a lunatic, etc… Some of that is probably warranted. However, one of the things I like most in life is understanding the perspective of different people. It can be easy to dismiss people at face value and jump to conclusions, it’s much harder to truly understand the situation. Part of being a product manager is digging deep and really understanding what other people are thinking – even if you don’t share any personal characteristics with them.

So, here we go: the best explanation for why Donald Trump should be president.

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Being a Good Operator

I’ve recently been introduced to the concept of being a good “operator” in business. I’d heard the word before, but never really understood what it meant. I’ve thought a lot about leadership and management in the past, but being an operator is a bit of a unique concept.

When it comes to being a good operator – there are two things that matter most:

  • Keeping a firm view on the high-level business metrics (KPIs) that drive your business.

These are the same metrics that an investor or an analyst would look at to determine the health of your business. For example – revenue, cost of revenue, gross margin, employee turnover %, # of deals in the pipeline, days sales outstanding, revenue per employee, etc.

  • Deeply understanding the industry trends, resources, people, processes and values that drive each of those high-level business metrics.

What levers can you pull, incentives can you change, projects you can start that will actually impact your high-level business metrics. Which of those high-level business metrics are easy to change and which are hard? Which can be impacted quickly and which ones take a very long time to change?

The key to being a good operator is maintaining a firm view of the high-level business metrics that are driving your business, while at the same time deeply understanding the activities, trends and people who are driving each of those numbers.

Further, a good operator understands what the high-level numbers need to look like in order for their business to be successful and they understand what needs to happen in order for those numbers to look the way they want.

Most people can only do one or the other.

There are people who can define the high-level metrics that matter, and there are other people who know how to manipulate the business to change the numbers.

It’s a very rare person, a true operator, who can really do both.