Scott Teger
  • Co-Founder, VP of Operations @ 36 Labs

I Started this Business on a Napkin!

When you start a business, you are actually bringing a new entity to life. In fact, most company structures have the exact same legal rights and responsibilities as a natural person. Just as you would imagine, a similar level of care and respect goes a long way in deciding to form your new company as you would a new life.

As a responsible future business owner, you should carefully decide on these key points before you bring your “baby” into the world. Break out a napkin, a piece of scrap paper, that new notebook your bought for ideas, or open your laptop and make sure you are thinking with the right frame of mind.

Answer these 3 questions;

What problem does your business hope to solve?

How will your business make money?

Who are the people that you will solve this problem with?

Let’s take a deeper look…

What problem does your business hope to solve?

This is your idea. This should be the primary thought that keeps you up at night. In general terms, a business needs to solve a problem. The problem and its solution does not need to be unique or elegant, but it does need to satisfy the needs of customers in some way that they are willing to pay for it.

Your Value Proposition is the angle at which you will approach your solution to this problem. This is your elevator pitch, the answer to ‘what do you do’ or ‘how you will do it better.’ A short, simple, unique, and interesting description will pique the interest of the audience.

How will your business make money?

You do not need to be an accountant, have an MBA, or be a member of Mensa to figure this one out. That is not to say one of those disciplines would not be more thorough, but it is highly likely that no one will know these numbers better than you. Simple math and thinking through the cost and expenses of your idea for the first few months or year will give you a clearer picture on what it takes. If you are up to it, a few hours in Excel can go really far and be the start to your first model that will evolve when you hit the ground running.

Keep this thought process short and to the point without too much noise. As sure as you are reading this sentence, this will change or evolve. It is good to be as accurate as possible, but since this is not an exercise in accounting or paying taxes, it is not critical to be perfect at this stage. Especially since most of your ‘getting started’ numbers are educated guesses based your gut, research, the market, or a relatively arbitrary combination.

This is your first look at the potential look into the viability of your idea. The ideas put on paper here in financial terms are only for you and your business partners, and it should be as pragmatic and realistic as possible. This is where you will come to an understanding with the financial risk you are going to endure and for how long. The thought process here should leave you with understanding how long you will NOT make money for, as well as, if and how much money you may need to raise from your own assets/credit, friends, family or investors. Save the blue-sky thinking for them, for now be cautiously optimistic but as realistic as possible.

Who are the people that you will solve this problem with?

Of the three key points described here, this one deserves serious attention. The others are malleable with pivots, pricing, and product development. Equity is costly at any stage. In many ways, starting a business with business partners is a form of marriage, and in some ways it is even more extreme (such as the amount of time you spend together). There are qualities associated with great business partners, as well as some shortcomings that will surely lead to disaster if not handled correctly from the beginning… or avoided.

If you have uncertainty now — rest assured when the business has any stress (sometimes even good stress), they will blow up exponentially into problems you cannot imagine.

That is not to say going at it alone is always a sure bet. The solo entrepreneur faces a lonely world. Many times they will come across problems and situations that the only people that they can even share with or relate is the competition.

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As simple as it is, this is your informal business plan. And most likely a plan you have thought about for quite some time, and would not take more than a few hours to write them out. And hopefully you take the time to write them down at this phase. At a minimum, in three years when your cash is flowing and you are used to the daily life of an entrepreneur, you can tell your friends you started this business on a napkin!