Pmarca, part 7: Why a startup’s initial business plan doesn’t matter that much

The Pmarca Guide to Startups, part 7: Why a startup’s initial business plan doesn’t matter that much

Jul 31, 2007

A startup’s initial business plan doesn’t matter that much, because it is very hard to determine up front exactly what combination of product and market will result in success.

By definition you will be doing something new, in a world that is a very uncertain place.  You are simply probably not going to know whether your initial idea will work as a product and a business, or not.  And you will probably have to rapidly evolve your plan — possibly every aspect of it — as you go.

(The military has a saying that expresses the same concept — "No
battle plan ever survives contact with the enemy."  In this case, your
enemy is the world at large.)

It is therefore much more important for a startup to aggressively seek out a big market, and product/market fit within that market, once the startup is up and running, than it is to try to plan out what you are going to do in great detail ahead of time.

The history of successful startups is quite clear on this topic. 

Normally I would simply point to Microsoft, which started as a
programming tools company before IBM all but forced Bill Gates to go
into the operating system business, or Oracle, which was a consultancy
for the CIA before Larry Ellison decided to productize the relational
database, or Intel, which was a much smaller company focused on the
memory chip market until the Japanese onslaught of the mid-80’s forced
Andy Grove to switch focus to CPUs.

However, I’ve recently been reading Randall Stross’s marvelous book about Thomas Edison, The Wizard of Menlo Park.

Edison’s first commercially viable breakthrough invention was the
phonograph — the forerunner to what you kids know as the record
player, the turntable, the Walkman, the CD player, and the IPod. 
Edison went on, of course, to become one of the greatest inventors and
innovators of all time.

As our story begins, Edison, an unknown inventor running his own
startup, is focused on developing better hardware for telegraph
operators.  He is particularly focused on equipment for telegraph
operators to be able to send voice messages over telegraph lines.

Cue the book:

The day after Edison had noted the idea for recording voice messages
received by a telegraphy office, he came up with a variation.  That
evening, on 18 July 1877, when [his lab’s] midnight dinner had been
consumed… [Edison] turned around to face [his assistant Charles
Batchelor] and casually remarked, "Batch, if we had a point on this, we
could make a record of some material which we could afterwards pull
under the point, and it would give us the speech back."

As soon as Edison had pointed it out, it seemed so obvious that they
did not pause to appreciate… the suggestion.  Everyone jumped up to
rig a test… within an hour, they had the gizmo set up on the table…
Edison sat down, leaned into the mouthpiece… [and] delivered the
stock phrase the lab used to test telephone diaphragms: "Mary had a
little lamb."

…Batchelor reinserted the beginning of the [strip on which the
phrase had been recorded]… out came "ary ad ell am."  "It was not
fine talking," Batchelor recalled, "but the shape of it was there." 
The men celebrated with a whoop, shook hands with one another, and
worked on.  By breakfast the following morning, they had succeeded in
getting clear articulation from waxed paper, the first recording medium — in the first midnight recording session.

…The discovery was treated suprisingly casually in the lab’s notebooks…

It was a singular moment in the modern history of invention, but, in
the years that would follow, Edison would never tell the story the way
it actually unfolded that summer, always moving the events from July
1877 to December.  We may guess the reason why: in July, he and his assistants failed to appreciate what they had discovered
At the time, they were working feverishly to develop a set of working
telephones to show their best prospect… Western Union… There was no
time to pause and reflect on the incidental invention of what was the
first working model of the phonograph…

The invention continued to be labeled in the notebooks with the
broader rubric "speaking telegraph", reflecting the assumption that it
would be put to use in the telegraph office, recording messages.  An
unidentified staff member draw up a list of possible names for the
machine, which included: tel-autograph, tel-autophone, "chronophone =
time-announcer = speaking clock", "didaskophone = teaching speaker =
portable teacher", "glottophone = language sounder or speaker",
"climatophone = weather announcer", "klangophone = bird cry sounder",
"hulagmophone = barking sounder"…

…In October 1877, [Edison] wrote his father that he was "at
present very hard up for cash," but if his "speaking telegraph" was
successful, he would receive an advance on royalties.  The commercial
potential of his still-unnamed recording apparatus remained out of
sight…

[A description of the phonograph in Scientific American in early
November] set off a frenzy in America and Europe.  The New York Sun was
fascinated by the metaphysical implications of an invention that could
play "echoes from dead voices".  The New York Times predicted [in an
eerie foreshadowing of their bizarre coverage of the Internet in the
mid-1990’s] that a large business would develop in "bottled sermons",
and wealthy connoisseurs would take pride in keeping "a well-stocked
oratorical cellar."

…Such was the authority of Scientific American’s imprimatur that
all of this extraordinary attention was lavished not on the first
working phonograph made for public inspection, but merely a description
supplied by Edison’s assistant.

By late November, Edison and his staff had caught onto the phonograph’s commercial potential as a gadget for entertainment
a list of possible uses for the phonograph was noted [by Edison and his
staff], assembled apparently by free association: speaking toys (dogs,
reptiles, humans), whistling toy train engines, music boxes, clocks and
watches that announced the time.  There was even an inkling of the
future importance of personal music collections, here described as the
machine for the whole family to enjoy, equipped with a thousand [music
recordings], "giving endless amusement."

…The first actual model, however, remained to be built… On 4
December 1877, Batchelor’s diary laconically noted, "[staff member John
Kruesi] made phonograph today"; it received no more notice than the
other entry, "working on speaking tel", the invention [for telegraph
operators] that continued to be at the top of the laboratory’s research
agenda…

…On 7 December 1877, [Edison] walked into the New York office of
Scientific American, placed a small machine on the editor’s desk, and
with about a dozen people gathered around, turned the crank.  "How do
you do?" asked the machine, introducing itself crisply.  "How do you
like the phonograph?"  It itself was feeling quite well, it assured its
listeners, and then cordially bid everyone a good night…

…Having long worked within the world of telegraphic equipment,
[Edison] had been perfectly placed to receive the technical inspiration
for the phonograph.  But that same world, oriented to a handful of
giant industrial customers, had nothing in common with the consumer
marketplace…

The story goes on and on — and you should read the book; it’s all like this.

The point is this:

If Thomas Edison didn’t know what he had when he invented the
phonograph while he thought he was trying to create better industrial
equipment for telegraph operators…

…what are the odds that you — or any entrepreneur — is going to have it all figured out up front?

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