This time of year, many venture backed startups have created or are putting together their operating plan for 2010.
Few suggestions for early stage/pre revenue companies:
1. Start with the ending. What do you want to accomplish by the end of next year and why?
2. Set quarterly objectives
Quarterly objectives help your board identify what’s going well and not well at the company. Are the goals realistic? Are we understaffed? Do we have the right people in the company? Does the company execute well? Is the product on track?
Some early stage companies are hesitant to create quarterly objectives. I know it can be challenging for a few reasons: (a) some entrepreneurs are worried that they will look bad if they miss their objectives and (b) startups have to be flexible at times and priorities may need to change
My response to concern (a) take the time to pick your investors wisely. The best ones will help you and your company be successful. The worst investors suffer absentee landlord syndrome which is a nightmare.
In response to 2nd concern: have an open communication style and culture amongst your board members. Don’t wait until the board meeting to propose a big change in the plan or priorities. Early stage investors and board members understand that things will change. That’s part of the deal so don’t sweat it.
3. Operating Budget
For early stage/pre revenue companies, i suggest that you operate the business assuming you are going to miss your 2010 revenue forecast entirely or significantly. You can always spend more if revenue (or user engagement) grows nicely. But cutting is painful at best.
4. Fund raising
If you need to raise additional capital in 2010, assume you will need 4-5 months to raise money. Clearly there are exceptions but for most companies that is the general rule. Get some feedback from your existing investors what they want to see to support the next round.
