Getting to Plan B Quotes

“As best-selling author Jim Collins says, “When you’ve built an institution with values and a purpose beyond just making money—when you’ve built a culture that makes a distinctive contribution while delivering exceptional results—why would you surrender to the forces of mediocrity and succumb to irrelevance?”2”
― John W. Mullins, Getting to Plan B: Breaking Through to a Better Business Model

“As you also now know, pretty much everything has been done before. It’s just that no one has put the pieces—your analogs and antilogs and leaps of faith—together in the precise way that you plan to do. You’ll be standing on the shoulders of giants—those who have gone before you and learned, perhaps even succeeded, as well as others who have been slain.”
― John W. Mullins, Getting to Plan B: Breaking Through to a Better Business Model

“First, far too many business plans are written in the first burst of enthusiasm without a shred of real evidence to support their assertions. Simply put, most business plans are written too soon. Analogs, antilogs, tested hypotheses? Few or none. A telltale sign makes it easy to spot this problem. Sentences that begin with the phrase “We believe …” are dead giveaways. What the phrase “We believe …” most often means, in actuality, is “We haven’t a shred of real evidence about this, because we’ve been too busy writing this business plan to actually gather any evidence, but we hope that”
― John W. Mullins, Getting to Plan B: Breaking Through to a Better Business Model

“we are reminded of the words of General Dwight D. Eisenhower, on the merits and limitations of planning for the D-day landings: “Plans are useless, but planning is indispensable.”1 We don’t believe that your Plan A is useless, actually. But it’s probably off target in more ways than one,”
― John W. Mullins, Getting to Plan B: Breaking Through to a Better Business Model

“As we’ve seen in the Celtel story, a favorable working capital model—in tandem with thoughtful decisions about your revenue, gross margin, and operating models—can take lots of pressure off your investment model. In some cases, it can sharply reduce the investment you’ll need, or even eliminate it entirely.”
― John W. Mullins, Getting to Plan B: Breaking Through to a Better Business Model

“The Implications of Your Revenue, Gross Margin, and Operating Models for Your Working Capital Model: Timing Is Key By now it should be clear that the timing with which you ask your customers to pay for whatever it is that you sell them lies at the heart of your working capital model.”
― John W. Mullins, Getting to Plan B: Breaking Through to a Better Business Model

“two explicit connections among the five business model elements we’d like you to make. • Your revenue model, gross margin model, and operating model directly affect your working capital model. • In turn, these four models directly affect your investment model.”
― John W. Mullins, Getting to Plan B: Breaking Through to a Better Business Model

“Too often aspiring entrepreneurs and managers in established firms confine their focus to only one part of their company’s business model. The sales force worries about the revenue model, or if they are incentivized on gross margin, about the gross margin model as well. The procurement team focuses on the gross margin and operating models, by keeping costs down, whether for COGS or operations. And so on. But, ultimately, if everyone thinks about the business in business model terms, decisions are made differently.”
― John W. Mullins, Getting to Plan B: Breaking Through to a Better Business Model

“By producing its merchandise in Europe, Zara spent about 15 percent more on labor than its rivals did by manufacturing in low-cost labor markets.11 But the slightly higher manufacturing cost was more than offset by other benefits. Mike Shearwood, managing director of Zara UK, explained why: “The extra margin is superior because there is no wastage, no markdowns, and no problem of getting a collection wrong.”
― John W. Mullins, Getting to Plan B: Breaking Through to a Better Business Model

“the financial statements, rather than being a driver or goal of the business creation process, become simply the by-product of clear and disciplined strategic thinking. Analogs, antilogs, the leaps of faith that follow from them, and the well thought out dashboards that measure the outcomes of the hypothesis tests are what make this process happen. And the business model that results—a revenue model, gross margin model, and all the rest—is the output of the process.”
― John W. Mullins, Getting to Plan B: Breaking Through to a Better Business Model

“Each of these stories shares three common themes: • The business model grew out of a customer-focused strategy. The key benefit to be offered to customers—the customer promise—was crystal clear at the outset and remained so. • The founder created a thoughtful combination of two or more business model elements—a strategy for the business—that was fundamentally different from current industry practices, the industry’s existing Plan A. • The strategy had favorable implications for generating and sustaining positive cash flow thereby enabling the founder to rapidly grow the business, too.”
― John W. Mullins, Getting to Plan B: Breaking Through to a Better Business Model

“In our experience, the principles in this chapter—minimizing the capital you need, staging its commitment, using analogs from outside your industry, and so on—hold for ventures inside large companies as they do for raw start-ups. The same logic applies.”
― John W. Mullins, Getting to Plan B: Breaking Through to a Better Business Model

“Ideas, as the saying goes, are a dime a dozen. An idea that has been at least partially proven, with the concept shown workable and a few customers on board, is a whole different animal. Simply put, the farther along you are, the lower the risk.”
― John W. Mullins, Getting to Plan B: Breaking Through to a Better Business Model

“As you build your investment model, don’t let your first draft be your last. Think twice—and then twice more—about the cash you’ll need to get started and to get to break-even cash flow. Then consider how you can put a bold red line through each of the items. Can you borrow it? Lease it? Delay it? Outsource it for less cash up front, even if it costs a bit more? Or even get somebody else to pay for it? Can you turn fixed costs (which increase your risk of running out of cash) into variable costs, even though doing so will cut profit margins, at least in the short term?”
― John W. Mullins, Getting to Plan B: Breaking Through to a Better Business Model

“all over again? As Randy points out to his students and to the companies that his fund invests in, the best venture capitalists add significant value through their networks and their experience, alongside their capital. They also reduce risk by having learned how to build companies from scratch.”
― John W. Mullins, Getting to Plan B: Breaking Through to a Better Business Model

“As John tells his students, “The day you take a dollar or pound or rupee from most venture capital investors is the day you have agreed to sell your business.” Why? Investors, perhaps unlike you, aren’t in it for the ride. They are in it for the liquidity, most commonly achieved by selling your (and their) company, as happened in both of the cases in this chapter. They sold Skype to eBay and Go to easyJet.”
― John W. Mullins, Getting to Plan B: Breaking Through to a Better Business Model

“Thus, for entrepreneurs, asking for £25 million up front, as Cassani did, is usually a bad idea. Why? All the risks lie ahead of you, and your investors will want to be compensated for those risks through a larger stake in your company. Staging your investment so that more capital comes in after key leaps of faith are tested and milestones met will probably leave you and your team with a larger share of the company than if you ask for too much cash too early. Perhaps more important, if Plan A does not work and you must move on to Plan B, you’ll have a better chance of raising more capital if you’ve not already burned too much of it. Who wants to give money to someone who goes through capital like it’s water?”
― John W. Mullins, Getting to Plan B: Breaking Through to a Better Business Model

“We said at the beginning of this chapter that a key goal of any investment model is to find a way to get the business started and to cash flow breakeven with as little investment as possible, while including some cash cushion for iterating to Plan B. There are exceptions to this rule, such as where network effects are central to the strategy, as for Skype; where economies of scale make it necessary to “get big fast,” as we’ll see in the Amazon case in chapter 8; and where a competitive footrace must be won. In such cases, raising more capital may be in order. But generally, whether it’s your money or others’, leaner is usually better. So, since money doesn’t grow on trees, what are the lessons for building your investment model?”
― John W. Mullins, Getting to Plan B: Breaking Through to a Better Business Model

“Finally, Cassani’s team knew that a viable investment model must not only minimize or offload the costs of getting started. It also had to minimize early operating losses until breakeven was reached. All too often, entrepreneurs or those starting ventures inside big companies assume that profits will ensue almost from day one. It’s a fantasy, we’re sorry to say. You must include in your thinking about your investment model the losses you will incur until you reach cash flow breakeven, your burn rate, as venture capital investors call it. And as any experienced entrepreneur or investor will tell you, it will probably take twice as long, and three times as much money, as you expect!”
― John W. Mullins, Getting to Plan B: Breaking Through to a Better Business Model

“The Go story provides a useful reminder that some of the most instructive analogs—First Direct, in Go’s case—don’t have to come from your own industry. And analogs from outside your industry are less likely to have been noticed and copied by your competitors. Everyone in the airline industry already knew about Southwest and Ryanair. But First Direct’s low-cost but friendly service model was something quite different, an inspiration for Barbara Cassani and her team and a key ingredient in Go’s ability to attract and retain its early customers.”
― John W. Mullins, Getting to Plan B: Breaking Through to a Better Business Model

“Cassani and her team were thrifty, spending no more than necessary to get things done. The £25 million, Cassani knew, wouldn’t last long. She rented office space from BA’s pensions department, “then we begged and borrowed some bashed equipment and sorted a single telephone line. We were able to get the secondhand desks and chairs from another British Airways subsidiary, Air Miles, for almost nothing.”23 Cost containment was paramount: “Between cramped offices, secondhand furniture, no company cars, no free parking, outsourcing and general penny-pinching, we developed an enduring low-cost culture in Go.”24 Following Southwest’s and Ryanair’s analogs, Boeing 737 aircraft would comprise the entire fleet.”
― John W. Mullins, Getting to Plan B: Breaking Through to a Better Business Model

“It’s almost always better, as an entrepreneur, to have proven some leaps of faith before raising major money, because doing so cuts your and your investors’ risk. In turn, that means you get to keep more of your company’s equity than you would if you need investors’ capital for the earliest tests.”
― John W. Mullins, Getting to Plan B: Breaking Through to a Better Business Model

“Minimizing the need for investment applies principally to the spending side of the investment equation—figuring out how your business can get by on less capital. On the capital-raising side of the equation, the story is actually a bit different, since, as we’ve seen, your Plan A is not likely to work, right out of the box. There are leaps of faith you’ll need to answer through your dashboards. And some of them won’t yield the results you expect. As you iterate your way toward a more viable Plan B, you’ll almost inevitably find that it will take you more money to get there than you will have imagined initially. So raising more capital than you think you will need is almost certainly a good idea. How much more? That’s a function of your own attitude toward risk and reward, knowing that the more capital you raise, the more of your company you’ll have to give up to investors.”
― John W. Mullins, Getting to Plan B: Breaking Through to a Better Business Model

“But because the timing issues are inherently linked to revenue model and operating issues, it’s worth your while, as you think about analogs, antilogs, and leaps of faith in those arenas, to add timing to your questioning early in your dashboarding process. Changing the timing of cash flows can shake up an industry, as the Costco story indicates. And, as the Dow Jones story indicates, getting subscription money up front is another good way to go. Could your business offer subscriptions for what you or your competitors now sell in another”
― John W. Mullins, Getting to Plan B: Breaking Through to a Better Business Model

“Astute readers may have noticed that Dow Jones’s working capital model was implemented, in reality, by asking subscribers to pay up front. That’s a revenue model issue, too, isn’t it? Right you are. Costco’s working capital model was driven largely by membership fees paid up front—a revenue model issue—that in turn enabled it to adopt a gross margin model with low, low prices and razor-thin gross margins. So why do we see these cases as working capital stories? We’ve placed the Dow Jones and Costco cases in the working capital chapter because their working capital models lie at the heart of their long-running success. In their essence, working capital models are about the timing with which cash flows into and out of the business. In most industries, that means the timing with which customers pay, the timing with which suppliers are paid, and the timing or speed with which inventory (or piles of other current assets) can be turned over and over again.”
― John W. Mullins, Getting to Plan B: Breaking Through to a Better Business Model

“Finally, we’ve seen that if you don’t really need much in the way of profits, you can drive your competitors—who probably rely on them to earn their ROI—crazy. A negative working capital model drives down the denominator of the ROI formula, thereby enabling you to live with a smaller numerator as well.”
― John W. Mullins, Getting to Plan B: Breaking Through to a Better Business Model

“As retail consultant and author Michael Silverstein explains, these consumers are happy to pay for upscale items that “make their hearts pound” and for which they don’t have to pay full price. Then they trade down to cheaper private labels for things like paper towels, detergent, vitamins, and other household staples. “It’s the ultimate concept in trading up and trading down,” says Silverstein. “It’s a brilliant innovation for the new luxury.”
― John W. Mullins, Getting to Plan B: Breaking Through to a Better Business Model

“But getting low prices from vendors didn’t mean that Costco would fatten its margins. On the contrary. Sinegal insisted that no item could be marked up to a gross margin over 14 percent (contrast that with supermarkets and department stores, which carried 20 to 50 percent gross margins across their various categories of merchandise, maintaining average gross margins between 20 and 25 percent).21 Discount stores like Kmart and Target had even greater average gross margins across their product mix, ranging from 25 to 30 percent. These were the antilogs Sinegal wanted to beat.”
― John W. Mullins, Getting to Plan B: Breaking Through to a Better Business Model

“Sinegal wanted to have more than his working capital cake, however. He wanted to eat it too. Costco’s working capital model let it get away with razor-thin overall profit margins, since earning an attractive return on investment when your investment is near zero (thanks to negative working capital) can be accomplished with very modest profits (recall the ROI formula at the outset of this chapter). So Sinegal passed on to his customers the benefit—in lower prices—of the lower margins he could afford. He was underselling his competition, all the while growing the business on its customers’ cash.”
― John W. Mullins, Getting to Plan B: Breaking Through to a Better Business Model

“Costco cofounder and CEO James Sinegal recalls—and lives by—Sol Price’s principles. “Many retailers look at an item and say, ‘I’m selling this for ten bucks. How can I sell it for eleven?’ We look at it and say, ‘How can we get it to nine bucks?’ And then, ‘How can we get it to eight?’ It’s contrary to the thinking of a retailer, which is to see how much more profit you can get out of it. But once you start doing that, it’s like heroin.” There was another element, too. “You had to be a member of the club. People paid us to shop there.”
― John W. Mullins, Getting to Plan B: Breaking Through to a Better Business Model