Tim Berry

Tim Berry

Tim is the founder of Palo Alto Software and bplans.com, the co-founder of Borland International, and the official business planning coach at Entrepreneur.com. He has been called the "Obi-wan Kenobe of business planning" and "The Father of Business Planning." He is a serial author of books and software on business planning.

Articles by Tim Berry

Power Pitches

What do Investors Want? Maybe What the World Needs?

Try this: take a step back from your phone, your FaceBook, and your daily routine, clear your mind, and think about the large-scale institutions that need change. What markets to disrupt?

It’s going on three years since Fred Wilson of AVC did this excellent Google talk on disruption. What markets really need disruption? He said consumer finance, energy, education, and health care.

I’ve read more than 100 business plans in the last 8 weeks, and considerably more than half of them promised either “disruptive” or “game changing.” One or two of them might me.

I’d say there’s been movement in consumer finance over the last three years, and maybe in energy, but not much at all in education and health care. A lot of sound and fury, perhaps, but signifying nothing. Lots of online courses, especially for adult education. Lots of universities offer online courses, led by the likes of Harvard, M.I.T, and Stanford, including a lot of online institutions and new ideas like Kahn Academy and udemy. But not of this does much to change the basic model of one teacher and two or three dozen students in a classroom.

To me it seems like nobody’s dealt well with the problem of keeping younger kids engaged and learning by some other means than the traditional model. Or the validation and certification that comes from diplomas and lots of hours sitting in seats. Do you agree?

And then there’ s politics. In the U.S., at least, politics doesn’t work. Wherever you stand on the political spectrum, I bet you agree that our system is totally obsolete on fund raising, advertising, issues discussion, partisan politics, and the actual voting mechanisms themselves. Do you agree with the need for disruption there too — the business of politics, if not the core of politics and political parties. And the business of political discussion, and issues?

What is still true today, as it has been for a couple of generations, is that truly disrupting a market can mean a huge business win. For startups and whoever invests in those startups.

Tim Berry , Founder, Palo Alto Software
May 15th, 2012 0

Power Pitches

Can You Find Investors for a Family-Based Team?

I had in interesting discussion at the University of Texas Venture Labs Investment Competition last week. One of the teams there included husband and wife and wife’s father, with a very interesting business plan that I hope succeeds. They asked me to what extent family ties affect angel investor or venture capital interest.

Why me? Presumably because my wife and I own our business and our daughter is CEO and her husband COO. We did raise venture capital for the business, but not until we didn’t need it. At the time we had more than $5 million in annual sales, no debt, and positive cash flow. 

Unfortunately, most investors look askance at a startup with family members working together. For example, I was once in a group of investors that automatically ruled out the best plan in the group because it was lead by two brothers. I objected, but I was a minority of one, in a group of two dozen. 

So should a family-led startup stop looking for investment? No. They should research their target investors carefully to rule out prejudice based on family business. That’s not just a special case. In fact, every startup that needs investment should be pitching only to investors who have basic compatibility of goals, industry experience, and ways of working together.

This is always good advice: Choose an investor like you would choose a spouse.

And for sibling teams, or spouses, or two generations, prepare some extra due diligence information to address investors’ legitimate doubts. Ask yourself how will you answer questions about decision processes and decision hierarchy. Do you cross conversations between family lines and business lines? Do you have a family business code of conduct? Can you show an organization chart with clearly defined areas of responsibility for the various family members? Can you talk about how this works in practice. 

You can also point out that there are also worries about lines crossing when friends create businesses together. And you can remind them of outstanding successful sibling or husband-wife teams like Heidi and Peter Roizen, Doug and Gary Carlston, and Michael and Xochi Birch. 

What investors want, in my experience, is a good investment with a good risk-return relationship and a reasonable shot at high growth, scalability, defensibility and successful exit. When family members have what it takes to make that happen, you have the advantages of loyalty, compatibility, and hard work. 

Tim Berry , Founder, Palo Alto Software
May 8th, 2012 0

Pivotal Moments

Disruption vs. Revenue Quandary and the Tech Bubble

I remember the first tech bubble well. True story: In 1998, one prominent online vendor — long since dead, by the way — was selling my company’s product for $66 when the distributor price was $76. Also true: In 2000, a would-be acquirer flirting with buying Palo Alto Software for its web traffic, but wanted to leave out our $5 million revenue stream because “that would lower valuation.” 

And yet, despite that memory, last week I found myself suggesting to a local web software startup that they might be better off scrapping their so-called business model and just aiming for disruption, not revenue. 

Theirs is of course a special case. I saw a demo last week. Their software, though not yet released, looked to me like it could so cool that it could go viral. By viral I mean remarkable in the popularized-by-Seth-Godin sense of something so good that users tell other users quickly. Every user generates additional users fast. And it could also be disruptive. By disruptive I mean really changing the way a lot of people do things. I’d like to tell you about the company but for reasons not worth spelling out that might be inappropriate until middle May. 

However, this is the second time in three months I’ve suggested to a software startup (different startups) that they might have to choose between being disruptive and charging money to cover costs. Which strikes me as dangerous advice. Hit it really big or go broke. It certainly heightens the risk. 

To make it interesting, I found Nick Bilton’s With No Revenue, an Illusion of Value on the New York Times bits blog last weekend. He argues the exact opposite point:

When this next bubble pops — and it will pop — the idea to make no money can finally pop, too. Then investors can start working with companies to build businesses that have long-term financial goals, instead of just building a short-term mystery.

However, uncertainty is a sign of intelligence. I think. Maybe. So I’m not sure. 

Still, look at the big winners of the last few years: Facebook, Twitter, and Instagram, for example. Valued in the billions of dollars. Entirely free to users. And, although Facebook now makes billions in revenue, revenue was not the point in the beginning. Revenue in fact would have killed their growth. Do you agree? 

So there’s the dilemma: disruption vs. revenue. 

That is, at least, until some big crash of publicly-traded stock and visible valuations of top-grade startups because fashions changed and analysts started liking revenue. If that ever happens. My favorite tech bubble analysis this week is by Chris Dixon, whose thoughtful piece here includes a nod to disruption vs. revenue: 

The argument that sometimes startups get better valuations without revenue is somewhat true. As Josh Koppelman said “There’s nothing like numbers to screw up a good stories.” This is driven by the psychology of venture investors who are sometimes able to justify a higher price to “buy the dream” than the same price to “buy the numbers.” This doesn’t mean the investors think they will invest and then get some greater fool to invest in the company again. For instance, at the seed stage, intelligent investors are quite aware that they are buying the dream but will need to have numbers to raise a Series A.

What do you think? Is a valuation crash coming? Does even asking the question make it more likely? 

(Note: I apologize for defining viral and disruptive when you already knew what I meant. I like to explain those jargon buzzwords when they come up.) 

Tim Berry , Founder, Palo Alto Software
May 1st, 2012 0

Invested Interests

Are Startups Now Changing the World Instead of the Web?

It’s too soon for rigorous data analysis. I don’t have surveys. But I’ve been through about 120 startup business plans in the last month and it seems like there’s a big shift. There’s a lot more science and a lot less web. There’s a lot more save the people, save the world, than there is save the web. surgery

I’m talking about what I’ve seen as a member of a local angel investment group and a judge at four business plan competitions. This is just anecdotal. Still … it’s been a long time since I’ve heard somebody promise the next Facebook, or next Twitter, or next Netflix.  Read more

Tim Berry , Founder, Palo Alto Software
April 24th, 2012 0

Invested Interests

Angel Investors: Watch for Business Plan Competitions

I just finished three days as a judge for the Rice University million-dollar business plan competition, which was held at the Rice campus in Houston last Thursday through Saturday. If you’re an angel investor and you aren’t aware of business plan competitions, maybe you should be.

The finals were very impressive. As the six finalist companies went through their pitches, every single one was a very attractive investment. If you’re curious, look at NuMat Technologies, the winner. Then look at Medtric Biotech, Lemm Technologies, SolidEnergy, Solanux, and Salveo Vascular, ranked second through sixth, respectively. You’ll see nothing there but high-end technology, innovations, intellectual property, experienced management teams, very impressive resumes, and huge markets. Read more

Tim Berry , Founder, Palo Alto Software
April 18th, 2012 0

Industry Experts

5 Traits Investors Look for in Entrepreneurs

What do investors look for in an entrepreneur? This month I’ve been reviewing submissions for my local angel group. I found this excellent list of 14 Ways to be a Great Startup CEO, posted at OnStartups by Jason Baptiste. And that reminded me of my own list, 10 Traits of Successful Entrepreneurs, which I posted a few years ago, before I joined the angel investing group. Both of those lists, against the background of what I’m doing this month, remind me that what makes a successful venture, or a successful entrepreneur, isn’t necessarily the same thing that makes a good investment opportunity for outside investors.

Hint: there’s a difference between a good business and a good investment. There are a lot more good businesses. A good business can make its entrepreneurs happy, while a good investment has to make the investors happy. Investors aren’t employees. They aren’t building themselves jobs. They need to get actual money back, sometime in the future, to get a return. Read more

Tim Berry , Founder, Palo Alto Software
April 10th, 2012 0

Power Pitches

Reflections on Reviewing 30 Plans on Gust.com in a Day

I was never one of those people who rushed to get everything done early. I’m as likely as you are to put things off. So this morning I’m looking at 30 plans on gust.com to be discussed this evening when we meet as the Willamette Angel Conference to take the first steps towards an investment decision in May. I started after dinner last night and I will have reviewed all 30 before I leave for the meeting in the late afternoon.

What does mean if you’re one of the plans submitted? Here’s what I think this process means to you the entrepreneur:

  1. My process and my procrastination is not unusual. A lot of investors are going to work like we do, using quick views not to select plans but to rule some out.
  2. I consider the information posted on gust.com sufficient to rule out a plan. Implicitly that means it’s also enough to take an initial 30 plans down to 10, 12, or 15 we want to look at in more detail.
  3. I’m immediately grateful to the startups that help me with this by using the gust.com feature of posting a short video to help me get acquainted. When it’s done well, it makes a good first impression. But a bad video doesn’t help, and I’m looking for the best investment, not the best video.
  4. What I want from the writing in summaries and descriptions and the business plan is for the document to not get in the way of the information.  I’m not critical of style unless it interferes. I want formatting to make it easy to read and find the information I want.
  5. I always want there to be a business plan available even if I’m not going to necessarily read it yet.
    • I’m definitely not going to start at the beginning of the plan and read to the end. But I want to have the plan available because I want to go from the general statements to specifics, so I’m likely to look for specific things in a plan.
    • What I look for depends on the plan itself, but to give you examples, I want to make sure a business-to-business startup understands the sales cycle and what receivables do to cash flow. And with a lot of plans I want to see the percentages in expenses. And with most I want to see founders’ salaries.
    • I’ll go into a plan quickly and I want to find what I’m looking for quickly and leave. Think of it like guerrilla plan reading. I’m going to be rating a startup lower if the information I want isn’t there or if I can’t find it.
  6. I say “yet” in point 5 above because although I’m comfortable eliminating a startup without reading its business plan, I will never invest in a startup without reading its plan. In our group we divide due diligence into teams and the team looking at a company will always read its plan well. Usually more than once.

I hope that my sharing here helps you if you’re on the other side of the table from me. If it makes you feel better, I started on your side of the table too.

Tim Berry , Founder, Palo Alto Software
March 28th, 2012 4