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

Invested Interests

Who Makes the Money on an Inevitable Shoe Dropping?

Last weekend I caught Mashable announcing that Ebook Sales Surpass Hardcover in the U.S., something I’ve expected since I first bought a Rocket ebook reader about 10 years. And in January I saw that digital music overtook physical media for the first time in 2011, something I expected since 1998. In both cases what surprises me is not that it happened, but how long it took. And what interests me is who makes the money on timing these trends. 

I think I’m an innovator myself, but I know I’m not an opinion leader. I have the purchase history to prove it. I bought the Rocket eBook Reader in 1999. I bought the Diamond Rio mp3 player in 1998. Both products were innovative leaders. Both were brought out well before the right time. Both were discontinued years ago. And, I think but can’t prove, both were business failures. God help the investor who has my sense of what’s coming for the future. It seems to take much longer than I ever imagined. 

What does this tell about first-mover advantage? The ebook reader finally took off roughly 10 years later when Amazon.com and Apple converged on it with hardware and content. The mp3 player took off just a couple of years after the Diamond Rio. 

I used to think you could use convenience and common sense to predict markets. One of my earliest excursions into market research was working for a research firm doing a 1979 forecast on ATMs. I said they were very convenient and would grow like weeds. Banking experts said people wouldn’t trust their money to machines and wanted personal attention inside the bank, with the tellers. Guess who was right with that one? 

But convenience alone doesn’t do it. There are other factors. 

Amazing fact: I bought a first-generation iPod for close to $400. It had eight gigabytes of storage. It connected via firewire, not USB. And it made Apple tons of money. Some say it changed Apple from failure to success. 

Investment and startups problem: we all want disruptive and game-changing businesses. We think it’s a matter of products, but history shows us it takes more than just products and technology to create the sweeping changes. Somewhere in the mix, timing matters a great deal and first isn’t often the most significant mover advantage. There’s also timing and trends, leadership, luck, and maybe even marketing. 

All of which brings me back to the question in the title: who makes the money on investing in future convenience?  

Tim Berry , Founder, Palo Alto Software
June 19th, 2012 3

Power Pitches

Read ‘Painting with Numbers.’ Please.

If you’re doing investment pitches, you should read this book. If you’re doing a pitch I’m going to see, I want you to have read this book. And if you’re a startup CFO, finance lead, bean counter, or presentation slide deck preparer, then you should read this book. Painting with Numbers, by Randall Bolten. And it has a subtitle that exactly explains why I recommend it: 

Presenting Financials and Other Numbers So People Will Understand You. 

The bad news: it’s produced like a textbook, and laid out like a textbook, and priced like a textbook, $28.00 for the hard copy and $19.99 for the Kindle edition. 

The good news: 

  • It includes a good practical treatment of how to do it with spreadsheets and slide decks. It has lots of tips and lots of examples. 
  • It also includes some really important discussion of why terms and details matter. 

I’ve deal with people who think GAAP (generally accepted accounting principles) and terminology are nits that only nit pickers care about. Numbers are numbers, after all. But in the real world, when you get to business numbers, sales are not accounts receivable and revenue isn’t income and people who read financial projections need to know that an apple is an apple, and not an orange. 

Bolten does a really good job on why, what, and how to present numbers, just as in his subtitle, so people will understand you. And I think this topic matters. 

Tim Berry , Founder, Palo Alto Software
June 13th, 2012 1

Invested Interests

Mark Suster’s “Never Negotiate Piecemeal”

Nothing tells a truth better than a good story. Especially when it’s true. Read Mark Suster’s Never Negotiate Piecemeal. Here’s Why on his Both Sides of the Table blog for a good read and a good lesson.

He tells the story of his baptism by fire in startup-dom, a series of negotiations including office rent, sublet, getting people on board, getting the media to care, dealing with recruiters, dealing with the tech prima donnas, and (a favorite of many) “dealing with pesky VCs.” He summarizes:

As unpleasant as people find the thought of it – life is a negotiation. And no life is more of a constant negotiation than that of an entrepreneur. And most of us start with zero training. One of the big mistakes I used to make (and still sometimes do, frankly) was to negotiate piecemeal. I think it actually comes naturally to the uninitiated and it’s suboptimal.

Then he introduces Stuart Lander, who taught him a lesson. But before we get to the lesson, I just plain like this intro into his negotiation strategy:

Like a machismo first-time CEO I thought I should handle the negotiation myself. Their CEO was equally bravado and dumb. He openend with his first issue. I listened to why he didn’t agree to that particular term and what he preferred in stead. Like the problem solver I had been trained as in my software development days, I parsed his issue. I saw where he was coming from and from our side why our ask was what it was. I talked too much. I looked for middle ground. He talked too much. He haggled with me. We both felt good. And smart. We agreed a compromise. Then on to the next issue.

Stuart, however, had a better idea. Don’t negotiate point by point. Negotiate by line. He said (key thought here):

If you negotiate piecemeal you end up compromising on everything. That’s not very smart.

So he came up with this instead:

The problem with negotiating piecemeal as Stuart taught me is that you trade on every item. You don’t prioritize the issues which you really care about. If you don’t want to give a millimeter on one item you have a hard time doing that point-by-point. Done as a “package deal” you can say, “I gave in on these 5 issues that you asked for. On this issue I can’t give.” That’s much harder to pull off piecemeal.

I like that. It seems like good advice to me.

Tim Berry , Founder, Palo Alto Software
June 5th, 2012 0

Power Pitches

10 Things I Look for When Reading a Business Plan

It’s the end of May as I write this so I’ve just finished my annual April-May business plan marathon reading more than 100 business plans for my angel investment group and four different business plan contests. This seems like a good point to summarize here what I look for in a business plan. 

  1. Don’t push adjectives. Let me assign my own. This year for every plan that really looks like it might be disruptive or game changing I saw 20 or so that claimed to be. 
  2. Tell stories. A story tells market need way better than general market numbers. Write about problems you solve and who has them, how you solve them, and why you do it better than anybody else.  
  3. I want a forecast that starts with specifics like channels or traffic and conversions or segments and builds up. I hate the forecast that assets some huge market and takes a small percentage of it. It seems like every time I read “this is a $X-billion-dollar market” the surrounding discussion lacks depth and credibility. 
  4. I want unit economics. Often this is part of a good forecast. Tell me what it costs to produce one unit, what the channel pays for it (if channels are relevant) or what the buyer pays for it, what it costs to ship, and so on. 
  5. I want realistic expenses. Most plans are pretty good about estimating direct costs but bad about underlying expenses. You can’t have a $20 million sales estimate with 10 employees in the company and a few hundred thousand dollars of marketing expense. It just doesn’t happen. 
  6. Never write that you have no competition. Having no competition means one of two things: either your business sucks, or you haven’t done your homework and you don’t know your business. Even the most amazing disruptive game-changing plans have competition. If not now, then tomorrow. Who’s going to enter this market?  
  7. I want good positioning. Don’t try to please everybody. Start with a relatively narrow product-market fit and, if you can, move it gradually up to more markets and more segments. Explain in your plan which segment is first and why. Explain who you’re leaving out of your market and why. 
  8. I want to see basic numbers. I expect projected monthly income, balance, and cash flow for the next year and annual projections for the second and third year. And I want to see them, as in useful business charts, but I want to be able to see the numbers in detail too. 
  9. I want to see milestones: dates and deadlines. And progress made. What have you actually done in the recent past? Write about achievements. 
  10. By far the best validation of a plan is actual sales made already. People have written checks. Second best are letters from future customers promising future business. 
  11. (Bonus point) Don’t muck it up with too much science. It’s not a research plan, it’s a business plan. Summarize the science so I have some idea and then tell me about the business. 
  12. (Bonus point) Don’t let the document get in the way. I don’t want to think about formatting or editing, I want to read your stories and imagine your future. Keep it moving and keep my mind on the business, not the misspellings or repetitions. 
Tim Berry , Founder, Palo Alto Software
May 29th, 2012 2

Invested Interests

Reflection on Local Angel Investment From Inside Out

This is a good time to reflect on my experience with locally based angel investment. I just finished with the fourth of our annual angel investment event for my local group based in Eugene and Corvallis, Oregon. I’ve been an investing member since the group — the Willamette Angel Conference, nicknamed (ugh) the WAC — started. 

We now have an investment in Cascade ProDrug, using technology developed at our own University of Oregon (based in Eugene, where I live) to help people fight cancer by reducing the toxic effects of chemotherapy. It’s an early stage investment, meaning that it has a long way to go, several years, before it gets through all the testing and makes a difference for people. We like the local connection. 

We try to make our investments as convertible debt. We have a standard term sheet as a starting point. We’ve never seen that term sheet survive negotiations all the way through signing, but it’s usually a good start. It’s technically a loan, but nobody wants it to actually be a loan and get paid back. Instead, we all want the company to grow and prosper so that our debt gets converted to stock ownership in a year or two. We do it that way so neither we not the startup have to decide what percentage our money is worth until later, as it grows, and bigger investment follows. 

This year we started with more than 30 submissions from startups. After several weeks of due diligence, we narrowed that down to five, of which three were using technologies developed at one or the other of our two big local universities, the University of Oregon and Oregon State University. 

We’ve used the gust.com platform to manage our documents, submissions, due diligence, and so forth since our first year, 2009, even before it was renamed and reconfigured. That’s worked out very well for us, which is part of the reason I blog on this site regularly. 

After four years of it, I now have small investments in four small local companies. It’s inappropriate for me to make public statements about these companies, but I can summarize by saying that one of the four looks good, one looks bad, one is doing okay, and this most recent one is too soon to tell.

In the meantime, over these four years, I’ve now spent four Springs as a member of a group of people looking in detail at local startups. The activity and the group are part of the benefit. For the most part I like my fellow WAC members and enjoy participating in a team looking at startups. I enjoy the weekly meetings when we spend evenings listening to pitches or sharing the results of our exploration of specific startups. I like the excitement of new companies and large potential and, yes, big dreams.

So is that a good way to invest money, you might ask? Am I happy with what I’ve got for the money I spent? The answer is yes, I am. These are all very high risk investments, meaning that they are all way more likely to lose than to win; but if they do win, they have a long shot at winning big. It’s a hit business, in which one hit pays for all the other losers. I wouldn’t want my life savings put into that kind of investing, but it isn’t.

More importantly, is this a good way to spend time and money? I say yes definitely. Oh, and aside from all this selfishness, I like to think that this activity is also good citizenship, contributing to the attractiveness of this community for startups and people thinking about startups. The availability of our kind of investment is a positive factor. 

Tim Berry , Founder, Palo Alto Software
May 22nd, 2012 0

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 1

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