My advisor Cayenne (name changed to protect the innocent) came up with this four-phase program for starting a tech business. As always, this is written for technologists — engineers, computer science/programmers, etc., who have a technology that might make a good business.

The four phases are:

1. prove the technology
2. prove the concept
3. prove the market
4. full commercialization

It's a nice model I think, and I've never seen it before, and it makes a lot of sense and provides I think a good structure for thinking about where you are and where you should be going. Note that I'm expanding and giving my own take here, so definitely don't hold Cayenne to all the details that I set out!

Phase 1: Prove the Technology. This phase is probably the easiest to understand. You have an idea for a technology, so you build the first version of it. Some people might call this building a "prototype" but I would heavily advise against building "prototypes". Build the real thing, not a fake of it. This is your alpha phase.

You might think that you're building "the product" during this phase but as we'll see later, the product in business is a much larger and more complicated thing to have, it's not just the technology, but also includes a market of people who are willing to pay money for it, a way to get the technology to them, and understanding of what they're using it for and why it helps them either make money or save money, etc...

So, the important thing here is to prove that your idea can be built into a functioning technology that actually does something. If you've been following Semacode, you might look upon the first release (1.0) as the completion of this phase, although to a certain degree there's always a blurred boundary, 1.5 was sort of the "beta" of Semacode but also part of proving the technology (that it could work on Java, especially).

Funding for the first phase is likely to come from the founders, credit cards, friends & family, and that sort of thing. Academic research maybe. Investors won't get involved generally at this phase (and in any case, you probably don't need them, since you're doing the work yourself, you just need living and equipment expenses).

Phase 2: Prove the concept. Now you have a working technology. You've been comfortable up to this point, but now what? Now you have to demonstrate that a market exists for your product. In this phase, you're not going to be making much or any money. The goal is to find and locate people or companies that have a demonstrable interest in actually paying for your product, and convincing them to run a "beta test" or a "test site".

There's a whole bunch of groundwork that you need to lay during this phase. The single most important thing you need to do is find multiple business advisors. There is literally no substitute for good personal one-on-one advice. Every business person, bar none, no matter successful they may be, no matter how large their company, has personal advisors and they all had advisors when they were small too.

I'll tell you one simple way to tell if someone's a good business advisor. If they're a good advisor, then they will quickly start to introduce you to other potential advisors, other people in their network, etc. They will be quickly opening doors for you to other people. They won't be afraid of contrarian viewpoints, and they will be well-connected in the local business community, if not regional and world-wide. They will have a large network of their own, which you will get access to.

Also you should find multiple, independent advisors. You need to have a few independent advisors — preferably people who don't know each other too well — so that you can maintain a certain level of independence. Even though your main advisor might be awesome, there might be someone even more suited to you on a personal level out there. Also, let's be frank, it will keep everyone honest and give you multiple points of view, so you can avoid tempting fate or having blinders on. Business is an art, not a science, so you NEED to be exposed to many points of view. Even if ultimately you decide that one or the other is right, or right for you, you have to be aware of the alternatives, and you're not going to read about them in a book or magazine, you have to get them from your personal connections.

Another reason you need personal advisors is that you really can't just post your business plan online and expect people to give you their honest advice. Two reasons. 1. In the current business world, you'd be nuts to post the plan online. Secrecy is so core to business culture that anyone who saw you do that would write you off as a nut. Also, you'd be allowing any competitors, or potential competitors, to see your plans and that (at least for now....) is not done. 2. People will not give advice to someone who puts their plans online because they want their advice to remain between you and them. Again, it's the culture of secrecy. Business advice is always given on a personal level, and almost never broadcast. I wish it were different, but it's not.

By the way, advisors need not be (and usually won't be) in a formal relationship. They don't expect it, so don't waste your time setting up a "board of advisors" at this point. These people are getting a reward from talking to you and learning about what you're doing and helping you. That's what motivates them (remember the secrecy principle — they can't just go out and find out what any business person is doing, so having access to you has value to them). Also, expanding and refining your advisors is something that starts but should never really stop. It's always worthwhile to meet quality people, and some of them might wind up being attractive advisors.

Finally there's definitely a mutual component here of getting along.

Anyway, you also need to build up the basic foundation of the business. You need to create a spreadsheet with your budget in it, that details your expenses at least, and your revenues if you have them. I don't personally adhere to building revenue projections at this phase. Because by definition, if you're in this phase you don't know what they will be. Also, use your network to find basic service providers: accountant, bookkeeper, lawyer, office space, IT services, ... and don't pay them or pay them as little as possible.

OK, there's lots more but I've written enough for today.

I met a really successful waterloo-area entrepreneur last week, named Neo (name changed to protect the innocent). He pointed me to a weblog by another popular and successful waterloo-area CEO-type businessperson CEO Blog - Time Leadership by Jim Estill, of SYNNEX. Jim was also on the panel for a recent Waterloo Accelerator Centre event called "Don't Cry in your Beer" (about dealing with business failures). Oh yeah, and he says to get more sleep .

Anyway I'm excited to find another waterloo-area blog, there just aren't enough of them. I'm a huge believer in the "CEO blog" or the "founder blog" .... obviously ... I mean, what a record of what you've done and where you've been. I don't keep a diary but even if I did (or Jim) you'd never to read it anyway. And so for me this blog has wound up being a bit of a diary too for my own reference.

Two weeks ago Communitech had their annual Entrepreneur Week which was just as good as the one I went to last year. Not just good events but everyone from the business community comes out and so it's good for networking, saying hi to people you don't see all the time, whatever. Tiring though (for me anyway, since I'm more of an introvert than an extrovert).

When I was in school my friends from engineering had an expression that apparently they were told about. It was about four phases of learning that were supposed to match the four years at university. I think it's good.

• (1) First you don't know what you don't know,
• (2) Then you know what don't know,
• (3) Then you don't know what you know,
• (4) Then you know what you know.

I think that now, when it comes to business, I know what I know. Obviously there's a lot more to learn, but at least in the real basics of it ... and since an MBA takes 1-2 years, it seems I'm on the right timing. I think that when I first formed the company in early 2004, I was in stage 1. I got lucky with some stuff, and unlucky with other things, but it wasn't really until a trip to Boston to meet with a couple of VCs there that I realized that I had absolutely no clue what I was doing ( as noted in this blog ). That's phase 2 :-) That was a truly sucky phase to be in because I realized that I was at a huge disadvantage. Last friday Neo told me (since I asked) that his father had been seriously into business and that he himself had been into business since a teenager, through college, etc. I expect that MOST engineers, including myself, haven't got this background. Those who have it though, come in without the handicap of having business culture seem totally incomprehensible.

Anyway, phase 3 probably started sometime early this year, and I think phase 4 finally clicked in during Entrepreneur Week. I was at "Chapter 4" (don't ask) an all-day event and I realized that I was with or ahead most of the people around me, including the presenters. That's a nice feeling to have!!!!!

PS. I recently completed a 2-page "business plan" / "summary" / "investment letter" / whatever, and now I'm in the funny position where I show it to my friends and parents and they're accusing me of writing a load of buzzword bullshit. It's pretty funny because I used to have the same knee-jerk reaction to business-speak. But now of course I realize that it's jargon, not buzzwords and that words like, say "value chain" have a real precise meaning that would take a paragraph to write out full hand.

I've been re-tagging many of the posts on this blog. I've got a new tag browser and so I've been going through the old posts, categorizing them. For example, here are all the posts that talk about the ConQwest game , and here are ones with mobile industry stats , and here are all the posts about Waterloo . It's not perfect but it's pretty good. Some posts were hard to sort.

I can't believe how naïve I was about some things though. For example, just a year ago in "follow the money" I wrote "I will probably not reveal a few key facts ... how much money do we project we will earn over the next five years"

The idea that I thought that I could project our revenues over five years back then is laughable. The very idea that I needed to have that in the business plan was a bit ridiculous. No one, and I mean no one, as an investor expects an early-stage company like Semacode in a new market with a new kind of product, to have a revenue projection.

So what are they looking for? Well, they DO want to get a rough idea of the size of the smallest market you can get numbers for. So, in our case we could say "the barcode market" is so-and-so billion $s or "the online advertising market" is $XYZ. But beyond knowing it, you should NOT make some kind of prediction that you're going to capture some percentage of that market. Because no one can just wave a magic wand and get some kind of %age. You have to actually find customers who are willing to pay for something, and that's what your business plan needs to talk about. Who they are, and why, why, why would they shell out bucks?

I got some good advice a few weeks ago from Hermione at the AC (name changed to protect the innocent). Every time you give a reason in your plan why someone would pay you, ask "why?". You know the kid who asks you a question and then always says "why?" when you answer it? Well, you should pretend you have that kid over your shoulder. Why would an advertiser want to pay me money? Why would a newspaper put a barcode on their page? Why a barcode and not just a URL? Why are they going to make money from that? Why, why why?

Anyway, the business plan is all about answering the following simple question. "Who, and why would someone give this company money?" Your answer has to be so good that it's OBVIOUS that you're right. This doesn't necessarily take 25 or 80 or whatever pages, either.

Anyway, enough rattling on about that. More experienced business people than myself are currently evaluating my own attempt to answer that question for Semacode Corporation. We'll see what happens!