The tale of Riya, an internet start-up, is a good one. Munjal Shah, the CEO and founder, has done a great job documenting the iterative approach they’ve taken to developing Riya’s business plan (see parts 1, 2, 3, 4, and 5).

This was great to see. Too many start-ups approach technology/product development as iterative processes; yet, when it comes to their business plan they write a single one in stone.

Peter Rip, a partner in Leapfrog Ventures (investors in Riya), discusses the change in business startegy in a post titled “The Riya Pivot”:

Riya “launched with one thesis, but went back to the drawing board to re-invent the business a mere six weeks after the launch.”

Peter describes eighteen areas that are much clearer now than 18 months ago. The list is, in essence, the major points of a business plan. Now, this isn’t bad - no early-stage company will have a well defined answer for the points.

What Peter is describing is Riya working through the second stage for start-ups - commercialization: providing proof.

Riya’s team has gone out and found validated assumptions that were different than their initial hypothesis. As Peter puts it, Riya’s “business model is crystal clear.”

Here’s where I feel for Riya. While I’m impressed that they eventually worked through the commercialization phase, they didn’t respect the value the phase adds to start-ups until they realized that their initial strategy was wrong. Riya did not plan for the commercialization phase.

Instead, they did the very traditional thing: wrote a business plan and raised a tonne of money against it without providing the proof and validation that the commercialization phase brings.

Riya raised $19 Million when the cost of raising funding was most expensive - without any validated assumptions the uncertainty, and therefore risk, was high and they exchanged cheap equity for expensive funding.

Compare that to today’s situation - they have validated assumptions, altered their business plan accordingly and mitigated substantial risk. Now the cost of funding is significantly cheaper.

If Riya had planned for the commercialization phase, raising only enough funds to go out and test/validate assumptions, they would have been exactly where they are today - ready to scale - except they would be exchanging expensive equity for cheap funding.

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