Everybody loves to hate business plans. Entrepreneurs hate writing them, investors don’t actually read them, nobody believes them, so why bother?
First, let’s set some context. I’m going to write about business plans for small, for-profit companies intending to grow rapidly. Business plans can — and should — be written for non-profits, for new product or feature launches within large organizations, for local bakeries, even for things like the deployment of an IT system, but that’s not my focus. I’ve read about 250 plans, primarily for high-tech businesses looking for angel and venture capital funding.
Ultimately, the goal of a business plan — no matter what its form — is to convince the audience that (1) there are customers (2) who have a problem (3) for which you can create and deliver a solution (4) in a manner that generates a profit and (5) that ultimately results in the creation of significant enterprise value.
Like everyone else in a startup, the business plan has more than one role to serve. The plan is:
- A forcing function for making and documenting decisions
- A sales tool to bring on investors, lenders and sometimes customers
- A recruiting tool to build the team of co-founders and employees
…
Frequently, when asked about a business plan, many people think of an 80-page, perfect-bound document citing lots of market research, describing the product in great detail, documenting the supply chain and the distribution channel, presenting five years of monthly financial projections based on lots of made-up numbers, and including full resumes of all the founders. Bluntly, a plan in this form is most useful for either getting a good grade in a business school class or for keeping your patio door from blowing shut in the wind. In the time it takes to create a document like this, you could have talked to 50 more potential customers about what’s wrong with the way they do things today and what would convince them to spend money with you instead. If you’re building software, you could probably have created and prioritized your scrum backlog, made your first couple of product development iterations, and let a few potential customers try it out.
The most frequently useful versions of your plan will be a set of PowerPoint slides, a 3-5 page summary, and an elevator pitch. In most cases, you will have a minute or two to interest someone in what you’re doing, whether that’s a potential investor you bump into, a key technical hire, or a venture capitalist that you are introduced to. You need to have done the detailed work to back up these short versions with more depth, because when you’re successful in attracting interest, you’ll have to be able to go deep in responding to questions, but that will almost always be interactive, not someone reading your magnum opus.
…
When you are presenting your business plan to a sophisticated audience, they want to know that you’ve done the work to identify the problems, the potential customers, the competition, and even the business model. However, what they’re most likely doing is trying to evaluate whether they believe that you are the right team to execute on the plan and adapt the plan in response to the inevitable new information and changing business situations that you will encounter. They want answers to a few basic questions, no matter the specific business area:
- Have you grown similar businesses before? What did you learn from the successes and failures that you participated in?
- Have you successfully created and exited a startup? What do the people involved in that business think about you? Will investors from that company be investing in this one?
- Do you have the relevant contacts in the industry that you’re planning on entering? Do you understand the key success factors, and the critical mistakes to avoid?
- Are you really committed to the success of the business or just involved? Have you put your own time and money into the business already? For how long have you been working on it?
- Have you generated any real traction (customers, revenue, product development, distribution agreements, etc.), or is this just a cool idea?
- Do the claims that you’ve made hang together in a consistent way? For example, you say you’re going to triple you sales of an enterprise software product from year 2 to year 3, but your headcount costs for sales and sales engineering are only going up by 30% – why?
- What does the business look like when we give the revenue a 50% (or more) haircut and when revenue comes in a year later than you say?
- How is the business going to be 10 — and 100 — times as valuable as it is right now?
Your business plan needs to demonstrate that you’ve thought through and found reasonable, consistent, answers to these questions. And it needs to express those answers succinctly. Then you’ll get to have the meaningful discussions that get you closer to your ultimate goals.
…
Scott Blanksteen is VP, Product Strategy at IceBreaker. He’s been focused on the mobile and web technology markets for the past decade, much of it at Qpass, and the desktop software and online markets since the early ’90′s. He ran the MIT Entrepreneurship Competition and has been a judge at both the UW and WSU Business Plan Competitions. Scott’s shorter thoughts can be found at @sib1013.
About Nathan Kaiser
