I recently read a post on LinkedIn asking for opinions on the value of formal business plans for pre-venture backed start-ups. I guess technically all start-ups are pre-venture, it’s just that most never have a prayer of actually raising any venture backing or even talking to a real VC. It reminds me of most of the job postings and executive summaries I read back in ’98 – ’00 timeframe that boasted that they were a pre-IPO company. Well duh, everyone is right up until the point when they IPO or die.
Enough about that, on with the rant…
The preconceived notions about business plans, what they are, who they are for and what value they hold is one of the biggest problems I deal with when speaking to early stage founders. I applaud the various resources such as S.C.O.R.E and the numerous university or Economic Development-backed Small Business Development Centers (SBDC) that have sprung up to help the cause of small business education, but the bottom line is that for venture-backed start-up candidates, traditional business plans are a huge waste of time.
I spend way too much time unwinding startups’ expectations about the magic of the business plan so that they can refocus their attention and limited resources on what matters most (to their customers & investors). All the templates, the tools, the worksheets distract companies by forcing them into a creative writing exercise rather than dealing with the realities of their business.
MS Word is possibly the most destructive force you can unleash on an otherwise motivated entrepreneur. It lures founders into an endless stream of opinion and unnecessary reader “education” as they try to capture the essence of their business or cool new technology. I am a fan of simple explanations and even simpler math to convey the underlying assumptions and financial requirements. We should be stressing simplicity and not formality to help entrepreneurs get back to what they are good at rather than trying to unleash their inner Tolstoy.
Don’t get me wrong, strategy and planning are vitally important and documenting the business model in the simplest manner possible is not only good for the intended reader, it forces the founders to be really crisp in their thinking. Show me a business model in one slide. Explain your product or service in one slide. Build me a timeline that takes me back to the Ah-Ha moment of your inspiration and then retraces the milestones, the failures and the successes that brought you to this point in time. And, with the assumptions you have validated so far, build me a roadmap for your next set of milestones over the next 12 – 18 months. Show me a revenue model based on selling one customer at a time, not some crazy-ass guess about how you are going to capture “X” market share based on “Y” percent of some fictitious population or market segmentation. I don’t care about your first $5M, I care about your first six customers and then the next sixteen customers after that and so on.
No one has time to read your 30 – 50 page business plan and please, please do not think paying some business consultant is in anyway a path to success or funding. The $30K they want to write you a plan is better spent on buying a ping pong table and six months of snacks for your developers. If you want venture backing, build something – then sell something and along the way document a simple business model that you can explain in as little ink as possible.