Is The Business Plan Dead?
I was reading Momentum Blog and came across two different posts that said don’t send a business plan and don’t write a business plan.
I am always telling entrepreneurs to take the Angelsoft application seriously because most investors do not read business plans. Even if you aren’t applying to an Angel Group or VC that uses Angelsoft, you can still use our software to generate a perfect PDF one-pager. Even better, include a video pitch so investors don’t have to read anything at all.
As an investor document, can we declare the business plan dead? Is it a remnant of a more cumbersome age? Before we do, I kicked the question over to a few Angels and VCs. I will update this post as the responses come in.
Personally, I think it’s no longer a document that investors are interested in. They take too much time to read, and in this agile business environment, they’re outdated the moment you finish them.
However, I do think it’s a valuable exercise for the entrepreneur:
- It forces you to evaluate and quantify the potential of your business
- If invited to pitch, you will face a firing squad of questions. With a business plan, you will know the answers
- When you are finished, you will have a better understanding of your business
The business plan has shifted from an investor document to an entrepreneur document. It’s an exercise so you know everything there is to know about your business. It doesn’t have to be perfect, and it doesn’t have to be pretty. You should be spending your time building your company, not compiling a book. That’s just my opinion, I’ll update the investor responses as they come in.
UPDATE: 7/21/08
I don’t believe this is direct response to my post, but it’s relevant: I Hate Business Plans from Duct Tape Marketing
Jason D. Schwartz :: Jul.11.2008 :: Entrepreneur ::
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I just came across your link to our Momentum Website and blog . As you note, I certainly suggest that you don't send a business plan to an investor and, more strongly, suggest that you don't write one. Some people, like some of the folks who have commented below, seem to mistake this point of view for advice not to "plan". That isn't what I'm saying - I'm simply saying that the traditional business plan, for a start-up, is not dynamic enough to be useful.
In terms of fundraising, I've raised VC financing at least a dozen times and I've also invested as a VC. I've also raised funds from angels groups such as Tech Coast Angels and Pasadena Angels. I can honestly say that I have only been asked for a "business plan" once or twice (on both occasions by angel investors) and even on those occasions I wasn't pressed once I shared an alternative approach to planning.
In terms of planning the business, I challenge any entrepreneur who has succeeded to convince me that their business plan was really a living, useful document. Often, there may be a plan that someone nostalgically pulls from a shelf years later -- generally for a good laugh. Start-ups change almost daily and much like early financial models, start-up business plans have more "wrong than right" inside of them. If someone sincerely wanted a start-up business plan to be dynamic they would have to be updated almost weekly - and then they would really just be more a document for recording history than a planning tool.
I want to observe blog etiquette and limit the length of this note. I do think planning is important and I think there are several dynamic tools that are useful for both running a company and raising funds. There is a pdf document on our website that is attached to the blog "why you shouldn't write a business plan" that you might find useful.
Thanks for the link here - and best of luck to you all!
Matt Ridenour
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Writing a business plan BEFORE you start your company should be de rigeur for every entrepreneur, and if they were to do so, we would see a lot fewer hopeless companies looking for funding. And that's why investors ask for business plans: (a) what a great way to understand in half an hour exactly what you're trying to do, how you're planning to do it, and why you're the one to make this work, and (b) because who would want to invest in someone who hasn't had the discipline to ask HIMSELF (or herself) the hard questions before the investor does?
That said, even though I'm one of those investors who [ahem] doesn't always read the plan when it comes in, I certainly do read it before I write a check. The bottom line is that clear thinking and effective communication is the hallmark of a good entrepreneur. If you want to be the 1 in 100 who gets funded, you'll be doing yourself a big favor by having a great business plan AND a great executive summary AND a great one-pager AND a great PowerPoint presentation (speaker support version) AND a great PowerPoint presentation (printed, leave-behind version) AND a great Angelsoft video AND a great one-minute verbal elevator pitch. And if that sounds like overkill, let me assure you the gal right behind you has all of the above...and she's the one getting the vc/angel dollars.
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When do I read an entrepreneur's business plan? Only AFTER I have been convinced by the entrepreneur that I might be interested in help fund the company. I use the business plan to initiate my due diligence.
Write the business plan. It is GOOD for you to understand all aspects of your business. And, it helps you prepare to answer all my questions when I decide I might be interested in helping fund your company.
Bill Payne
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I've placed a link to your free one-pager on my business resource page. However, I have to disagree with what you wrote above.
The investors I've spoken to, have their own process. For many their process starts with a one-pager, but if it gets through that process, there always seems to end with a much longer version of a plan.
I tell my clients who are looking for $ to do their research and make sure that they know the process they'll be going through.
Everyone in my opinion should have a plan. I had one for my job and life. I have one for my business. When you want to lead a full life, a plan helps. However, it should never be written in stone; because as they say, the world turns.
I came across a plan I was wiling to do 8 years ago. Like your one-pager, it's called the One Page Business Plan(r). I liked it so much I used it with my clients, now I won't take on a client who won't do it. Why do I use it? To keep me focused and accountable. And since it's on the web and includes a performance managment system, it follows me anywhere I go :)
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Thanks so much!
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Angelsoft has a great concept. It's important to get your idea to one page. After the introduction page, you need an executive level presentation that maps out your Magic, Market, Management Team, and Money needed to get to profitability. Most importantly, you need a Network to shop your plan through. 96 percent of startup capital comes from the private market, not Venture Capital.
For more, you can read my book, "The Business Plan is Dead - How to Raise Capital in the New Economy" by me, Jeff Wofford, Silicon Valley Entrepreneur. Available on Amazon. :-)