Getting to "yes" in a world of "no"…

Mike Maples hates them (he thinks they’re static, when startups are dynamic), and that the way business plan competitions are promoted by business schools sends out completely the wrong signals to entrepreneurs. Dave McClure hates them too (and for all his sweariness, he’s not actually much of a hater), while Fred Destin says:

It’s been said 150 times, “Nobody reads business plans.” Let’s make it official. Nobody reads business plans.

Does any well-known angel or angel blogger actually endorse business plans any more? Even Guy Kawasaki seems to have gone quiet on the subject of BPs since 2007 (I’ve emailed him to ask what he thinks now, so we’ll just have to wait and see if he answers).

For my part, I suspect that business plans are just a hangover from the MBA-business-is-good-business mythology: relative to the IPO boom party, they’re the morning-after bottles-of-Cinzano-with-cigarette-butts-in. Which is to say that business plans are like ‘certainty dinosaurs’ trying to hang on an uncertain post-Cretaceous world. A bit like MBAs, really. (And I say all that as an MBA, not as an MBA-hater.)

Really, somewhere along the line, the whole ‘send me your business plan‘ notion seems to have died a quiet death: UK angels are now far more interested in a persuasive verbal pitch, an exec summary and a Y1/Y2 cashflow projection (even though that’s arguably no more than a ‘management accounting prØn’ take on business plans). The view seems to be: just prove you can survive 18 months, everything beyond that is a business fairytale.

All the same, I do still get asked for business plans, but I’ve edited mine down to seven pages, which comprises things like (a) a handy industry primer for investors (because angels don’t generally know about manufacturing), (b) the company’s business vision, (c) an ultra-short-term roadmap, and (d) description of the people. Yes, it’s basically a literate presentation deck, because that’s all that people want to see.

Probably the best thing you can say about a business plan is that it is a snapshot of where your conception of your startup is at. But of course, at the semi-glacial speed that angels typically move at, a lot can change in the three or more months that pass between drafting a killer business plan and any angelic money hitting the company’s bank account. Not only has your startup changed, but so has the world around it:-

  • Your competitors have repositioned their products.
  • Other new market entrants are making a lot of noise.
  • Some of your key customers have closed down or merged.
  • Money costs more or less.
  • Liquidity is looser or tighter.
  • Investor tax breaks have changed.
  • The key exchange rates for your supply chain are better or worse.
  • One of your suppliers has gone out of business
  • Several of your designed-in components have gone EOL
  • etc etc etc

All of which inevitably leaves your “business plan” constantly out of date. I can only repeat: the value of your startup lies not in its business plan, but in its ability to improvise and execute business tactics to help the company attain its overall business vision. And a properly-articulated business vision should fit on a single Powerpoint slide (and in a 30-point font). So… what were business plans for, again?

So it seems to me that you either believe in the whole package (i.e. that it’s a big enough round for the key people to move the startup towards the vision of its core marketplace despite inevitable market or development turbulence) or you don’t: hence I suspect that accepting or rejecting a particular business plan has only ever been a post-rationalization of other factors entirely.

But conversely, if you cut business plans out of the investment process, a whole set of related questions – each of which has been taken as a given for many years – becomes open again:-

  • Ultimately, how rational are individual angels’ investment decisions?
  • Can the members of an angel syndicate ever think alike enough to delegate due diligence to one person?
  • Does due diligence achieve anything apart from sometimes finding out obvious mistakes?
  • Is ‘spray-and-pray’ the only sensible investment methodology for 95% of angels?
  • Can modern high-speed startup business ever be planned?

Tricky stuff. 😦


Comments on: "“Business Plans, R.I.P.”…" (3)

  1. […] fit and its market position, both of which it knows only imperfectly at the start: conversely, the problem with business plans is that they almost always gloss over this zigzagging – after all, a typical […]

  2. […] be clear: whereas traditional MBA / VC-centric business plan writing is withering on the vine, the new funding mindset has it that competition and customers all change so rapidly that […]

  3. […] I blogged here a while back, there’s broad agreement amongst the startup chatterati that traditional business plans are dead. MBA thinking is (allegedly) useless for entrepreneurs, bootstrapping (and low-end funded) […]

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