The most valuable thing about writing a Business Plan

16 Nov

binder

A couple times a week I am approached by an entrepreneur who wants to send me his or her business plan–yes, that 90+page behemoth usually culled from some business plan-creator software that virtually no one in Silicon Valley ever reads. My response rarely varies. “Preferably, I would like to first see an overview (1-2 pages), a detailed Exec Summary (5-7 pages), or a PowerPoint investor deck (15-20 slides).” [Indeed we have a page on our firm’s website dedicated to offering a guideline on what constitutes a well-crafted overview or executive summary.] If there is a reasonable possibility that your company is right for us, then it should be obvious after 10 seconds glancing at a well-written overview. Spare the life of that tree that would otherwise be sacrificed to print, collate and bind your business plan–at least for now.

Business Plans in general get short shrift when it comes to funding technology start-ups. This was not always the case, but it has rapidly become the norm. However, while it is easy to ridicule the Business Plan as a relic and a throwback to a gentler time in corporate finance, some reappraisal is in order.  This is not to say that I want to read 90-page business plans again; I don’t. I have long argued that, as a fundraising tool, business plans are the bluntest of instruments, are overrated and often unnecessary. What I think is of value, however, is the process of writing a business plan. Indeed, the most valuable thing about writing a business plan is writing a business plan.

There is something inherently powerful in the process of sitting down and codifying one’s thoughts about a business opportunity. The rote structure and format of a business plan, while tedious and stifling, is often the best way to methodically tease out all the details of the idea itself. Having to address the blunt questions of market size, competition, funding requirements, customer segmentation, and so forth forces some re-appraisal of earlier assumptions and often fosters new doubts about the viability of the overall idea. All those notions flying around in one’s head about the prospective start-up company are now committed to paper. That starkness of black and white text has a powerful impact: It crystallizes one’s thinking and it forces an entrepreneur to make difficult decisions about what the business will really look like, how it will function, and how successful it can reasonably hope to be. Many start-up ideas are abandoned after the business plan-writing exercise–and this is not necessarily a bad thing. I often wonder whether other ill-fated businesses would have been mercifully smothered in their cribs had the founders taken the time to do a proper business plan drafting session and uncovered all the insurmountable obstacles that they would later face.

In summation, the process of writing a business plan can have the powerful effect of both refining a promising idea and (hopefully, at least) euthanizing a bad one. After the plan is written, and assuming the decision is made to move forward, the plan itself can then serve as the company’s core document from which is rendered the Executive Summary, Overview and all other investor collateral. This ensures that there exists consistency across the documents on the company’s messaging.

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3 Responses to “The most valuable thing about writing a Business Plan”

  1. Robert H. Heath November 16, 2009 at 5:05 pm #

    Or as Blaise Pascal said, “I would have written a shorter letter, but I did not have the time.”

    It takes a long time to write a short presentation.

  2. ostrov December 2, 2009 at 2:00 pm #

    Thank you,
    very interesting article

Trackbacks/Pingbacks

  1. HubSpot CEO Takes A Swipe At Business Plans « Adventure Capitalist - December 14, 2009

    […] the content of his remarks is consistent with many of the points in my recent post on the subject, The Most Valuable Thing About Writing A Business Plan, so no sense rehashing them here. That said, it’s valuable to get the perspective of a former […]

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