Are Business Plans a Waste of Time?
online.wsj.com
online.wsj.com
"Now I'm not suggesting that, just because your company needs a business plan, you necessarily need to hire a high-priced MBA or consultant to write it. What I am advising is that you take the time to map out your strategy in words and numbers so that you can figure out for yourself where you want your business to go and how you're going to get there. You'll be glad you did."
I can't even begin to describe how many things I "knew" were wrong, and moreover were so disastrously wrong that if I had been committed to them would probably have killed the business. In addition, the things that have really helped me out were not even on my radar screen when I started.
Eisenhower famously found that "that plans are useless, but planning is indispensable." And for many people, the act of writing things down facilitates the process of analysis.
I think that history has shown that you, Patrick, have a perpetually up-to-date mental business plan available to you in a non-written form; unfortunately, not everybody is able to do the necessary calculations in RAM.
http://www.kalzumeus.com/2006/06/29/guestimating-market-size...
I analyzed, alright. The conclusion I came to -- total addressable market size of 1,500 -- is so ludicrously wrong that it embarrasses me. For added irony, note how I express skepticism that I would actually be able to sell as many as 1,500 copies.
On the plus side that blog post probably took me twenty minutes to write and I never actually acted upon it. (By, for example, shelving the software as not being lucrative enough -- I mean, I did the math, clearly it was doomed as a moneymaking proposition.) I don't think most business plans are that cheap and I don't think most folks promptly set fire to them after printing.
My point is, you did the exercise of trying to figure out your market size. The fact that you were (ludicrously) wrong doesn't mean that it wasn't an exercise worth doing.
You obviously thought the project was worth continuiung, despite the (assumed) size of the market, and the same conclusion could have been drawn just as easily if the analysis had been on paper, instead of a blog post.
Come to think of it, "business plans via a series of blog posts" isn't a terribly bad way to go at it, all in all. It's certainly worked well for you.
A different word could help, though. People feel bad when they don't stick to their plans, and so are often led to the extremes of either not looking ahead at all or not being willing to abandon yesterday's forecasts.
How about business sketch?
I agree that one can't foresee what will work or not. But, not writing down a business plan doesn't mean you don't have one. It probably means you don't want to acknowledge it for fear of being proven wrong.
Business plans are good. They don't have to take a lot of time. I did a business plan and put charts and numbers in it. As the business progressed, without intending to stick to the business plan, the charts have turned out to look almost exactly like the charts I put in the business plan. The numbers are different, but the shape is almost exactly the same.
If anything business plans are a way to test your ability to predict the future and nothing is more important in business than being able to predict the future. If you can predict the future, it doesn't matter what kind of business you create, you'll make the right decisions based on your understanding of what the future holds.
Of course, you don't need to have an ability to predict the future to run a successful business. Some people make great decisions on the fly. However, it's a really great feeling to look back and see that you have created the life you want intentionally with vision and you know for sure it wasn't just dumb luck. It's a real confidence boost and having known in advance how the future will be play out enables you to make better decisions with the trust of others. Just show them the plan you created 3 years ago and how your business has matched.
When you do that, it's easier to convince others that the business moving forward will match your future plans as well. This is true of future partners, customers, and employees, not just investors.
I've noticed a lot of people argue certain types of work are irrelevant when they simply don't want to do the work. They'll say, "It doesn't matter to use prepared statements, concatenating strings is fine!" But they're just lazy. It's not fine. Business plans are relevant. Strategy is relevant. Understanding the market is* relevant. Putting it on paper helps others understand what is in your head.
Some coders argue that documenting their code is bad too, but that's absurd. Some argue that gathering requirements is irrelevant. "Just iterate!" they say. Hog wash.
Of course business plans are good and they do help. You can survive without them, but it doesn't make business plans bad.
In a web startup it can often take roughly the same amount of time to make a first version of the product as it would to write a business plan. When time to make a product or a plan are equal, the relevant question becomes obvious: Will I learn more from making and testing V1 or from making a business plan? But there are very few other business categories where there is parity between the resources required to write the business plan and the resources required to create the product. For example, I work on electro-mechanical systems which often have multi-year development cycles. In our case the relative cost of a business plan is very low, even if we only gain 10-20% additional knowledge about the venture.
The value of a business plan is also likely to be tied to the volatility of the market that the business is entering. Web-based businesses are outliers in terms of market stability as well. Given how quickly the web is changing, a plan would likely contain outdated information before it was even completed. But if you're starting a restaurant the costs are much more stable and there's no reason you couldn't figure them out before spending any money.
"Slick slide decks with little behind them rarely get funded."
Sequoia says:
"We like business plans that present a lot of information in as few words as possible. The following business plan format, within 15-20 slides, is all that's needed"
I'm sure it varies by industry, but I know more successful people who followed Sequoia's business plan strategy over hers.
I hear a lot of people say they don't have any sort of executive summary or formal plan, because they think it's a waste of time. That's a convenient excuse to build something without having to think it through. That's fine if you're just building it because you enjoy it, but don't try convincing me it's a serious business.
On the flip side, I've also seen plenty of "idea" people who have only a business plan and nothing more, and then they spend all of their time trying to find someone to build it for them. That's even worse, because at least the builders, though they may not have a viable business, have something of value to show for their work.
What product are we making? Who is paying for it, and how? What is our marketing plan? What is our budget and what are our costs? How long is our runway? What is our attitude towards future acquisition and investment?
Writing these things down can be a worthwhile exercise. If nothing else, it will get the founders considering the issues.
I've never shown it to any investors, but the process of doing it was pretty invaluable. I learned so much more about my industry, the competitive landscape and gained a real appreciation for my costs and potential cash flows. I think there's a ton to be gained from the process of writing a plan (even a simple 10 page plan) almost moreso then the plan itself.
Longer answer: Business plans are valuable instruments. Their size and their form can differ - it is a difference to launch a web service or a biotect company. The first you can start with little money and your personal time - little plan, maybe only a few ideas on a napkin. The latter needs tremendous amount of money, maybe billions - big plan, over 100 pages. IMO a business plan is a strategy instrument, that like any other strategy has to be adjusted the whole time. Maybe it is better to not write a business plan, but to develop a business plan - like you do with your software!
I wrote a biz plan and raised funding, then learned NOBODY read it. Focus on the demo and the slideshow, skip the biz plan.