Study Finds Business Plans a Waste of Time
“Entrepreneurs who slave to craft a perfectly-articulated business plan expect the effort will pay off with better odds of getting funded. But they’re probably fooling themselves…A study found quality [of business plan] had zero impact on the amount of VC funding raised.” Another reason to forego writing a biz plan, a useless document that quickly becomes an artifact.
Devan
on 09 Apr 09Haha. My business advisor keeps forcing me to write a business plan. Really, don’t have the time to write out a document that i will probably never look at again.
This is a great post!
Ted K
on 09 Apr 09Although I’m an architecture student, I enrolled in an entrepreneur ship class this semester. It’s been a wonderful learning experience for me. I will never again write a business plan or listen to general “business knowledge” that apparently transcends whatever your product or industry may be.
Happy
on 09 Apr 09I love the business plan Joanna Glasner uses on her blog post: Business Plan
That’s as good a plan as any, I think. And it seems the study agreed.
Dan Glegg
on 09 Apr 09Wait wait wait. Let’s not confuse spending several days writing a five-year plan document for your one-man business, which is obviously a waste of time, with taking the time to think about how your business will grow and what the potential failure and exit scenarios could be, which is essential.
Enormous documents intended for nobody in particular are the problem. Business planning is not.
Paul
on 10 Apr 09I agree with Dan. It’s how the plan is prepared and its intended purpose. It’s like saying doing all design is a waste of time by analyzing design efforts of the new Pepsi logo.
The purpose of all plans should be to help you, and those you need to communicate your vision to, define a clear vision of what you want. Furthermore putting your thoughts down on paper means you can refactor and tweak your ideas before investing time and money.
Unfortunately schools, consultants, and those with financial interests in dragging out the process turn planning into a monumental task that becomes a useless burden to all involved.
Anonymous Coward
on 10 Apr 09”...the group studied business plans of more than 700 dotcom companies from the late-1990s to early-2000s.”
Umm, didn’t we already know that a bunch of dotcoms with lousy (or no) business plans got barrels of VC money around then? I’m not sure how applicable that info is to getting funded today.
Happy
on 10 Apr 09@Paul and @Dan, well said.
From the best book on business. Ever. Paul Hawken in Growing a Business
While bootstrapping apparently lacks planning, there is a planning process going on. Many market-wise entrepreneurs …are not thinking verbally, but visually, spatially, or in some other fashion. They can recognize the rationality of what they do only in retrospect. The plan may be totally different from the conventional planning process, and so deeply internalized that there is very little plan showing for outsiders to follow.
He uses several famously successful entrepreneurs to make the point: there is, for most successful entrepreneurs, planning going on. It just may not be in the format of your traditional business plan.
Fans of svn should read “Growing a Business” because it is business experience and advice from a completely non-technical business person, and, even more interesting, was written over 20 years ago. Reading it reinforces the message that while the tools and opportunities have changed immeasurably over the last two decades, the core requirements for success in business are remain consistently basic.
Derek
on 10 Apr 09Yeah I say go through the planning exercises that make sense to your business plan but forgo tasks and documents that add no value.
This is even more true for me as I want to grow my company organically. I certainly think through and consider business decisions, the market, workflow, etc etc but slamming it all into a document would do me no good.
Mark
on 10 Apr 09Should we also forego creating prototypes and even writing ideas on table napkins? They become artifacts pretty quickly too.
The biz plan is useful for as long as you use it to check the ‘sanity’ of your idea. If you’re writing it just to fulfill an investor’s requirements then you’re doing it wrong.
Aggerbo
on 10 Apr 09I totally agree!! With our danish website for carpoolers we competed in a startup competition at the University of Aarhus. I must admit that the time we wasted on that biz plan could have been used better getting real. So even though we were recommended to go on in the next round, we decided not to. It’s a complete waste of time. As David also addressed in his keynote at future web apps : “it won’t work in the real world”. That was what we were told way too much. We were told it wouldn’t work and now we are finishing up a cooperation with a big client. So stop wasting time on biz plans and get real!
Drew
on 10 Apr 09From the article:
“Their conclusion is that the content of the business plans does not predict which businesses get funded. That doesn’t mean writing one is an entirely worthless process, as it may be useful for organizing thoughts and details of a venture. However, it’s not going to bring in the money.”
So, they aren’t saying that business plans are worthless as a tool for the business, they just make no difference in receiving venture capital.
“Social connections trump business plans by a long shot…[snip] The irony, says Goldfarb, is that people who don’t have connections need to go out and make them, which may require that they have a business plan to discuss. But the plan is sort of like a business card, he says – just something that business protocol dictates you carry around.”
And here they say that having a business plan with you is still expected.
This is one of my frustrations with popular media’s need to grab you with the headline. “Business plans are worthless” is not the ACTUAL conclusion of the study, which is more accurately “Business Plans do not Affect Ability to Receive Venture Capital”. One circumstance is unaffected by a business plan. It’s just irresponsible to report it this way, especially considering the responses above saying “I knew it! I’ll never write a business plan again!”
Considering that 37s seems, in general, to find the idea of grinding for venture capital less useful than focusing on what you can sustain for yourself without the strings attached and then growing organically, the news that business plans have no effect on availability of venture capital should be, at best, a “meh” moment.
And what is wrong with planning? I worry for a world where our motto is “do it now, think about it later”. This may work for low-stakes operations, but I sure want my engineers, surgeons, architects, and city governments to do some planning before they leap. In my opinion, the trick is to balance what you can actually predict with what you’ll have to discover as you go, and then planning in only as much detail as is useful to give you direction and prevent you from overlooking important known details.
Impatient sensationalism has patient, rational analysis in its sights. Let’s not be too eager to help it pull the trigger.
Michele Lisa Goetz
on 10 Apr 09The business plan, or planning, is critical to business success. VC funding isn’t necessarily tied directly to this. VCs expect different things. The amount of money you get from VCs is: what you ask for, what VCs will risk, what return is there, what the terms are, what stage/round, your credibility. The business might be good for you. Is it good for them?
Charles
on 10 Apr 09What a sensational article! I know what the author is trying to project, but this doesn’t add competency to the idea that business plans are over-valued.
Obviously you need to show that you’ve done cost estimations and show a worst case-scenario for being profitable.
Obviously you need to show that you’re competent and have done your market research before asking for venture capital. A venture capitalist isn’t going to throw money at a business that isn’t viable, I mean we’re talking early 1990s to 2000s in the study? WTF! Everyone knows VCs were idiots then. Live in the present.
You need a business plan, maybe not a doctoral thesis, but you’ve got to have something to back your request. Simple may be more valuable, but you’ve got to have merit.
Luminific
on 10 Apr 09I think there are 2 kinds of business plans. One that is written for a banks of VCs, these are mostly paper products, no one cares for them and uses them; and two – plan that you create for yourself to reach clarity of the path. It is more like map of the world. I am here now and this is where I am going. Good business plan is like a plan for today and a plan for a year in one. You want to switch between them to keep clarity and not to be stuck in the moment. I think being in the moment is overrated. A lot of people stuck in the moment, drown in the present and move nowhere. This is how I use my plan – to give me perspective, see the logic, and ability to move forward. It is all about energy.
Mike
on 12 Apr 09Nonsense. As if VC funding determines the success of a business. Of course the more important question is how well did these VCs do?
A business plan helps to organize your thoughts and ask the right questions. You most certainly should write one (even if you are the only one who reads it), and if you are too lazy to do that, well, then you are no entrepeneur.
Laura Allen
on 13 Apr 09I believe in having a good business plan, like Mike says, even if you’re the only one who reads it. So many of the people in my field (massage therapy) fail and leave the business after just a few years, and I believe that’s a direct result of just winging it and not having any concrete direction. They’re not meeting their income goals, so they become discouraged and get out.
I have a successful clinic, keeping more than a dozen people busy, and six years into it, I still have a short-term plan, a one-year plan, and a five-year plan. I think it’s key to know where you want to go, and define how you’re going to get there. You do have to be willing to go with the flow and change your plan from time to time to adapt to different situations.
Ben Rowe
on 14 Apr 09I’ve recently written my business plan. But kept it to one page.
I’ve found that to be really useful, and wish I had have done it ages ago. It Took me about an hour, but writing your plan on one page forces you to think about what’s really important.
And that helps you manage your time (which is especially essential for me as I run my business in my spare time).
This discussion is closed.