… don’t be confused. What they really mean is …
- Don’t do a long static formal business plan. Do a lean, just-big-enough business plan. Deal with it as a constantly-renewing latest version, with a shelf life of a few weeks at most. Don’t fill it with excess supporting information.
- They won’t even look at a business plan until after they’ve understood the main points from a summary memo, and — in most cases — been through the pitch and met the people. The idea that potential investors would read a business plan as a first step, from somebody they’ve never met, without going through preliminary materials … is laughable.
Understand where the business plan fits in the process of securing investment.
- It’s not the calling card, not the sales brochure, not something you ever send to somebody who doesn’t already know you, your business, and the basic story.
- It’s likely to come up for deals that have gotten through some filters first. Investors will ask for it as part of the due diligence that starts after they understand the deal and are interested in pursuing it further.
- It explains a deal: problem, solution, product-market fit, potential market, potential growth, scalability, defensibility, traction, major milestones, management team, and essential projections of financial progress and, in cases where this applies, trackable progress in traffic, visits, downloads, users, and so forth.
- It’s the screenplay for the summary memo and the pitch. Even though investors won’t want the plan immediately, you’ll need it, when you pitch, to refer to later to answer questions like “can you grow faster with more money” or “how would it look with double the sales force?”
And you don’t have to call it a business plan. The lean startup advocates, for example, like to call it anything but a business plan, but ask them about it, and they’ll confirm you need to cover the same ground as I have in my point 3 above.
My suggestion: call it a lean business plan.