When So-called Experts Say Don’t Do a Business Plan…

… don’t be confused. What they really mean is … experts speak half truths

  1. 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.
  2. 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.

  1. 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.
  2. 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.
  3. 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.
  4. 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.

Comments

  • Luke Devall says:

    HI Tim, I really enjoyed this post so thanks for sharing it. Coming from someone who is just beginning a startup journey I can really relate to the above and I think others in the same position as me will also.

    I think it’s important to get across the point that you do not need to create a large document business plan until much further down the line. Business model canvas does a great job of allowing you to sketch out the bones of your idea. We struggled to find anything to take it to the next stage of planning which is why we created our site (initially as a private tool).

    I think anyone that asks for a business plan straight away is probably pretty old school and is swiftly getting left behind.

    I am interested by one of your points in 3. – defensibility, what do you mean by this? Are you referring to how you are going to stop people copying the idea?

    Thanks again!

    • Tim Berry says:

      Luke yes, you’re guessing correctly – and sorry it wasn’t clear – defensibility is a matter of secret sauce, trade secrets, barriers to entry, patents and patent legal defense, etc. It’s whatever factors you have to prevent some industry giant from jumping in on your idea and using greater resources to push you out.

      BTW, I still like Lean Business Plan and Lean Business Planning.

  • Dan Morelli says:

    Thank you for your blog. As a non-traditional business student at UNLV studying entrepreneurship, I am excited to learn from professionals in any medium. Our Lean Start-Up class is modeled after the process developed by Steve Blank at Stanford. I am currently working on a business plan and I will be looking forward to sharing your blog with my classmates.

  • Maneet Puri says:

    Dear Mr. Berry, thank you very much for the informative blog. I appreciate the idea of lean business planning without frills and lengthy documentation. It’s quite similar to what we do in agile development. We don’t insist upon unnecessary documentation, instead focus on clearly and succulently defined objects and goals. We work towards them iteratively, improving and revising them as we proceed further which allows us to functionally address issues in real time rather than simply placing reliance on foresight.
    Similarly, I believe business plans should be agile and not stringent. It’s also true that simply business plans don’t win you investments. I believe your approach is a very practical idea when prospecting for
    investments for a start-up/venture.

Leave a Reply to Tim Berry Cancel reply

Your email address will not be published. Required fields are marked *