Thursday, September 20, 2012

The Myth of the Business Plan

alternative to business plan
As I made my early morning rounds of relevant online business articles, I stumbled on a post regarding the essential resources for startups. Sounded interesting, so I started reading but it did not take long before I made a U-turn. The first item on the list was "business plan templates." In this day and age of Internet entrepreneurship, I am surprised people still advise new startups to spend time writing business plans. If you are a beginning entrepreneur agonizing over writing this monstrosity, you can stop stressing. Here's why.

The Real World Moves Faster Than Your Plan 

Startups change often as they attempt to gain a foothold in the market. A business plan you spent weeks perfecting becomes obsolete within a month or so. After years of being an entrepreneur, I decided to write a businesses plan in order to get funding from sources who required it. Each time I looked at the plan, it was far different than current reality. The offerings, target markets and pricing had changed. Each review sparked a rewrite, which stole time away from revenue generating activities.

No One Believes Your Projections 

The projections you poor so much time into are useless because no one believes them. If you are honest, you do not believe them either. I had the help of a hedge fund manager from Wall Street with a number of connections in the VC universe. In his experience with entrepreneurs and VCs, he learned the dirty truth about projections-- accurately projecting beyond a year is impossible and even the first year is iffy. For this reason, no one takes them seriously.

It's the Planning, not the Plan 

This is not to say you should not plan, for despite my misgivings, I learned an important lesson. The planning is far more valuable than the plan itself. Planning forces you to consider issues you may otherwise overlook. For example, certain assumptions I made about the market made little sense, forcing me to rethink the marketing strategy.

Over the next several weeks, I spent the majority of my time on the marketing plan at the insistence of the hedge fund manager. The result was a well thought out marketing strategy, one that I could act on immediately. But he cooled my heels and told me to finish the rest of the business plan--the mechanics of the document. The goal was a complete business plan to satisfy potential investors, not a marketing strategy to act on now.

I could not help thinking the whole exercise was kind of stupid. Writing a plan no one would read with projections no one would believe. Turns out my instincts were spot on. More on this in next week's follow up post.

Create a Marketing Plan Instead 

Put your energy into a marketing plan that answers the following questions at a minimum.

1. Who is your target market? Avoid the "1% dream." This is when people say:

"If I could only get 1% of (fill in the blank)..."

This is wishful thinking, not planning. Define your niche with as much detail as possible. For example, married women over 40 with 2 children between the ages of 8 and 12. They are executives with annual incomes in excess of $125,000 and earn slightly more than their husbands.

2. How do you reach them? Define the most effective means of finding them and getting their attention. This could include social media, attending events and places they frequent, snail mail, local radio, etc.

3. What value do you bring to them? How will your product improve their lives? Think about their needs, not your own. The easiest way to find out is to ask them for input. You may find you are attempting to solve a problem that does not exist. Or you may get insight on how to sell them a more relevant product or service. With this information in hand, you can get to the business of building a business, not a business plan.

$125,000 Raised...Without a Business Plan 

Here is the irony of it all. I did not raise a dime with the business plan, nor did it help my business in any significant way. However, I did raise $125,000 without a business plan. In next week's follow up post, I will explain exactly how I accomplished this. I will also make some of the documentation available for download.

In the meantime, if someone insists you spend your days preparing a business plan, politely smile and thank them for their suggestion. Then, get to work on your marketing plan and building revenues.

Side note: After I published this article, I did a search for relevant videos to include on my Facebook fan page and came across this 2010 piece on Entrepreneur.com with the same title. Here is the best line from their post:

"Great business plans may earn you an A in business school, but in real life you only get A's for achievement. So stop dotting your i's and crossing your t's, and go out there and slay something."

Godspeed and I look forward to seeing you in The Players Lounge.

Now get out there and slay something!

See Also...

Top 3 Funding Sources for New Entrepreneurs
Why New Entrepreneurs Should Not Pursue Bank Loans

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