(Title idea stolen for @cimota blog)
I was attracted to a post over the weekend from Steve Blank. In particular, this caught my eye … “business plans are a poor planning and execution tool for startups”.
I agree 100%.
I also agree with much of Steve’s reasoning, but not all. Without being repetitive, I thought I’d summarize Steve’s points, and add my own opinion.
Steve states that Business Plans (my caps added for reasons that will become obvious below) are for big, mature companies and not for startups.
Yes! Yes! Yes!
My first introduction to Business Plans was in the late 70′s, working for an international mainframe manufacturer, and rolling out a new product line in EMEA. This was a detailed product launch plan, that – mostly because it was in vogue – we called a Business Plan. Well it DID have demands forecasts, pricing, manufacturing costs, gross margins, sales projections, P&L and cash flows. But it ALSO had very detailed plans for every organization in the company that needed to do anything to launch the product; the particular part numbers assigned, configuration models, BOM, shipping instructions, warranty, support tools, contract additions, sales training, collateral, and commission plans – the whole enchilada. It was an “everything you need to do to launch a product” and if you were a product line manager – as I was then – it WAS your business.
Another quote from Steve’s blog – “A business plan is the execution document that large companies write when planning product-line extensions where customer, market and product features are known. The plan describes the execution strategy …”
Yes! Yes!
And my final quote – “In the early days of venture capital, investors and entrepreneurs were familiar with the format of business plans from large companies and adopted it for startups. Without much thought it has been used ever since.”
Yes!
It is urban myth that those with no real experience of starting a startup blindly promulgate as the basis for entrepreneurship and a key element of success.
This is where I digress from Steve’s reasoning, and rather than step through his, I’ll lay down my opinion.
First, without a business plan your idea will (most likely) fail. I don’t mean a Business Plan, I mean a plan for you business … it’s not an execution document. It a plan of what your business will do and why it will do that , not how it will do it – or at least not to the actual execution detail. It can be written in 10 pages with approximately 2,000 words. Its goal is to describe the strategy, not the tactics.
Second, its goal is to get investment – OK that’s a simplification, but serves the points that follow. What does an investor look for? A hot product, in a big market, with a team that can deliver, and where they can make money. If you can’t describe that in 2,000 or less then you don’t understand your business (paraphrasing Einstein).
Third. Don’t sweat the small stuff. I’ve seen Business Plans from companies that didn’t have a product yet, but knew how much they were going to spend next year on office supplies! That’s called “majoring in minors”. And you’d probably be surprised by what I consider “small stuff”. As a rule of thumb, I’m not interested in seeing any expense item that is less than 10% of revenue.
Finally. You DO need an execution document. It’s called an Operations Plan. It will describe very facet of your business operations; the product development plan, the support plan, the maintenance, the operations plan, the manufacturing plan, the marketing plan, the sales plan, the HR plan. It’s something you review every month – if you’re a startup. It’s how your startup operates, but it’s not a Business Plan.
Valuable info. Lucky me I found your site by accident, I bookmarked it.
We really dig what you write about here. I try and read your blog every day so keep up the good writing!
Great advice David.
BTW I came across this site http://www.planhq.com/ last year and always meant to go back to see how it has changed. Some nice ideas/concepts about collaborative operational business planning. Don’t think it’s for me as we have too many online systems at the moment for our bread-and-butter work and adding/learning a new one just feels like a struggle. But it might interest others who read this.
Oh, and I also liked this online cashflow tool http://pulseapp.com/ for those who want to cut straight to the basics!
David,
Good post, especially liked your emphasis on a plan for the business rather than a Business Plan, nicely summarised as “Its goal is to describe the strategy, not the tactics.”
This did remind me of how offer the words strategy and tactics are used and (almost as often) misunderstood.
They are military terms and when defined its very easy to see how they differ and how they apply to the business world:
“Strategy is the planning, coordination, and general direction of military operations to meet overall political and military objectives. Tactics implement strategy by short-term decisions on the movement of troops and employment of weapons on the field of battle.”
Also, if you’re an 80s-Wall-Street-The-Movie-type-a-guy you’ll like the Sun Tzu quote:
“Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.”
I’m a big Sun Tzu fan!!
Stevie, David I’ll leave the military philosophising to you guys but the post subject does resonate having recently had to review a couple of pages of business plan warranties in an investment agreement for a company which was essentially pre-revenue but past POC stage.
My take on this topic is yes, you need a plan (call it what you will) so that investors have a basic understanding of what the company needs in terms of working capital but also sets out the anticipated outcomes that spending that money ought to deliver so the investor has a reference point to actually measure the end result against.
I am unaware of any start up venture business plan (in the traditional sense) delivering what it anticipated being able to IN THE MANNER predicted and for this reason I tend to look at investor warranties on business plans in this area as pretty pointless. If an investor is relying on a founder to warrant the basis upon which a business plan has been prepared or even worse the hoped for outcome, then I’d suggest that that investor should ask himself if he is satisfying the “only invest in what you know” golden rule!
Scott, I’d go one step further. An investor that is looking for warranties on a business plan clearly has never been inside or close to a startup, and probably shouldn’t be investing in that sort of venture – with the risk associated. An entrepreneur that is willing to sign warranties that they will “execute their plan” has probably never started a business before. The successful startups are those that are flexible and nimble enough to adapt to changing situations AND thru the things they learn. Until you actually GO TO MARKET, everything is just a guess (maybe a good guess, but still a guess).
That’s exactly why I encourage people to think of keeping the BP skinny (with the what’s not the how’s) and immediately switching to operational mode, the moment funding is received. Its traction in the market that demonstrats progress. not planning.
Great advice David.
BTW I came across this site http://www.planhq.com/ last year and always meant to go back to see how it has changed. Some nice ideas/concepts about collaborative operational business planning. Don’t think it’s for me as we have too many online systems at the moment for our bread-and-butter work and adding/learning a new one just feels like a struggle. But it might interest others who read this.
Oh, and I also liked this online cashflow tool http://pulseapp.com/ for those who want to cut straight to the basics!
love the site bookmark it for later
@Amy that’s like something I would have said, oh wait, I did say that! WTF?
Great blog on this very topic:
No Plan Survives First Contact With Customers – Business Plans versus Business Models – Steve Blank.
* There are no facts inside your building, so get outside and get some.
* Draw and test the Business Model first, the Business Plan then follows.
* Few if any investors read your business plan to see if they’re interested in your business
* They’re a lot more interested in what you learned
http://steveblank.com/2010/04/08/no-plan-survives-first-contact-with-customers-%E2%80%93-business-plans-versus-business-models/